ND&S Weekly Update – 1.28.19 – “Come Together – The Beatles Song”
January 28, 2019
Last week, the markets were very close to extending their four-week winning streak that saw them gain 11%. For the week, the Standard & Poor’s 500 declined 0.21%, while the Dow (DJIA) and the Nasdaq rose a meager 0.12% and 0.11%, respectively. International equities fared well with developed moving 0.48% and emerging 1.42%.
As leaders gathered at the World Economic Forum last week, investors contemplated and digested better-than-expected US corporate earnings and indications of slower global economic growth. China reported an estimated 6.6% GDP, its slowest annual pace since 1990. Commerce Secretary Wilbur Ross stated that the US is “miles and miles away from a trade deal with China.” President Trump has promised to increase the existing 10% tariff on over $200 billion in Chinese imports to 25%, if a deal is not reached. Monty Hall: “Let’s Make A Deal.”
Fortunately, an interim reprieve to end the government shutdown after 34 days was agreed to on Friday. However, lawmakers have until February 15th to agree to an extended deal. Economic advisors are warning that the shut-down could lead to near zero growth in the first quarter. The European Central Bank backed off from increasing interest rates, citing the “cooling off” of the European economy, as countries including Germany have lost some strength. U.S. fixed income markets were rather tame with the yield of the 10 year Treasury staying about the same at 2.77%. The government shutdown has caused delays in the reporting of economic data somewhat deferring bond investors’ trades.
Three-fourths of the ninety seven S&P 500 companies reporting have reported higher quarterly profit estimates. There’s nothing like better corporate earnings to soothe investors’ worries. Earnings will kick into high gear this week with 153 S&P 500 companies reporting quarterly results.
We desperately need improved negotiations to resolve the US-China trade conflict, the battle of Brexit and the US government shutdown. This week will be eventful with the Federal Reserve’s first policy meeting of the year, US jobs data, more trade talks and Senate meetings as well as impactful corporate reports including Apple, Microsoft, Facebook and Amazon.
“As a player, it says everything about you if you made the Hall of Fame. But then again, boy….there’s something about winning a Super Bowl” – Terry Bradshaw
GO PATS!
Markets Push Higher as Shutdown Continues (1.22.19)
January 22, 2019
Markets pushed higher for the week as sentiment continued to shift away from fear and pessimism that have dominated markets for the past few months. Equities have now retraced 50% of the peak-to-trough decline that began in September 2018. A definitively more dovish Fed, positive U.S./China resolution, and continuation of US earnings growth (albeit lower than 2018 …) are the likely catalysts to keep the rally alive.
For the week, the DJIA increased 3.0% while the broader-based S&P 500 was up 2.9%. Smaller US companies representing the Russell 2000 closed 2.4% higher on the week. International equities also finished the week in the green with the MSCI EAFE and MSCI EM up 1.1% and 1.7%, respectively. 10yr US Treasury yields ended the week higher at a yield of 2.79%. Oil (WTI) continued to press higher closing at $53.80 a barrel despite record production levels in the U.S.
Company earnings reports and guidance will likely drive the market in the short-term as the reporting of economic data has been disrupted by the partial US government shutdown. Fourth-quarter earnings season kicked off last week with mostly positive reports from a number of Wall Street money center banks. This week, 65 companies in the S&P 500 are scheduled to report. Fourth-quarter earnings are expected to increase 10.3% compared with the same quarter a year ago. Analysts are expecting revenues to rise 5.75% for the quarter, according to FactSet Research.
It is too soon to determine the impact of the longest partial government shutdown in history. We do know, however, that a shutdown will be a negative drag on economic growth. A resolution this week will certainly be welcomed. The impact of the shutdown combined with earnings season will keep market volatility elevated.
“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you have to keep moving forward.” – Dr. Martin Luther King Jr.
ND&S Weekly Commentary (1.14.19) – A Solid Rebound
January 14, 2019
Markets rebounded solidly last week as positive comments from the Fed, strong economic data and increased optimism surrounding a trade deal with China buoyed investors’ spirits.
For the week, the DJIA gained 2.4% while the S&P 500 tacked-on 2.6%. The volatile NASDAQ jumped 3.5%. Developed international markets were also higher as the MSCI EAFE index increased 2.9% for the week. Emerging markets rebounded nicely as the MSCI EM index leapt 3.8%. Small company stocks, represented by the Russell 2000, surged 4.8% last week after being beaten-down last year. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower (-0.04%) in a quiet week for bonds. As a result, the 10 YR US Treasury closed at a yield of 2.71% (up 4 bps from the previous week’s closing yield of 2.67%). Gold prices closed at $1,287.10/oz – up 0.34% on the week. Oil prices continued their rebound as oil closed at $51.59 – higher by 7.57% on the week.
The week ahead will bring a host of economic reports – housing starts and existing home sales, retail sales, industrial production and producer prices. We expect most economic reports to be fairly positive, but investors will be focusing on the Brexit vote on Tuesday. Fourth-quarter earnings will kick off this week with bank earnings in the headlines as Citigroup reports on Monday followed by other money center banks later in the week. We expect a fair amount of volatility around company earnings over the next few weeks as the impact of trade tariffs (real and potential) will likely be felt. Of course, any developments regarding the lingering government shutdown and the trade spat with China will provide lots of drama this week.
The recent rebound in the markets is certainly a welcome start to the new year. Is the rebound simply reflexive or is it sustainable? We expect a decent year in the markets for 2019 with no signs of a recession. The year-end sell-off resulted in valuations that are decently lower than their 25-year averages. Inflation seems to be mild while employment is strong and consumer confidence is healthy … a good combination for a moderate rebound in 2019. The road ahead, however, will be a bit bumpy (as usual) … so buckle-up.
Go Pats!
“Talent sets the floor, character sets the ceiling.” – Bill Belichick
ND&S Weekly Commentary 1/7/19 – Strong Jobs Report Eases Growth Concerns
January 7, 2019
Equity markets continued their volatile ways last week. On Thursday, the DJIA fell over 600 points on news from Apple that 4th quarter iPhone sales in China were below estimates. This marked the first negative sales revision for Apple in 15 years. Then on Friday, the DJIA soared over 700 points, recovering all of the previous day’s decline, as a blowout jobs report and comments from Fed Chairman Jerome Powell that the FOMC would be patient on future rate increases. Friday’s advance pushed equities into positive territory for the week with the DJIA, S&P 500 and NASDAQ up 1.7%, 1.9% and 2.8%, respectively. International equities were also positive with the MSCI EAFE increasing 1.4% and the MSCI EM advancing a modest 0.3% on the week.
The jobs report on Friday came in well above expectations with an increase of 312,000 jobs in December, with an additional 58,000 from upward revisions to prior months. Notably, the unemployment rate did rise to 3.9%, pushed up by over 400,000 workers entering the labor force last month. This moved the labor participation rate up to 63.1% from 62.9%. Perhaps, the best part of Friday’s report was that wages showed a healthy gain of 0.4% in December and are now up 3.2% from a year ago. Gains in payrolls, more workers joining the labor force and higher real wages should support additional consumer spending and bolster somewhat slower but stable economic growth in 2019.
Interest rates fell last week as the rate on the 10 year U.S. Treasury dropped from 2.72% to 2.67% further flattening the yield curve. This week, look for economic reports on ISM non-mfg. PMI, inflation and the release of FOMC minutes from last month. In addition, US-China trade talks would resume this week at the vice-ministerial level.
“Without investment there will not be growth, and without growth there will not be employment.” -Muhtar Kent
ND&S Weekly Commentary 12.31.18 – Auld Lang Syne
December 31, 2018
It was an unprecedented volatile week on Wall Street heading into 2019. While retailers were experiencing the biggest holiday sales increases in six years, investors were rattled by tumultuous trading in equity markets.
For the week, the DJIA advanced 2.8%, while the broader-based S&P 500 finished at 2.9%. The tech-heavy NASDAQ surged 4.0% and international markets were slightly weaker with the MSCI EAFE and MSCI EM up 0.5% and 0.8%, respectively. The 10yr US Treasury yield declined to 2.72% down from the previous week’s 2.79%. Investors sought safety in Treasuries as the risk-off scenario continued.
The National Association of Realtors reported that pending home sales fell 0.7% in November after declining 2.6% in October. Homebuilders and suppliers have been hit hard. Recently, mortgage rates have declined slightly which should help the housing market. US crude prices closed the week at $45.51 a barrel and have slid 11.2% for the month of December.
The partial government shutdown started a week ago Saturday closing down funding for nine cabinet-level departments and several agencies. President Trump, again at odds with Democrats, is holding the line on his demand for the border wall to be built.
The market’s decline that began in October has erased all of its 2018 gains. Several headwinds including the China and US trade conflict, the Federal Reserve tightening of monetary policy and the partial government shutdown have weighed heavily on investor minds. We expect market volatility to continue, hopefully, with less oscillation. The market needs reassurances that interest rates will remain somewhat steady, the US-China trade conflicts will de-escalate and that the government shutdown will end. While these issues are being resolved, we take solace in the strength of our economy and more than reasonable earnings expectations for 2019. The major banks begin reporting on January 18th.
Please try to avoid the media’s melodramatic coverage of financial and political instability and stay the course.
Happy New Year!
“And there’s a hand, my trusty fere!
And gie’s a hand o’ thine!
And we’ll tak a right gude-willie waught,
For auld lang syne.”
– Robert Burns
ND&S Weekly Commentary 12.24.18 – Selling Pressure Continues
December 31, 2018
Selling pressure in equity markets continued last week as less-dovish-than-expected commentary from the Fed failed to provide the spark investors were hoping. Last week, the DJIA closed down 5.1% while the broader-based S&P 500 closed lower by 7.0%. International equities weathered the week better but were still lower with the EAFE down 2.6% and EM off 1.5%. Bonds were positive for the week as yields moved lower for bonds with longer dated maturities; short-term rates moved higher as the Fed lifted the federal funds rate 25bps as expected. The 10yr US Treasury yield closed the week at 2.79%, down from 2.89% the prior week.
Just as markets become overbought when the fear of missing out sets in (remember January of this year?), the opposite can happen when markets become oversold with negative emotions and panic sets in. While in the midst of these sharp declines, it can feel like it will never end, history has shown otherwise. There is no shortage of negative headlines to point to: government shutdown, Brexit, slowing growth in China, inverted yield curve (if you can even call it that), peak earning growth, peak GDP growth, and nuttiness in Washington to name a few. We feel the market has discounted quite a bit of negative news into current prices and valuations; we have been patient but are tempted to deploy some of the cash we have built up in client accounts over the 3rd quarter. Money should begin flowing to equities as large institutions begin to rebalance for the year ahead and more buyers are drawn to these compelling prices.
We continue to wish our clients Happy Holidays and New Year.
“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy.” – John Paulson
Weekly Commentary 12.17.18 – Grinch-Like
December 17, 2018
It was a Grinch-like week. Equity markets finished in the red last week as investors fretted about ongoing trade tensions with China, slowing global growth concerns, Brexit bickering, the upcoming Fed meeting and legal problems for President Trump.
For the week, the DJIA lost 1.17% while the S&P 500 gave back 1.22%. The volatile Nasdaq declined 0.81%. Developed international markets were also weak as the MSCI EAFE index dropped 0.89% for the week. Emerging markets lost ground as well with the MSCI EM index ceding 0.95%. Small company stocks, represented by the Russell 2000, were beaten-down by 2.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher (+0.06%) in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 2.89% (up 4 bps from the previous week’s closing yield of 2.85%). Gold prices closed at $1,237/oz – down 0.79% on the week. Oil prices continued their sell-off during the week as oil closed at $51.20 – down 2.68% for the week (good for consumers and businesses, but seemingly bad for the overall psyche of the market …).
The week ahead will bring a host of economic reports – housing starts and existing home sales, durable goods, consumer sentiment, final estimate of 3Q GDP and the all-important FOMC meeting. We expect most economic reports to be fairly positive, but investors will be focusing on any comments from the Fed regarding future interest rate hikes. It is widely expected that the Fed will raise interest rates by 25 bps this week. Of course, positive developments surrounding the lingering trade spat with China should provide a much needed boost to equities around the world (don’t hold your breath …).
Volatility is here. It certainly feels like this market downturn will never end, but we all know better. 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.
Most importantly, we wish to extend to all a peaceful and enjoyable holiday season.
“Every Who Down in Whoville Liked Christmas a lot…
But the Grinch,Who lived just north of Whoville, Did NOT!
The Grinch hated Christmas! The whole Christmas season!
Now, please don’t ask why. No one quite knows the reason.”
– Dr. Suess
A Sad Week for the US
December 10, 2018
Volatility continued with major U.S. equity indices ending the week in the red. During the week, the U.S. also observed a national day of mourning marking the passing of President George H. W. Bush. The DJIA, the S&P 500 and the NASDAQ were all down more than 4% for the week. Fixed income assets provided investors a safe-haven last week (although they are still negative YTD) as rates dropped sharply for the week. The yield on the 10 year U.S. Treasury fell to 2.85% from 3.01% the week prior.
International equities also declined with developed markets off 2.25% and emerging markets down 1.3%. However, in November, $34 billion in investor funds flowed into emerging stocks and bonds after one of the worst selloffs in years. The emerging market stock index is now up 5% from its October low.
Last week, the Institute of Supply Management (ISM) reported their manufacturing and non-manufacturing producer price indexes (PMI), and both releases exceeded expectations for November. The U.S. economy added 155,000 jobs in November – below expectations of 198,000. As a result, the unemployment rate remained unchanged at 3.7%, while wage growth kept its healthy pace of 3.1% y/y. Despite seemingly positive economic releases, investors seem most concerned about trade, Brexit and monetary policy.
This week look for economic reports on inflation, retail sales and industrial production. Also, the focus will be on hints as to whether the Fed will raise interest rates next week. There have been some indications that the Fed may not raise rates in 2019 as many times as previously thought.
“We are a nation of communities … a brilliant diversity spread like stars, like a thousand points of light in a broad and peaceful sky.” – George H. W. Bush
Weekly Commentary (02/11/19) – A Mixed Bag: Will February Make Us Shiver?
February 11, 2019
Markets were mixed last week as heightened global growth concerns dominated the headlines. Fed Chairman Jerome Powell reiterated that the Fed would remain ‘patient’ … excellent news for investors.
For the week, the DJIA gained 0.32% while the S&P 500 tacked-on 0.11%. The volatile NASDAQ advanced 0.53%. Developed international markets retreated as the MSCI EAFE index dropped 1.38% for the week. Emerging markets also lost ground as the MSCI EM index declined 1.34%. Small company stocks, represented by the Russell 2000, finished 0.32% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher (+0.38%) in a quiet week for bonds. As a result, the 10 YR US Treasury closed at a yield of 2.63% (down 7 bps from the previous week’s closing yield of 2.70%). Gold prices closed at $1,313.70/oz – down 0.24% on the week. Oil prices sold off as oil closed at $52.72 – lower by 4.60% on the week.
February is off to a reasonable start, but will February make us shiver? It all depends on a few key events. The weeks ahead will be filled with uncertainty in the run-up to the important March 1 trade deadline with China that could see trade tariffs increase from 10% to 25%. Rhetoric out of the White House will likely downplay the event, but investors know that a deal with China is crucial for further gains in worldwide markets. Not to be forgotten, a potential second government shutdown still looms. Let’s hope that Congress and the president can find a reasonable path forward.
In the meantime, Newman Dignan & Sheerar, Inc. does not plan to add to risk assets in any meaningful way until the drama in Washington subsides.
“But February made me shiver
With every paper I’d deliver
Bad news on the doorstep
I couldn’t take one more step”
– Don McLean