Weekly Commentary (11/20/17) – Thanksgving …

November 20, 2017

A strange thing happened last week – the markets finished mostly lower. Yes, it does happen.

For the week, the DJIA dropped 0.19 while the S&P 500 finished lower by just 0.06% after being down last week as well (marking the first time since May that the S&P 500 finished lower two weeks in a row). Developed international markets also dropped as the MSCI EAFE index closed down 0.59% for the week. Emerging markets bucked the trend last week as the MSCI EM index finished higher by 0.72%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.24%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 5 bp from the previous week’s closing yield of 2.40%). Gold advanced $23.40 to close at $1,295.80/oz. Oil prices were essentially flat (down 19 cents) as they closed the week at $56.55/bbl. Recent events in Saudi Arabia have had little impact on prices as the real driver of higher prices lately points to a normalization of global inventories (ongoing production cuts) and reasonably steady demand.

Economic news released last week reinforced investors’ beliefs that the economy is solid. The Bureau of Labor Statistics (BLS) announced that October’s PPI advanced 0.4%, ahead of expectations of a 0.1% increase. Additionally, the BLS reported that the October CPI rose 0.1%, in-line with expectations. On Thursday, the Fed reported that industrial production rose a healthy 0.9% in October, nicely ahead of expectations for a 0.5% jump. Weekly jobless claims for the week ending November 11 failed to meet expectations, but jobless claims continued to be impacted by the slow recovery in Puerto Rico. Lastly, Friday saw that the Census Bureau report that October housing starts surged 13.7% (after three consecutive months of declines).

The holiday-shortened week ahead will see more economic releases – Leading Indicators, Existing Home Sales, Chicago Fed Activity Index, Weekly Jobless Claims, Univeristy of Michigan Sentiment, Durable Goods Orders, the Markit US Manufacturing PMI and the release of the FOMC November meeting minutes.

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. But most importantly, let’s give thanks for the many blessings in our lives.

Best wishes for a Happy Thanksgiving!

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.”Oprah Winfrey


Weekly Gains Come to End

November 13, 2017

Last week all three major U.S. equity indexes had declines with the DJIA, S&P 500 and NASDAQ falling 0.35%, 0.14% and 0.14% respectively. Investors’ concerns about the status of a U.S. tax overhaul pressured stock prices as a Senate version of the tax cut program indicated that the corporate tax cuts would not take effect until 2019. This raises concerns over earnings projections for 2018 and pressures GOP leadership further as they have failed to enact any major initiatives despite controlling majorities in both chambers. The best performing sectors last week were real estate and consumer staples.

Results for international equities were mixed as the EAFE index declined -0.40% while emerging markets rose by 0.22%.

U.S. interest rates also rose last week as a potential December rate hike by the FOMC gained attention. The 10 year U.S. Treasury rate rose to 2.40% from 2.34% the previous week.

This week look for economic reports on retail sales, industrial production and inflation readings from reports on CPI and PPI. In addition, earnings season is winding down with reports expected from HD, TGT, and CSCO to name a few.

On this Veterans Day, we thank all those who have honorably served our great nation. We are especially grateful for all those service members who never returned home as we are reminded of the inscription on the Tomb of the Unknown Soldier – “Here rests in honored glory an American soldier known but to God”


Trick or Treat

November 6, 2017

The stock market remained strong last week, as corporate earnings (EPS) growth continues to exceed analysts’ expectations. With over 81% of the S&P 500 companies having reported, average EPS is expected to surge 8.0% with revenues up 5.2%.

Last week, the DJIA and the S&P 500 rose 0.45% and 0.23% respectively. With regards to quarterly earnings, several large tech companies flexed their muscles reporting solid numbers. The tech sector finished the week up 1.8%. Another winner was the energy sector returning 1.7%, benefitting from the 3.3% increase in crude oil prices. The tech-heavy NASDAQ climbed 1.09% while small companies declined with the Russell 2000 finishing down 0.06% for the week. The international equity markets felt the effect of the increasing dollar. Developed equities (MSCI EAFE) declined 0.34% and emerging markets stocks (MSCI EM) lost 0.84%.

US Treasuries moved higher after the recent jobs report indicated a decline in average wages and less-than-expected job gains. Inflation is also below the Fed’s 2% target. The 10year Treasury yield settled at 2.34%, down from the previous week’s 2.43%.

Trump picked Jerome “Jay” Powell to replace Janet Yellen as Fed Chair at the end of her term which ends on February 3rd. Powell is seen as an experienced conservative and is not expected to change current Fed Policy. The Fed’s meeting left interest rates unchanged, citing rising economic activity despite the hurricane and fire devastations. Next month, the Fed is expected to increase short-term interest rates with three increases likely in 2018.

The House’s tax reform bill was released on Thursday and it provides sweeping changes. Corporate tax rates would be lowered from 38% to 20% while several deductions would be reduced or eliminated. We expect some additional changes as the bill moves through Congress.

We once again favor diversified portfolios among asset classes with lower duration fixed income holdings and look towards international equities to maintain outperformance.

“My sorrow, when she’s here with me, thinks these dark days of autumn rain are beautiful as days can be; she loves the bare, the withered tree; she walks the sodden pasture lane.” – Robert Frost


New Fed Chair Likely

October 30, 2017

Large Cap US equities continued their advance last week on the heels of better-than-expected company earnings and a positive GDP reading. With a little less than half of the S&P500 constituents having reported, the blended estimate of aggregate y/y earnings growth is 5.3%. The revenue projection for the quarter is 4.8%. The US economy grew at a faster-than-forecast pace of 3.0% in the third quarter, easily beating economists’ estimates of 2.5%. Hurricanes Harvey and Irma were expected to have a negative impact of growth.

For the week, the DJIA increased 0.45% while the broader-based S&P 500 climbed 0.23%. Growth oriented equities provided the boost as a number of mega-cap technology stocks reported strong earnings including AMZN, GOOG, and MFST. Small Cap US companies representing the Russel 2000 finished the week slightly down. International equities also finished the week in the red with the MSCI EAFE 0.34% lower and emerging markets down 0.84%. Yields again pushed higher with the 10YR Treasury closing at a yield of 2.42% … which is up from 2.38% the week prior. Yields should remain volatile as the nomination of the next Fed chair is expected any day.

As mentioned above, the nomination of the next Fed chair (and possibly vice chair as well) is expected any day. The nomination appears to be down to four candidates (there are some reports than current chair Janet Yellen is no longer in the running). Stanford University economist John Taylor and Former Governor and Hoover Institute Fellow Kevin Warsh are perceived to be on the more hawkish end of the spectrum and their nomination could pressure rates in the short-term; while Fed Governor Jerome Powell and current chair Janet Yellen are seen as more dovish and a continuation of current policy. None of the candidates to this point are likely to make a knee-jerk direction change to current policy but their perceived biases could increase market volatility in the short-term.

“Out of difficulties grow miracles.”Jean de la Bruyere

ND&S Weekly Commentary (10/23/2017) – Chaos, Calm & The Markets …

October 23, 2017

It is said that markets climb a wall of worry. Hurricanes, floods, fires, mass shootings and threat of nuclear war haven’t deterred investors from pushing market averages higher. As Alfred E. Neuman would say, “What, me worry?

For the week, the DJIA rose 2.04% while the S&P 500 finished higher by 0.88%. Developed international markets finished the week a bit lower as the MSCI EAFE index closed down 0.31%. Emerging markets lost ground as well with the MSCI EM index finishing lower by 0.54% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week in the negative territory (down 0.45%). As a result, the 10 YR US Treasury closed at a yield of 2.39% (up 11 bp from the previous week’s closing yield of 2.28%). Gold declined $24.10 to close at $1,277/oz. Oil prices were essentially flat as they closed the week at $51.47/bbl. Cheap oil prices continue to be a boon to businesses and consumers.

Markets got a boost last week as the Senate passed a $4 trillion budget resolution that increased the odds of tax reform (eventually …). In economic news released last week, the US Empire State Manufacturing Survey jumped to 30.2 – easily beating consensus of 20.4 and finishing at its highest level since 2014. US initial jobless claims were also better-than-expected.

The week ahead will see more earnings reports with Alphabet, Microsoft, Amazon, Exxon and others reporting. Third quarter earnings have been largely ahead of expectations so far. Several economic reports are due out this week – flash PMI composite, durable goods orders, new home sales, international trade and the first estimate of 3rd quarter GDP. Meanwhile, saber rattling out of North Korea has been fairly quiet lately … let’s hope it stays that way!

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.

Let’s make it a good week!

“There is nothing permanent except change.” – Heraclitus


Markets Continue to Advance

October 16, 2017

Last week, equity markets advanced against a backdrop of improving global growth and expectations for improving corporate earnings. The S&P 500, DJIA and the NASDAQ were up 0.17%, 0.43% and 0.24% respectively. International equities advanced the most for the week with the MSCI EAFE up 1.63% while emerging markets up 2.08%. Financial stocks declined last week 0.9% despite of earnings reports that mostly exceeded expectations but are still being pressured by lower interest rates. Health care stocks also declined 0.6% for the week as the Trump administration ended payments to insurers under the Affordable Care Act.

On the fixed income front, U.S. bond prices rose and the yield on the 10 year U.S. Treasury Note dropped from 2.37% to 2.28% for the week largely because of a lower-than-expected core CPI reading … it was unchanged at 1.7% y/y. Still, most economists expect the FOMC to increase short term-rates at the December meeting. Futures markets are pricing an 85% probability for an increase in December.

This week look for a continuing flood of corporate earnings with 59 companies in the S&P500 reporting. In addition, there will be reports on industrial production, housing starts and existing home sales.

“Greatness is a road leading towards the unknown.”Charles de Gaulle


ND&S Weekly Market Commentary 10.09.17

October 9, 2017

Markets extended their gains last week notching a series of new records for the headline indices before retreating on Friday. Solid economic data along with hopes of a tax reform package provided equities a boost and pressured bonds further.

For the week, the DJIA moved higher by 1.70% while the broader-based S&P 500 finished up 1.25%. Smaller US companies representing the Russell 2000 were also positive for the week as it gained 1.32%. International equities were mixed with the MSCI EAFE down .06% and MSCI EM up 2.00% for the week. Bond prices were again under pressure as yields moved higher last week. The 10yr US Treasury closed the week at 2.37% which is up from 2.06% one month ago. WTI slipped last week to $49.50/barrel.

Economic data for the week was generally positive. On Monday, the ISM reported the manufacturing index continued to expand with a reading of 60.8 handily beating expectations. This marks the fastest rate of growth for American manufacturers since 2004. The nonmanufacturing reading came in at a healthy 59.8, a reading not seen since 2005. On Wednesday, we saw a better-than-expected payrolls number showing an increase in 135,000 jobs beating expectations. On Thursday, the Commerce Department reported a 1.2% m/m increase in August factory orders which was ahead of estimates (durable and non-durable goods). Finally on Friday, the Labor Department reported the economy lost 33,000 jobs in September, missing expectations of an 80k increase. The negative report was largely shrugged off by the markets as most economists viewed it as a bad reading due to the devastation caused by hurricanes Harvey and Irma. We believe the reading is not a reflection of the overall long-term trend in employment.

Earnings season will kick into gear this week with most reports coming from the financial sector. In total, 10 S&P 500 companies will be reporting which include BAC, WFC, and JPM. In addition to earnings, we will have the release of FOMC minutes and reports on inflation, consumer sentiment, and retail sales.

“Following the light of the sun, we left the Old World.” – Christopher Columbus

The Long Awaited Tax Plan

October 2, 2017

Last week, Wall Street celebrated the Trump administration’s tax plan with the prospects for lower corporate taxes and less tax on repatriating profits back to the US. Major indices closed the week at new all time highs: the DJIA gained 0.2%, the S&P 500 was up 0.7% and the NASDAQ advanced 1.1% for the week. The recent increase in the dollar sent the MSCI EAFE index down 0.3%. However, small US stocks cheered the dollar rally, with the Russell 2000 index gaining 2.8% for the week — a record high.

The month of September historically has been the worst month of the year for the stock market, yet the DJIA was up 2.1%, the S&P 1.9% and the NASDAQ 1%. For the third quarter, the NASDAQ rose 5.8%, with its fifth straight positive quarter, the DJIA surged 4.8% while the S&P gained 4%.

The Feds hawkish comments and better-than-expected GDP numbers caused Treasury yields to continue to rise with the 10yr US Treasury settling at 2.34%.

US crude oil prices rose 2% to $51.67 a barrel which is a five month high as oil stocks responded nicely to the news. New home sales fell to an eight month low in August and pending home sales came in at close to its two year low. Without question, the devastation of the hurricanes is affecting our economic outlook.

This week the Institute for Supply Management index (PMI) will be reported on Monday, vehicle sales will come Tuesday and on Friday, the labor Department will announce its September employment report.

We are pleased and yet concerned about the second longest “Bull Market” in history. The forward price to earnings (P/E) ratio for the S&P 500 is 19 times with earning estimates of $131.38, while historically the long-term average P/E ratio is closer to 15 times. In addition, a marginal decline of non-financial companies buying back their own stock could raise some alarm. These larger US companies are in pretty solid financial shape with $2.3 trillion in liquidity. We hope more will begin to spend on infrastructure expansion and accretive mergers and acquisitions.

“Love is the most important thing in the world, but baseball is pretty good, too.” –Yogi Berra


The Great Unwind

September 25, 2017

Equity markets finished modestly higher last week, as the FOMC reaffirmed it will begin the process of reducing its oversized $4.5 trillion balance sheet (see chart below). For the week, the DJIA closed higher by 0.36% while the broader-based S&P 500 increased 0.09%. The market’s advance broadened out a bit as evidenced by the Nasdaq finishing the week down 0.33%, while smaller US companies represented by the Russell 2000 increased 1.35%. Developed international equities closed the week higher by 0.70% while emerging market equities were flat. Treasury yields moved higher across the board with the 10yr Treasury closing the week at a yield of 2.26%. Oil (WTI) closed above $50.00/barrel.

The Federal Reserve’s decision following last week’s two-day meeting was widely anticipated. It will begin by rolling off $10 billion every month and will increase the cap by $10 billion a quarter until the total reaches $50b a month. The committee continues to expect more rate hikes with one later this year (Dec?) and three more in 2018. The Fed also shaved 20bps off its long-run rate projection of 3.0%. The committee cited continuing strength in the labor markets and moderate growth as deciding factors to embark on its “balance sheet normalization program”.

Fed bal

“Quick decisions are unsafe decisions” – Sophocles

Onward and Upward

September 19, 2017

The stock market registered another solid advance last week, with the S&P up 1.6% [+11.7% YTD] and the Nasdaq up 1.4% [+19.8% YTD]. This was in response to Irma’s less-than-expected damage estimates and in spite of Friday’s latest North Korea missile launch [the chances of a “kinetic response” are increasing!]. After hitting a 10-month low last week, the 10 year treasury yield rose to 2.2%.

Total August CPI increased 0.4% [consensus 0.3%], while core CPI rose 0.2% as expected.

Inflation 9.19.17

This raised the market’s expectations of a Dec FF rate increase to 58%, up from a previous 31%. The Fed will consider inflation and its outsized balance sheet [the Great Unwinding] during this week’s Tuesday-Wednesday FOMC meeting.

Finally, the Equifax hack [announced 9/7/17] has potentially exposed 143 million people to financial information theft over the summer. The federal investigation is still underway, but exposed individuals should take immediate action. Freeze your credit at each of the three credit bureaus. Begin monitoring your credit reports [experts suggest setting up a staggered report-request pattern so that every four months one of the three bureaus would provide a {free} credit report]. Consumer Reports offers additional suggestions for even better protection.

“A stitch in time saves nine”Francis Baily