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
Weekly Commentary (4/16/18) – Markets Push Higher on Easing Trade Fears
April 16, 2018
Stocks pushed nicely higher last week as fears of a trade war with China receded. President Xi made conciliatory comments alluding to a possible agreement between the United States and China. First quarter earnings kicked-off last week as most major banks reported better-than-expected earnings.
For the week, the DJIA gained 1.8% while the S&P 500 finished higher by 2.0%. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.5% for the week. Emerging markets added-on 0.7% for the week. Despite the ‘correction’ experienced in early February, the DJIA is down only 0.87% for the year-to-date period while the S&P 500 is off just 0.10% for the same period. 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 2.82% (up 5 bp from the previous week’s closing yield of 2.77%). Gold prices pushed higher by $12.90 to close at $1,344.80/oz. Oil prices advanced 8.6% last week as oil closed at $67.39/bbl (up $5.33 for the week over conflicts on the Arabian Peninsula and in Syria).
The week ahead has a number of economic releases – Retail Sales, NY/Philly Fed manufacturing surveys, Housing starts, Industrial production and Jobless claims. First-quarter earnings reports will continue as we expect earnings to be relatively positive versus expectations … quarterly earnings are expected to grow roughly 18% year-over-year. 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.
“Politics is such a torment that I advise everyone I love not to mix with it.” – Thomas Jefferson
Weekly Market Commentary (4.9.17) – Trade Spat
April 9, 2018
Stocks remained volatile last week as rhetoric between US and Chinese officials increased over trade and tariffs. After China retaliated with $50 billion of tariffs on American imports (mostly in the agricultural space), President Trump instructed his trade officials to consider $100 billion of additional tariffs. In positive trade news, it appears the US, Canada, and Mexico are close to agreeing on a revamp of NAFTA with hopes of a preliminary deal expected as soon as this week. Although nothing is certain, the increasing threats have increased market volatility in the short-term.
For the week, the DJIA declined 0.67% while the broader-based S&P 500 declined 1.35%. The Russell 2000 declined 1.04% as smaller US companies should be a little more immune to trade spats due to more domestic focus. International equities were mixed for the week with the MSCI EAFE up 0.50% and MSCI EM off 0.73%. Rates drifted slightly higher last week with the 10yr Treasury closing at a yield of 2.77%, up from 2.74% the week prior. Gold rallied on Friday to finish the week flat while oil declined to $62.06 a barrel.
We expect the global economic expansion to continue and are likely in the midst of a late-cycle correction for the market. Despite the recent trade spat, the underlying economy seems healthy as evidence from last week’s strong jobs report and ISM and Markit’s manufacturing PMI readings which showed the sector is continuing to expand. We don’t anticipate the recent trade spat to break into a global trade war. However, volatility will likely continue as earnings season will kick off this week with 7 S&P 500 companies reporting. We suggest investors stick close to policy targets and rebalancing where necessary.
“For every complex problem there is an answer that is clear, simple, and wrong.” – H.L. Mencken
NDS Weekly Commentary (4.2.18) – Volatility Continues
April 2, 2018
Markets rallied last week, but not enough to produce positive returns for the 1st quarter. Markets had a volatile week, rallying big on Monday only to sell off during the middle of the week, before bouncing back on Thursday. For the week, the S&P 500 and the DJIA were up 2.05% and 2.42%, respectively. The Russell 2000, representative of smaller US companies, rose 1.56%. International equities were mixed with developed international increasing 1.08% and emerging market stocks declining slightly by 0.01%. Fixed income had positive returns for the week as the rate on the 10 year U.S. Treasury dropped from 2.82% to 2.74% … this despite economic growth being revised last week to 2.9% in the 4Q18, up from a 2.5% reported last month. Year-to-date, the U.S. fixed income aggregate index finished the 1st quarter down 1.46% as yields have moved higher across the board … the yield on the 10yr Treasury started the year at 2.40%.
Last weeks rally was not enough to overcome the correction earlier in the quarter. Volatility remains elevated with the VIX hovering around 22.5 on Thursday. Over the past 3 months, the S&P 500 experienced 6 trading days of +/- 2% moves as opposed to 2017, where we had no such moves. The S&P 500 was down 0.8% for the 1st quarter (first negative quarter since 2015) as investors dealt with trade tensions, higher interest rates and firming inflation. Developed international equities were also down 1.4% for the quarter. The one bright spot was emerging markets with a 1.5% return. We do expect increased volatility to continue in 2018, and the best way to manage the bumps is with a well-diversified portfolio.
“Success is never final, failure is never fatal. It’s courage that counts.” – John Wooden
ND&S Weekly Commentary (3/26/18) – Final Four
March 26, 2018
March madness continued last week as US equities fell 6%, their worst week since January 2016. Investors feared the Trump administration’s tariffs would escalate into a global trade war. On Friday, President Trump “reluctantly” signed a $1.3 trillion (yes trillion) spending bill to fund the government through September.
For the week, the S&P 500 fell 6% and the tech-heavy NASDAQ declined 6.5%. Facebook’s issues with handling user data drove its stock price down 14% and Twitter, Apple, and Google were all down over 7%. Healthcare, Financials, and Technology were the sectors that drove most of the declines for the week. Global markets were not immune as President Trump’s $60 billion tariffs on Chinese imports made headline news. The MSCI EM declined over 3% and developed international markets (MSCI EAFE) were down 1.4%.
As expected, the Federal Reserve raised its benchmark federal funds rate 0.25 percentage points to a range of 1.50% to 1.75%. The Fed’s comments and voting were rather hawkish with respect to US economic growth and inflation as they suggested the possibility of (up from two) three rate hikes in 2019. This is likely a reflection of the stronger economic outlook they are forecasting. The 10Yr Treasury closed at a yield of 2.826%, slightly lower than the previous week.
Saudi crown prince Mohammed bin Salman paid a visit to the White House last week. They discussed many things including escalating tensions in the Middle East between itself and Iran. The Kingdom would like to see more collaboration on extending production cuts between OPEC and non-OPEC countries into 2019. Ironically, this comes at a time that state-owned Saudi Aramco is seeking a public listing. Oil (Brent) gained 2.2% to $70.45 a barrel as a result of declining global supply.
The US markets will be closed on Friday in observance of the Good Friday holiday. Consumer confidence will be reported on Tuesday and pending home sales on Wednesday. Also Wednesday, there will be the third and final estimate for 4Q17 GDP (2.7% expected).
Although the market downturn and volatility is unsettling, the US stock market is up 34% over the past two years and has advanced 373% since bull market started (crossing 9 years earlier this month). Our advice is to not get overly emotional especially over headline news and stay the course of global diversification and holding quality assets.
Happy Easter and Passover!
“Do not abandon yourselves to despair. We are the Easter people and hallelujah is our song.”
-Pope John Paul II
Weekly Market Commentary(3/19/18) – March Madness
March 19, 2018
Markets remained volatile last week with US equity markets ultimately finishing the week in the red. For the week, the DJIA closed lower by 1.51% while the broader-based S&P 500 finished down 1.20%. International markets finished the week in the green with the MSCI EAFE up 0.22% and MSCI EM up 0.52%. Yields ended the week lower with the 10yr US Treasury closing at 2.85%, down from 2.90% the week prior. Short-term treasury yields, however, continue to push higher with the anticipation of additional FOMC hikes in 2018. The FOMC March meeting will conclude Wednesday with another 25bps hike in the Federal Funds rate likely. Oil ended the week at $62.35 a barrel.
On the economic front, CPI/PPI releases showed inflation of 2.2%/2.8% year over year. CPI (Consumer Price Index) is reported from the consumer’s side while PPI (Producer Price Index) comes from the provider of the services or goods. Both reports were roughly in-line with estimates showing a healthy economy. Housing starts came in below expectations in February. Most of this is probably attributed to a lack of supply available from a tight housing market. Permits are up 6.5% from a year ago which should forecast more supply hitting the market in the near-future.
A day doesn’t pass without drama being reported out of Washington. Last week’s headlines were dominated by changes once again in the West Wing. Lawrence Kudlow, former Wall Street economist, was named director of the National Economic Council. He is a long-time free-trade advocate and is likely to be a moderating voice against some of the president’s protective instincts. Also this week, Secretary of State Rex Tillerson was replaced with CIA Director Mike Pompeo. The move caught the attention of many publications because of the manor in which the change was made. The President and his Chief of Staff John Kelly have settled on some type of truce, leaving him in his current position when it looked like he might depart as well. Ultimately, markets will continue to disregard the Washington drama if earnings and the economy continue to chug along.
The year of the upsets – according to the tens of millions of men’s NCAA Tournament brackets submitted online, none survived the opening round. For the first time in history, a 1-seed was upset in the first round with 16thseeded University of Maryland-Baltimore County beating 1st seeded University of Virginia on Friday.
“It’s never an upset if the so-called underdog has all along considered itself the better team.” – Woody Hayes
NDS Weekly Commentary(3/12/18) – Markets Push Higher … Wage Growth Slows
March 12, 2018
Stocks pushed nicely higher last week as the Labor Department reported that the economy added 313,000 jobs during the month of February (well ahead of estimates of 200,000). Unemployment remained unchanged at 4.1% for the fifth straight month. The report eased investors’ concerns that inflation was accelerating too quickly as year-over-year wage growth in February was 2.6% (less than January’s rate of 2.9%). Also tempering investors’ concerns was the fact that steel and aluminum tariffs imposed by the government were not as restrictive as originally thought (Canada and Mexico are excluded, for now). The synchronized global recovery continues.
For the week, the DJIA gained 3.34% while the S&P 500 finished higher by 3.59%. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.88% for the week. Emerging markets added-on 2.18% for the week. Despite the ‘correction’ experienced in early February, the DJIA is up 3.0% for the year-to-date period while the S&P 500 is higher by 4.6% for the same period. 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 2.90% (up 4 bp from the previous week’s closing yield of 2.86%). Gold prices inched higher by $1.30 to close at $1,322.40/oz. Oil prices were relatively flat last week as oil closed at $62.05/bbl.
The week ahead has a number of economic releases – CPI/PPI, Retail Sales, NY/Philly Fed manufacturing surveys, Import prices, Housing starts, Industrial production and Preliminary Feb. consumer sentiment. Fourth-quarter earnings reports will continue as we expect earnings to be relatively positive versus expectations. Friday could prove to be a volatile day as ‘quadruple witching’ takes place where market index futures contracts, market index options contracts, stock options contracts and stock futures contracts all expire. Quadruple witching typically results in increased volatility. Fortunately this only happens 4 times per year – on the third Friday of March, June, September and December.
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.
Don’t forget to watch March Madness … a nice diversion from the day-to-day noise of the markets and headline news!
“The only difference between a good shot and bad shot is if it goes in or not.” – Charles Barkley
Trade War Concerns
March 5, 2018
Market volatility continued again last week as Fed Chairman Jerome Powell addressed Congress making his first public comments since taking office. His remarks affirmed his commitment to gradually increasing rates while his optimistic view of the economy raised concerns that the FOMC might increase rates four times in 2018(expectations are for three rate hikes this year). In addition, President Trump’s pledge to impose tariffs on foreign steel and aluminum increased concerns by investors that a trade war could negatively impact global growth. This threat could pressure stocks in the near-term, but we feel the global economic expansion remains intact.
The S&P 500 and the DJIA declined 1.98% and 2.97% respectively. Internationally, the MSCI EAFE index was off 2.86% and emerging markets were down 2.80% as several European countries threatened retaliatory tariffs. Rates on the 10 year U.S. Treasury declined slightly from 2.88% to 2.86%. Oil moved lower for the week closing at $61.24 a barrel.
Economic news for the week was mixed – housing sales in January slowed to 593k missing estimates; durable goods declined 3.7%m/m missing estimates of a 2.0% decline; 4Q GDP was revised down to +2.5% from its preliminary estimate of 2.6%; ISM mfg. PMI which measures the manufacturing environment had a reading of 60.8 surpassing estimates. This week look for reports on Friday on February job growth and wage growth which could strengthen the Fed’s resolve in raising rates.
“No nation was ever ruined by trade.” – Benjamin Franklin
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