The Pause that Refreshes

November 30, 2015

The stock market was mostly flat on lower volume during the Thanksgiving-shortened week. The S&P 500 was flat for the week while the Nasdaq advanced by 0.4%. The raft of economic data releases was mostly greeted with a shrug, although crude oil declines are no longer automatically dragging down energy stocks [the sector is already down 10% to 25% YTD]. Overseas, China’s Shanghai Composite dove 5.5% Friday as the stock brokerage probe widened [in addition to ongoing weakness in industrial profits].

This week contains a plethora of events which will set the stage for the rest of the year, and probably beyond. Yellen’s speeches on Wed and Thursday, the November jobs report on Friday all precede the 12/16 FOMC meeting. In addition, the ECB will hold its final meeting of the year [further accommodation is likely]. Finally, OPEC will be meeting at the end of the week [production is expected to remain unchanged].

The IMF yuan approval as a component in the IMF’s Special Drawing Rights [SDRs] {along with the Dollar, Euro, Yen and Pound Sterling} is a step closer to the yuan becoming the world’s next primary reserve currency [the Pound dominated the 19th century, the Dollar was preeminent during the 20th century, and if economic irresponsibility continues to fester in Washington’s beltway, yuan primacy may rule during the 21st]. The following highlights some of the milestones in China’s long and arduous path to international economic respectability:


“We are made wise not by the recollection of our past, but the responsibility for our future.”
George Bernard Shaw

Earnings Recession?

November 23, 2015

Equity prices rebounded with the S&P 500 up 3.34%, MSCI EAFE advancing 2.52%, and the MSCI EM increasing 2.73% for the week. The DJIA was flat while growth stocks continued to outperform value (energy drag).

Despite the holiday shortened trading week, there will be reports on existing and new home sales as well as the 2nd revision to 3rd quarter GDP, which should show an increase to 2.1% from the initial report of 1.5%

With 93% of companies having reported earnings for the 3rd quarter, results are on track to show a decline of 1.8% from a year ago. For the year, S&P 500 earnings are expected to decline 0.3%, primarily due to the energy sector which is forecasted to see earnings decline 58% this year. Corporate profits are on pace for their worst year since the financial crisis. The good news is that next year earnings are expected to increase 8.2%.

Happy Thanksgiving!

“Gratitude can transform common days into Thanksgiving, turn routine jobs into joy, and change ordinary opportunities into blessings.” – William Arthur Ward

Weekly Roundup … Nous Sommes Paris

November 16, 2015

Markets finished broadly lower last week, breaking a streak of six straight weekly advances. For the week, the Dow Jones Industrial Average finished at 17,245 to close down 3.71%. The broader-based S&P 500 closed at 2,023 for a loss of 3.63% for the week. The Nasdaq Composite closed the week at 4,928 as it shed 4.26%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.28% (down from a close of 2.33% the prior week) as bonds gained on equity market uncertainty.

We are skipping our usual review of economic and market conditions out of respect for the people of France who have suffered a massive loss. Our hearts and prayers go out to the people of France, and we stand in solidarity with them and the civilized world.

Truly, we say – Nous Sommes Paris.

Keeping Our Perspective

November 9, 2015

Weekly economic numbers ebb and flow, but has anything really changed? The “blockbuster report” on Friday was the jobs increase (271,000 in October) and average hourly income (up 2.5% from a year earlier). The immediate Wall Street reaction – the Fed will raise the Fed Funds rate in December. Our reaction has been that this is not critical and should not limit the equity markets. However, the stock market was up 6-7% in October despite lackluster earnings, making the balance of the year somewhat less exciting.

The positive force in our economy is the improvement in jobs, with the unemployment rate dropping to a recent low of 5.0%. The U-6 rate, which measures underemployment more broadly, fell to 9.8%, a seven-year low. Yet thus far, with the exception of housing and autos, the consumer has been slow to increase overall spending.

Conclusion? Don’t be excited by weekly reports. The U.S. economy is growing slowly on the order of 1-2%. Do you feel confident about your asset allocation, your sector weightings and the individual holdings? The ebb and flow of weekly and monthly numbers should not overly influence your overall investment strategy. The solution as always is to focus on what you hold in a portfolio.

“Progress is man’s ability to complicate simplicity.”  –  Thor Heyerdahl

Weekly Review

November 2, 2015

US equity markets finished a volatile trading week to finish slightly higher marking the 5th consecutive week the DJIA and S&P 500 has done so. For the week, the S&P 500 closed at 2079 for a gain of 0.22% while the DJIA closed at 17664 for a gain of 0.14%. International markets were negative for the week with the MSCI EAFE down -0.30% while the MSCI EM was off -2.38%. Treasury yields were higher across the board as the FOMC stood pat on rates for now. The Fed officials indicated they would still consider a possible rate increase at its December meeting.

Third-quarter earnings continued this week and were relatively strong. Some high-profile earnings reports were perhaps overshadowed by M&A talks. Major deals between Walgreens and Rite Aid, Allergan and Pfizer, and Starwood and Hyatt received most of the headline attention. Economic data was rather disappointing as US GDP growth slowed to 1.5% annual rate in the third quarter, US consumer confidence fell to 97.6 in October (from 102.6), and US durable goods orders fell a seasonally adjusted 1.2% in September.

This week, 19.6% of the S&P 500 companies will be reporting earnings. We expect volatility to continue as we are in the middle of earnings season and FOMC noise remains.

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

The (Unexpected) Market Advance

October 26, 2015

The market continued its 4th Quarter advance, with the S&P500 rising 2.0% while the Nasdaq increased by 3%.  This fourth consecutive week increase has restored positive year-to-date price advances of 0.8% and 6.2% respectively.  In addition, dividends have added 1.7% to the S&P and ~1% to the Nasdaq so far this year.

This fourth quarter rally is facilitated by continued world-wide monetary ease [let’s hope that we don’t experience a devaluation war], low expectations for third quarter earnings reports [with plenty of upside when, and if, a company beats], and positive seasonality.

This cycle’s conundrum is a combination of unusually restrictive fiscal policy [how much GDP growth is lost to our large and growing regulatory bureaucracy?] and the Fed’s “lower for longer” monetary policy [at least we’ve gotten rid of QE].  However, the market is finally coming to realization that the Fed is pushing on a string.  At this point, starting to gradually raise rates may actually help our economy.  As this chart shows, the US consumer has long-lived liabilities [mortgages and auto loans] and short-term assets.


An increase in interest rates would start to provide a return on the ~$10 trillion on deposit [currently earning ~0%], thus increasing disposable income. This non-consensus thinking is further discussed in a recent Bloomberg article.

“Never accept ultimatums, conventional wisdom or absolutes”Christopher Reeve

Stocks Up For a Third Week

October 20, 2015

Last week, stock prices rose for the third consecutive week on generally better than expected earnings reports and increasing doubts about whether the Fed will raise interest rates this year. For the week, the DJIA rose 0.8%, the S&P 500 was up 0.9% and the NASDAQ increased 1.2%. International equity markets also advanced for the week with the MSCI EAFE up 0.29% and MSCI EM advancing 0.71%. Treasury yields have remained subdued during this Fed uncertainty.

Investors have been expecting one of the worst quarters for corporate earnings in years. Analysts’ estimates are for a decline of 5.6%, but looking at companies that have reported so far, earnings are on track for a decline of 4.6%. Unexciting economic data during the week included retail sales -0.1%, industrial production for September -0.2% from August, and the Philadelphia Fed survey was -4.5 … lowering chances for an interest rate hike this year. This week, look for reports on housing starts and existing home sales and numerous earnings announcements.

“Three Rules of Work: Out of clutter find simplicity; From discord find harmony; In the middle of difficulty lies opportunity.” – Albert Einstein

Weekly Roundup … Upside Reversal

October 12, 2015

Markets finished nicely higher last for their best weekly performance in months. For the week, the Dow Jones Industrial Average finished at 17,084 to close up 3.72%. The broader-based S&P 500 closed at 2,015 for a gain of 3.26% for the week. The Nasdaq Composite closed the week at 4,830 as it added 2.61%. International markets were broadly higher as well. The 10-year Treasury closed the week at a yield of 2.099% (up 1.989% the prior week) as bonds gave back a little ground.

Markets got a lift from the release of the Fed’s minutes from their September meeting. The minutes seemed to confirm that the Fed will move very slowly in hiking rates (lower for longer). Crude oil prices jumped 8.98% last week despite U.S. crude inventories rising more than expected. Investors are hoping for increased production cuts that should support oil prices (we’ll see about that … worldwide demand is still sluggish, and more supply will likely come online from Iran and others). Geopolitical concerns in the Middle East could also temporarily prop-up prices, but we see prices ceding ground on supply/demand issues.

On the economic front, the U.S. trade deficit ballooned 16% in August to $48.3 billion from $41.18 billion in July. Imports grew 2.2% … a decent sign for healthy U.S. consumer spending. The Department of Labor reported initial jobless claims for the week ending October 3rd, and claims came in at 263,000 (below expectations of 274,000). No doubt, the labor market continues to be fairly resilient.

Third quarter earnings will be hot and heavy this week … buckle-up! So far, earnings have been relatively strong.

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the beginning of fall.

“Far and away the best prize that life has to offer is the chance to work hard at work worth doing.”  – Theodore Roosevelt


ND&S Weekly Update

October 5, 2015


The markets experienced a seesaw week of trading to finish positive. For the week, the broader based S&P500 finished up 1.10% for the week while the DJIA closed up 1.00%. International markets also fared well as the MSCI EAFE and MSCI EM finished up 0.69% and 1.93% respectively. Interest rates moved quite a bit lower across the board as the 10yr US Treasury closed at a yield of 1.99% which was down from 2.17% the week prior.

Last week saw the conclusion on 2nd quarter earnings announcements. Results were solid for the most part with 61.5% of companies beating expectations, 36% falling short, and 2.5% reporting in-line. Economic data released last week was for the most part negative: U.S. exports of goods fell a seasonally adjusted 3.2% in August, marking a multi-year low … the Department of Labor reported initial jobless claims for the week ending September 16th were 277,000 (10,000 more than the week prior), and lastly on Friday, the Labor Department reported that the US added only 142,000 jobs compared to expectations of 200,000 in September while August’s numbers were revised downward. The employment numbers came as a surprise to many economists. Many economists now believe the Fed could now look towards a 2016 rate hike.

Last Wednesday marked the end of the 3rd quarter; the staff at ND&S is currently putting the finishing touches on our 3rd Quarter Client newsletter. Have a great week!

“Innovation distinguishes between a leader and a follower.” – Steve Jobs

Mixed Bag

September 28, 2015


Markets finished a volatile week ending down as optimism from Federal Reserve Chair Janet Yellon’s comments on Thursday vanished throughout the trading day on Friday. For the week, the S&P 500 finished at 1931 to close down 1.35%. The Dow Jones Industrial Average closed at 16315 for a loss of 0.37% for the week. The Nasdaq Composite closed the week at 4,686 as it ceded 2.91%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.17% up from 2.13% the prior week.

Economic data reports released last week were mixed. The National Association of Realtors reported Monday that sales of previously owned homes slumped 4.8% for the month of August, that being said, sales are still up 6.2% from the previous year. On Thursday, the U.S. Department of Commerce reported that new orders for durable goods fell 2.0%, less than an expected decline of 2.3%. Following an increase in July, the poor performance in August can be attributed to weaker demand due to a strong U.S. dollar and China’s economic troubles. On Friday, the commerce department reported the revised estimate for second-quarter GDP showed an expansion of 3.9%, up substantially from its initial reading of 2.3%. Digging deeper into the report, personal consumption grew 3.6% while residential construction grew 9.3% and non-residential construction grew 6.2%. The upward revision is a good sign that the domestic economy remains strong despite some challenges overseas.

As always, we urge investors to not get caught up in the day-to-day noise of the markets. Focus should remain on long-term goals and enjoying the gifts each day brings. Enjoy the week!

“If you dream it, you can do it.” – Walt Disney