Weekly Commentary (6.25.18)-Tariffs Rattle the Markets

June 25, 2018

Last week, equity markets fell as escalating tariff tensions drove investors out of stocks particularly in the industrial, agricultural and auto sectors. For the week, the DJIA was off 2.03%, its worst weekly decline since March. The S&P 500 was down 0.87% and the NASDAQ was off 0.68%. International stocks were also down with the MSCI EAFE and emerging markets off 0.95% and 2.26%, respectively. Equity investors were concerned that trade wars would hinder global growth.

In the U.S., the best performing sectors YTD have been consumer discretionary, technology and energy. Energy stocks responded positively on Friday as the boost in oil production announced by OPEC turned out to be lower than previously feared. The price of oil jumped 4.6% its biggest one-day gain since 2016 and for the week crude was up 5.8%. Several energy stocks were up 2% on the day. YTD the worst performing sectors have been utilities and consumer staples although more recently consumer staple stocks have rallied as investors have become more defensive. U.S. treasuries also rallied last week with the 10 year Treasury closing at a yield of 2.90%.

This week look for economic reports on new home sales, durable goods orders and consumer sentiment. Volatility should remain elevated as markets react to the ever changing geopolitics and talks of tariffs. We would suggest investors take the long-term view and remain diversified in-line with one’s risk parameters.

“Life is 10% what happens to you and 90% how you react to it.”Charles Swindoll


Take A Hike

June 18, 2018

It was a busy week filled with major geopolitical events, a Federal Reserve interest rate hike along with somewhat hawkish commentary, and a judicial ruling that approved one of the largest corporate takeovers on record.

As a result of all of this hoopla, the markets were mixed last week. The S&P 500 advanced 0.07%, the DJIA was -0.84%, and the tech-heavy NASDAQ finished 0.34% higher. Both developed and emerging international equity markets were down 0.48% and 1.35%, respectively. The 10-year Treasury finished at a yield of 2.93% and is down 3.4% year to date.

As expected, on Wednesday, Federal Reserve officials raised their benchmark federal funds rate by a quarter percentage, the second rate increase this year. They suggested that there could be a total of four increases for 2018, which is one more than projected at their meeting in March. Fed Chairman, Jerome Powell, stated, “Growth is strong. Labor markets are strong. Inflation is close to target.” Supporting the Fed’s projections were the Labor Department, stating that wholesale prices climbed, and the government reporting that US retail sales also surged in May. Retail sales have risen 5.9% and 5% when gas is excluded, over the past 12 months. “The benefit of tax cuts, strong employment growth and a slow acceleration in hourly wage growth, consumption growth should remain strong into the second half of the year,” says Paul Ashworth, chief US economist at Capital Economics.

On Friday, President Trump approved a 25% tariff on $50 billion worth of Chinese goods. The move prompted China to come back with a 25% tariff on $34 billion worth of U S Goods. Both tariffs are scheduled to become effective on July 6th.

There was an historical ruling allowing AT&T to acquire Time Warner for $80 billion, rejecting the Justice Department’s attempt to block the deal over antitrust concerns. Following the decision, Comcast made a $65 billion cash offer to buy most of 21st Century Fox’s assets. A media buying frenzy is bubbling, as Comcast’s offer is likely to raise the competing $52.4 stock offer from Disney. All of the deals are opening the eyes of arbitrage investors, as well as investment bankers. Overall, mergers and acquisition activity is surging, spelling a potential extension of our longest bull market.

“Congratulations, I knew the record would stand until it was broken” ~ Yogi Berra


ND&S Weekly Commentary (6/11/18) – The Summit Showdown

June 11, 2018

Markets continue their Spring advance as equities finished another week in the green. For the week, the DJIA closed higher by 2.79%, while the broader-based S&P500 closed up 1.66%. Smaller US companies closed up 1.51% for the week. International equities were also positive as the MSCI EAFE and MSCI EM closed higher by 0.96% and 0.54% respectively. Yields moved higher across the curve causing a weekly decline of 0.22% for the US Barclays Aggregate. The 10Yr US Treasury closed at a yield of 2.93%, which is up from 2.89% a week ago.

The labor market remains tight, with the US Bureau of Labor Statistics reporting for the first time in its (JOLTS) survey history, that there were more job openings than jobless workers to fill them. Wage inflation has been somewhat muted with average hourly earnings rising just 2.7% in May. This could pressure companies at the margin as they compete for workers in a full labor market … something to be mindful of as we move forward.

Looking ahead, US and North Korean leaders will meet for their highly anticipated summit in Singapore on Tuesday with the discussion centered around the denuclearization of the Korean peninsula. This will likely be a long process but it is an unprecedented meeting nevertheless. The FOMC is set to meet this week with a 2nd rate hike in 2018 the likely outcome. With a tight labor market, 2Q GDP estimates approaching 4% and market expectations for an increase, it seems likely the FOMC will raise the Federal Funds rate at the conclusion of its meeting with two additional hikes likely later this year. In addition, the week will also include reports on CPI, Retail Sales, Industrial Production, and Consumer Sentiment.

Let’s Make it a Good Week!

“You cannot shake hands with a clenched fist.”Indira Gandhi


Weekly Commentary (6/4/18) – U.S. Markets Grind Mostly Higher on Volatile Week

June 4, 2018

Stocks ended the holiday-shortened week mostly higher after a barrage of geopolitical tensions ultimately played second fiddle to continuing strong economic news. Political concerns in Italy and Spain kicked off the week as fears of a contagion effect in the Eurozone led investors to take a risk-off approach. Stocks rallied on Wednesday as European concerns abated. Thursday brought more volatility as the U.S. announced it would put in place steel and aluminum tariffs on the EU, Canada and Mexico. The week finished strong on a much better-than-expected jobs report on Friday.

For the week, the DJIA lost 0.38% while the S&P 500 finished higher by 0.54%. Developed international markets finished in the red as the MSCI EAFE index closed down 0.97% for the week. Emerging markets finished lower by 0.51%. Small-cap stocks, represented by the Russell 2000, jumped 1.32% on the week as small-cap stocks are more immune to trade wars. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up slightly. As a result, the 10 YR US Treasury closed at a yield of 2.90% (down 2.9 bps from the previous week’s closing yield of 2.93%). Gold prices pushed lower by $5.30 to close at $1,294.80/oz. Oil prices dropped 1.8% last week with oil closing at $65.81/bbl (down $1.23 for the week); prices dropped as Russia and Saudi Arabia contemplated a potential production increase (to offset Iran’s lower output due to recent sanctions).

Last week saw a number of positive economic releases – mostly better-than-expected results from the personal consumption expenditures (PCE) report, initial jobless claims for the week of May 24, ISM purchasing managers’ index (PMI), and US nonfarm payrolls for May. PCE, a measure of personal spending, jumped 0.6% month over month and nicely ahead of the 0.4% expectation. Friday’s nonfarm payroll report saw that the economy added 223,000 jobs during the month of May (ahead of an expected increase of 188,000) while unemployment ticked down to 3.8% – the lowest level since April 2000. Lastly, PMI, a measure of the economic environment for the manufacturing sector, rose 1.4% in May to 58.7% (ahead of expectations of 58.2%). Bottom line – US economic growth remains robust.

The week ahead has a few important economic releases – Durable Goods Orders, Job Openings & Trade Balance and Markit/ISM Services PMI. We expect results to be mostly in-line with expectations.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets. The weather is getting better … make an effort to get outside and smell the roses!

“Just living is not enough … one must have sunshine, freedom, and a little flower.” – Hans Christian Anderson


NDS Weekly Commentary 5.29.18 – More Volatility

May 29, 2018

U.S. stocks advanced last week in spite of falling oil prices and worries about a North Korea summit. For the week, the S&P 500, the DJIA and NASDAQ rose 0.33%, 0.18% and 1.09% respectively. International markets were weak over concerns about possible slowing growth in the Eurozone as the manufacturing PMI in Europe has fallen from a peak in December of 60.6 to 55.5 in May. In addition, concerns have risen over a possible withdrawal of Italy from the Eurozone because of recent election results. Last week, the MSCI EAFE fell 1.51% and MSCI EM were off a slight .01%. Oil prices in the U.S. dropped 4.9% for the week as Saudi Arabia and Russia indicated that they might be willing to relax production caps; as a result the energy sector was the worst performer for the week declining 4.5%. The best performing sectors were utilities and real estate.

Fixed income rallied as investors sought shelter from geopolitical tensions and FOMC minutes released last week indicated that the Fed would remain on a gradual pace of interest rate increases. The rate on the 10 year U.S. Treasury note fell from 3.06% to 2.93%.

This week look for economic reports on manufacturing PMI, pending home sales and the monthly jobs report for May which is estimated to improve to 188,000 from 164,000 in April.

Another Memorial Day has come and gone. The official start of summer is here, and the charcoals from cookouts and barbecues are still warm. But let us never forget the real meaning of Memorial Day – to honor those who have gone before us and paid the ultimate price to ensure our freedom and to secure the blessings of liberty.

“We do not know one promise these men made, one pledge they gave, one word they spoke; but we do know they summed up and perfected, by one supreme act, the highest virtues of men and citizens. For love of country they accepted death. And thus resolved all doubts, and made immortal their patriotism and their virtue.”

James Garfield
May 30, 1868 Arlington National Cemetery

ND&S Weekly Commentary (5/21/18) – Inflation on the Rise

May 21, 2018

Equities finished lower for the week following concerns over the rise in the 10 – year treasury yield moving above 3%, global trade wars, continued geopolitical risks, and fears that corporate earnings growth may have peaked. For the week, the DJIA closed lower by 0.36% while the broader-based S&P 500 closed down 0.47%. Developed international markets also slipped by 0.45% and emerging markets were off 2.25%, which have been hurt by a stronger US dollar. All of this, despite S&P 500 earnings growing over 23% and revenues are surpassing 8% in the 1st quarter. The best performing sectors last week were energy up 1.80% and materials 1.77%.

So far this year, the U S small cap stocks have outperformed with the Russell 2000 index (RUT) returning 6.4% compared to just 2.2% for the S&P 500 …RUT rose 1.3% last week. U S small companies benefit from a rising dollar which has risen almost 4% over the past month. A stronger dollar, however, has hurt international markets and foreign sales especially for large US multinational companies.

US Crude (WTI) prices rose to $71.24 a barrel and have climbed 18% since January. The Organization of the Petroleum Export Countries, Venezuela, and the non-OPEC Middle East countries have slashed production and global oil supplies are now at a three year low.

We have been concerned about rising inflation and interest rates dampening consumer spending, economic growth and corporate profits. Although the 10 – year Treasury note has surpassed the 3% level, its highest level since 2011, the market has been comforted by the recent increase in corporate earnings and revenue growth. Most investors and economists are expecting three additional Fed interest rate hikes this year. The question is will the economy and markets withstand higher rates? Investors would also like to see improved trade relations with China.

Economic reports were mixed with U S housing starts declining more than expected last month, while industrial output rose for the third consecutive month. This week will shed light on the housing sector with existing and new home being reported. The Fed will once again be in the spotlight as the minutes from its May meeting will be released Wednesday and Jerome Powell, the new Federal Reserve Chairman, is scheduled to speak on Friday.

“Any man who wants to be President is either an egomaniac or crazy.” – Dwight D. Eisenhower


Weekly Commentary (5/14/18) – Markets Push Higher on Good News

May 15, 2018

Stocks pushed nicely higher last week as economic news and corporate earnings continued to impress. Surprisingly, President Trump’s announcement that the United States would withdraw from the Iran Nuclear Accord did not deter investors from pushing stocks higher. Stock prices, oil prices and gold prices all moved higher for the week

For the week, the DJIA gained 2.5% while the S&P 500 finished higher by 2.5% as well. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.6% for the week. Emerging markets added-on 2.5% for the week as the U.S. dollar was off by just $0.01. Last week’s move higher in the Dow Jones Industrial Average moved the overall DJIA into positive territory for the year-to-date period (up 1.26%). Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.97% (up 2 bp from the previous week’s closing yield of 2.95%). Gold prices pushed higher by $6.30 to close at $1,319.30/oz. Oil prices advanced 1.4% last week as oil closed at $70.70/bbl (up $0.98 for the week as prices rose due to the U.S.’s withdrawal from the Iran Nuclear Accord and the prospect for new sanctions on oil exports).

Last week saw a number of positive economic releases – better-than-expected results from the Producer Price Index and the Consumer Price Index (easing fears of inflation), slightly weaker-than-expected jobs report on Friday (helping to tame inflations fears, again) and an 18-year low in unemployment (3.9%). Despite the often chaotic headline news, economic fundamentals remain fairly strong.

The week ahead has a number of economic releases – Retail Sales, NY/Philly Fed business outlook, Housing starts, Industrial production and Jobless claims. First-quarter earnings reports will continue this week, and we expect earnings to be mostly better-than-expected. Strong fundamentals should continue to outweigh the negative headlines that seem to never end.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.

“Real happiness is cheap enough, yet how dearly we pay for its counterfeit.” – Hosa Ballou


ND&S Weekly Commentary (5/7/18) – Unemployment Drops Below 4%

May 7, 2018

Markets declined last week despite a strong rebound on Friday after the April payroll release. For the week, the S&P 500 closed down 0.21% while the DJIA closed lower by 0.19%. Smaller US companies were the only bright spot for the week as the Russell 2000 closed higher by 0.62%. International equities also finished the week in the negative as the MSCI EAFE closed down 0.42% and MSCI EM was off 1.69%. Bonds were flat for the week with the 10yr US Treasury closing at a yield of 2.95%.

April U.S. non-farm payrolls rose a smaller-than-expected 164,000, but did have positive revisions to the March and February estimates. Additionally, the unemployment rate fell to 3.9% marking the lowest reading since December 2000. Despite what appears to be a tight labor market, average hourly earnings advanced by only 0.1%, suggesting inflation should continue to remain in check … hence the rally on Friday. At last weeks meeting, the FOMC left rates unchanged but acknowledged that inflation is getting closer to its 2% target. Current assumptions are that the Fed will likely raise rates at its June meeting with additional hikes later this year.

Earnings reports continued last week, including a strong report from Apple (AAPL). Earnings per share (EPS) beats have been a common occurrence this earnings season with more than ¾ of S&P 500 companies beating their analysts’ EPS expectations. With more than 80% of S&P500 companies having reported, the earnings growth rate is forecasted to be over 24% year-over-year, the highest since 2010.

The week ahead will have another round of company reports. In addition, there are economic releases on inflation and consumer sentiment. Let’s make it a good week!

“With the new day comes new strength and new thoughts.”Eleanor Roosevelt

Earnings Reports Look Good

April 30, 2018

Stocks mostly lost ground last week; seemingly pressured by interest rates as the 10Yr U.S. Treasury crossed the “psychological” 3.0% barrier early in the week for the first time since January 2014. For the week, the DJIA and NASDAQ lost 0.62% and 0.36% respectively while the S&P 500 was essentially flat. Internationally, equities also declined as the MSCI EAFE was down 0.21% and MSCI EM was off 1.01%. Last week, value stocks outperformed growth stocks as technology and financials lagged the index, but the worst performing sectors were industrials and materials. After briefly hitting 3.0%, the 10 year U.S. Treasury finished the week at 2.96%.

In economic news, 1st quarter U.S. GDP growth was reported at 2.3% beating estimates of 2.0%. The data showed that while consumer spending had been weak, business investment and exports picked up the slack. Manufactured durable goods orders increased 2.6% in March easily beating expectations and are now up 8.7% year-over-year. This week look for reports on pending home sales, vehicle sales and the monthly jobs report.

The tax plan voted into law for 2018 has certainly added to the corporate bottom-lines. More than half the S&P 500 companies have now posted 1st quarter earnings, and earnings are forecasted to grow 23% year-over-year. In addition, revenues are up 8.8% surpassing estimates of a 7.6% rise. The 20%+ profit growth is this cycle’s peak rate, which might explain the market’s insipid response … probably as good as it gets as analysts are projecting earnings to grow 10% in 2019. Almost 200 S&P 500 companies are expected to report in the week ahead.

“Failure will never overtake me if my determination to succeed is strong enough.”Og Mandino

NDS Weekly Commentary (4/23/18) – Earnings Season Kicks-Off

April 23, 2018

Equities pushed higher last week, boosted by commodity strength and stronger-than-expected earnings. With a little under 20% of S&P 500 companies reporting so far, Q1 earnings have for the most part come in ahead of estimates. Quarterly earnings were expected to grow roughly 18% year-over-year. 172 S&P 500 constituents are scheduled to report this week which includes GOOGL, FB, MSFT, and AMZN. We continue to expect earnings to be strong relative to expectations.

For the week, the DJIA closed higher by 0.46% while the broader-based S&P 500 moved up 0.54%. Smaller US Companies also performed well with the Russell 2000 finishing higher by 0.94%. International equities were mixed with developed (MSCI EAFE) up 0.53% and emerging markets (MSCI EM) down 0.13%. Bonds struggled for the week with the Barclays US Aggregate down 0.62% or the week. Yields rocketed higher with the 10yr US Treasury closing at a yield of 2.94%, up from 2.82% the week prior. Oil(WTI) moved higher for the week as it closed at 68.37/bbl.

Economic data was generally positive for the week – Retail sales rose 0.6% m/m, exceeding expectations; Housing starts increased 1.9% month over month in March, which was well ahead of estimates; Industrial production rose 0.5% m/m; Jobless claims for the week came in at 232,000, which continues to underscore a strong labor market. Volatility should remain elevated this week due to a number of economic releases, in addition to an onslaught of company earnings releases. Let’s make it a good week!

“Try to be like the turtle- at ease in your own shell.”Bill Copeland