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


Rates on the Rise

February 26, 2018

Markets were volatile last week as investor focus was on the latest Federal Open Market Committee minutes released on Wednesday. The 10yr US Treasury hit a multi-year high (2.94%) after the release before ending the week at a yield of 2.88%. The FOMC acknowledged the strengthening growth outlook in the US with forecasts receiving a boost from tax cuts. They also indicated that the equity market’s recent correction earlier this month is unlikely to affect future hikes this year.

For the week, the S&P 500 closed higher by 0.58%, while the DJIA increased 0.36%. International equities were mixed with developed international closing down 0.44% and emerging markets up 1.42%. Oil pushed higher last week following news that inventories declined when expectations were for an increase. WTI closed at $63.55 a barrel.

Earnings season is coming to a close as 90% of S&P 500 constituents have reported Q4. Earnings have been positive relative to estimates with over 70% beating earnings estimates. Earnings have grown 16.3% year-over-year while revenues are up 7.9%.

Let’s make it a good week!

“I didn’t lose the gold. I won the silver.” Michelle Kwan


ND&S Weekly Commentary (2/20/18) … Bounce Back

February 20, 2018

Equity markets rebounded last week posting their best weekly return since 2013 … although we point out the week prior, the market’s decline was one of the worst in several years. History shows that sharp moves in the markets are typically clustered together and why market-timing is ultimately a fruitless endeavor.

For the week, the DJIA returned 4.36% while the broader-based S&P 500 closed higher by 4.37%. International equities also marched higher with the MSCI EAFE and MSCI EM up 4.28% and 5.04%, respectively. However, with equities bouncing back so fast, we are maintaining a bit of caution as history shows markets typically make a retest of the previous lows before moving structurally higher. For long-term investors, the bull market for equities remains intact.

Yields continued their move higher last week with the 10yr US Treasury trading as high as 2.94% before settling at 2.87%. The Barclay’s Aggregate (the most common bond proxy) is down over 2% on a total return basis YTD, but we are tempted to extend our duration at these levels. Inflation expectations have been the main cause for rising rates and the brief equity selloff which started on January 26th. The release of the Consumer Price Index (CPI) showed inflation rising 0.5% in January, exceeding expectations and now ahead 2.1% on an annual basis. So-called “core” inflation, which excludes food and energy, rose 0.3% in January and is up 1.8% y/y. The rise in inflation is bittersweet, on one hand it means the economy is strong and growing, but on the other hand consumer costs are on the rise. Despite the tough environment for bonds, it is important to remember that bonds will provide safety if equity markets disappoint.

Economic news in the week ahead will be fairly light due to the holiday-shortened week. 68 companies in the S&P 500 will report earnings this week. Key releases include Walmart (WMT), Home Depot (HD), Medtronic (MDT) and a number of utility companies. The release of the January FOMC meeting minutes will be on Wednesday. Current policy calls for 3 federal funds rate increases in 2018.

“Leave nothing for tomorrow which can be done today.”Abraham Lincoln

Weekly Commentary (2/12/18) – Volatility Returns … Just a Correction

February 12, 2018

Ouch! Last week saw stocks give up their 2018 gains … and then some. Markets have now officially ‘corrected’ as the S&P 500 was down 10.2% from the all-time closing high set on January 26th to the close on February 8th. After experiencing the least volatile year on record in 2017, investors are now experiencing a return to volatility in the markets. While never enjoyable, market pullbacks and corrections are quite normal. It is worthwhile to remember that the average intra-year decline for equity markets over the past 30 years has been roughly 14%. The good news is that the economy remains quite strong and earnings growth for 2018 is fairly robust. Lastly, valuations have come down as the forward price-to-earnings multiple is now close to 16X (down from 17.8X at year-end).

For the week, the DJIA lost 5.08% while the S&P 500 finished lower by 5.10%. Developed international markets gave back even more as the MSCI EAFE index closed down 6.19% for the week. Emerging markets were down the most as the MSCI EM index sank 7.14% for the week. Despite the unwelcomed pullback last week, the DJIA and S&P 500 are down just 2% on a year-to-date basis. 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 2.83% (down 1 bp from the previous week’s closing yield of 2.84%). Gold declined $20.60 to close at $1,313.10/oz. Oil prices dropped $6.25 to close the week at $59.20/bbl.

The weeks ahead will most likely test investors’ patience as the markets attempt to find their footing. Past corrections have often led to a retest of the previous lows, and we suspect that last week’s lows will hold and markets will finish the year higher.

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.

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”Peter Lynch


Good News Bad News

February 5, 2018

The U.S. equity markets capped their worst week in roughly two years on Friday, with the S&P 500 falling 2.1% and the DJIA down 2.5%. For the week, the indexes were down 3.9% and 4.1% respectively. International equities were only slightly better for the week as the MSCI EAFE closed lower by 2.74% and MSCI EM down 3.29%. Outside of some disappointing company specific earnings, positive economic news was the cause for concern.

The monthly jobs report on Friday was better-than-expected with 200,000 new jobs created and average hourly wages for private sector workers rose 2.9% in January, notching their largest year-over-year increase since June 2009. However, the news reinforced expectations of rising inflation and a growing market consensus that the Federal Reserve may raise short term interest rates more than 3 times this year. For the week, the rate on the 10 year U.S. Treasury rose from 2.66% to 2.84%.

Generally speaking, economic news continues to be good and corporate earnings continue to rise. With nearly half of S&P 500 companies reporting fourth quarter earnings, 80% have exceeded analysts’ revenue expectations and global economic growth looks stronger than it has been in years. Although markets seem overdue for a correction, there does not seem to be any signs of a recession. We believe any pullback will be likely short-lived. Stay the Course.

“Before anything else, preparation is the key to success.”Alexander Graham Bell


Groundhog Day

January 29, 2018

Before the opening bell on Friday, the US Gross Domestic Product (GDP) was reported at 2.6%, lower than the consensus estimate of 2.9%. The resilient market didn’t even flinch. Last week, the DJIA, Standard & Poor’s 500 and the tech heavy NASDAQ all climbed over2% to new record highs. International markets, benefitting from a weaker dollar, also performed well with EAFE up 1.5% and the MSCI Emerging Market climbing 3.3%.

The stock of the week was Intel (INTC), which was up over 9% on Friday after reporting fabulous 4th quarter earnings and guidance.

Rising interest rates remain a threat to future economic growth and stock market valuations. The yield on the 10 year US Treasury closed at 2.66% on Friday, a big jump from 2.40% where it ended last year. We continue to expect slightly higher rates as the Fed tactfully raises short-term rates and unwinds its colossal balance sheet.

This week is filled with economic news and earnings announcements. President Trump’s first State of the Union address is on Tuesday and he’ll be his supercilious self pushing his infrastructure plan and America first. On Wednesday, Janet Yellen, the Fed chairperson will bid farewell and probably hint that a March rate hike is on the way.

We continue to stress portfolio diversification with prudent asset allocation and quality holdings.

Happy Super Bowl week and GO PATS!

It’s the same thing your whole life: “Clean up your room. Stand up straight. Pick up your feet. Take it like a man. Be nice to your sister. Don’t mix beer and wine, ever.” Oh yeah: “Don’t drive on the railroad track.”

Phil Connors