August 15, 2016

Global markets rose last week bolstered by a rebound in the price of oil and the ongoing sense that the Fed remains on hold.  One for the record books – for the first time since 1999, all three major stock indices in the United States closed at record highs on Thursday.  Boy, it certainly doesn’t feel like market averages are at all-time highs, but this just reinforces the theme of our last quarterly newsletter – Speculation/Crisis/Recovery.

For the week, the DJIA finished higher by 0.33% while the broader-based S&P500 eked out a gain 0.12%.  International markets were strong as the EAFE Index jumped 2.85% for the week while emerging markets posted an increase of 2.81%.  Fixed income, represented by the Barclays Aggregate, finished the week higher by 0.42%.  As a result, the 10 YR US Treasury closed at a yield of 1.51% (down 7 bps from the previous week’s closing yield of 1.58%).  Gold fell by 0.60% to close at $1,335/oz.

On Thursday, the Department of Labor reported that initial jobless claims for the week ending August 6th were 266k … another confirmation of a robust labor market.  Offsetting the labor news was yet another tempering of global oil demand by the International Energy Agency.  More sour news came on Friday as retail sales were flat for the month of July … lower than the 0.5% expected increase.  These data points along with recent comments from Fed officials reinforce the “lower for longer” mantra for both interest rates and oil prices (mostly good news for consumers).

We expect volatility to remain high as investors digest conflicting economic and political news in the week ahead.  As always, we plan to look through the day-to-day news and focus on longer-term objectives.

Congratulations to Team USA!  We are proud of our athletes competing in the Olympics in Brazil … what a great testament to the American spirit.

Enjoy the summer …

“If you don’t have confidence, you’ll always find a way not to win.”  –  Carl Lewis

Employment Picking Up

August 8, 2016

Markets continued muddling through a narrow trading range to finish slightly higher for the week. Investors patiently waited in anticipation for the Labor Department’s non-farm payroll report on Friday looking for more conviction in economic growth.  The report did not disappoint as 255,000 jobs were added in July (185,000 expected) in addition to upward revisions in previous months.  So far in 2016, the US economy has averaged 186,000 new jobs a month while showing an improving trend from May’s disappointing report that put any summer Fed Funds rate hike on hold. The markets rallied on Friday to finish the week slightly in the green with financials and technology leading the week.

For the week, the S&P 500 increased 0.49% to close at 2183. Smaller US companies representing the Russell 2000 were up 0.96% for the week.  International equities were mixed last week as the MSCI EAFE was down 1.35% while MSCI EM was up 1.44%. Yields backed up across the board as Friday’s payroll numbers likely increased the chances of a rate hike this year.  The 10yr US Treasury closed the week at a yield of 1.59, 13bps higher than the previous week’s close.

We look ahead to another week of company earnings with 24 companies in the S&P 500 reporting.  Economic data is fairly light this week, with Friday’s retails sales and the University of Michigan Consumer Sentiment Index being the only noteworthy reports.

“Action may not always bring happiness; but there is no happiness without action.” – Benjamin Disraeli

NDS Weekly Recap

August 1, 2016

Markets ebbed and flowed while digesting a week filled with company earnings, Fed guidance and the preliminary 2nd Quarter GDP estimate.  Tech earnings were the highlight of the week with Alphabet (GOOG), Facebook (FB), and Apple (APPL) reporting better-than-expected results.  The FOMC concluded their two-day meeting on Wednesday leaving benchmark interest rates unchanged at 0.25% to 0.50%. This news came as little surprise to markets, but the Fed upgraded their overall assessment of the economy leaving the door open for a hike later this year. The week ended on a sour note as 2nd Quarter GDP came in at 1.2% vs. expectations of 2.6%. Digging into the report, U.S. consumer activity was quite robust while corporate investment was a drag on the headline number.

For the week, DJIA closed at 18432 for a weekly decline of 0.75%.  The broader-based S&P 500 closed at 2174 finishing the week lower by 0.05%.  International equity markets were positive for the week as the MSCI EAFE closed up 2.38% while MSCI EM increased 0.52%.  Treasury yields moved lower, gold was slightly higher, and oil closed the week in the red as concerns arose from declining demand.

We look ahead to another busy week of company earnings as 110 companies in the S&P 500 are set to report. In addition, a lot of attention will be paid to the July payroll number, which will hopefully support continuing strength in the U.S. labor market.

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

Further Stock Market Advances

July 26, 2016


Despite some mid-week challenges, the market closed the week with its 5th straight advance, with the S&P increasing by 0.6% and the Nasdaq by 1.4%. Post-Brexit uncertainty, recurring Fed debate [which produced a stronger dollar] and falling second quarter earnings [~25% of the reports are in, reporting a blended 3.6% decline] all buffeted financial markets.
Recent market strength has raised questions of sustainability. The VIX is below 12 and the S&P’s RSI is above 60, but Investors Intelligence Bull/Bear ratio is still below overbought levels:


Finally, this Wednesday’s release of the Fed’s July Policy Statement will attract more than its fair share of attention this week. The Fed has been playing Lucy with Charlie Brown’s football for several years now, but it is now apparent that the Fed wants to raise rates without tightening. Their “success” will be measured by a Fed funds increase not accompanied by an upward move in the Treasury yield curve as well as not producing any incremental dollar strength [this will be difficult].

“be careful what you wish for, lest it comes true” – anon

Economy Rebounding

July 18, 2016

Last week, equity markets continued their advance led by international stocks. For the week, the MSCI EAFE index was up 3.66% while the MSCI Emerging Market index increased 4.85%. In the U.S., the DJIA was up 2.04% while the S&P 500 increased 1.51%. Small caps as measured by the Russell 2000 finished up 2.39% for the week. Bonds declined as interest rates rose for the first time in several weeks. The 10 year U.S. Treasury rate went from 1.37% to 1.6% as the U.S. Bond Aggregate index declined 0.78% for the week.

Cyclical sectors still lag defensives YTD, but recent economic news suggests that investor optimism is improving.  Post Brexit, cyclical sector stocks in the U.S. are up 9.2% vs 5.9% for defensive stocks. Economic reports last week were generally positive as retail sales increased by 0.6% m/m, PPI improved 0.5% m/m, and CPI showed a 0.2% increase in June. Even though earnings expectations for the second quarter are expected to decline, headwinds from the stronger dollar and oil prices are starting to fade. Cyclical sectors may have some tailwinds moving forward.

Market sentiment this week should be dictated mostly by company earnings and guidance. This week, 88 companies in the S&P500 are set to report.

“Obstacles are those frightful things you see when you take your eyes off your goal.” – Henry Ford

Inching Towards New Highs …

July 11, 2016

Equity markets finished in the green last week as June’s job report was much better than expected at 287,000 new jobs.  This follows May’s dismal showing of only 11,000 new jobs.  U.S. markets are now closing in on all-time highs … just at a time when investors feel like there is no hope for markets to go higher.

For the week, the DJIA finished higher by 1.12% while the broader-based S&P500 gained 1.33%.  International markets continue to struggle as the EAFE Index lost 1.74% for the week.     Fixed income, represented by the Barclays Aggregate, finished the week higher by 0.60%.  As a result, the 10 YR US Treasury closed at a yield of 1.37% (down 9 bps from the previous week’s closing yield of 1.46%).

In addition to the jobs report, last week saw a number of economic releases.  New orders for U.S. factory goods fell 1.0% in May following a 1.8% gain in April … some experts are indicating that a bottom may be in place for manufacturing.  On the other hand, June’s U.S. non-manufacturing rose more than expected to 56.5 from 52.9 in May.

We expect volatility to remain high as investors digest conflicting economic and political news.  As always, we plan to look through the day-to-day news and focus on longer-term objectives.

Lastly, our hearts and prayers go out to the entire Dallas community after last week’s tragic events.  We wish everyone PEACE.

Enjoy the summer …

“Peace begins with a smile.”  – Mother Teresa

The British are Going! The British are Going!

July 5, 2016


The global markets rebounded last week, recovering from the “Brexit” induced sell-off that carried into Monday.  The S&P 500, NASDAQ, and Dow Industrials all gained over 3% for the week.  International equities also recovered nicely with the MSCI EAFE rising 3.48% and MSCI EM gaining 4.5%.  Brexit certainly shocked the global equity markets which experienced the highest one-day sell off in history ($2.08 trillion) the day after the UK vote.  Investors were able to breathe a sigh of relief with last week’s rally, which was supported by the Bank of England signaling further monetary easing and the price of oil rising during the equity market’s decline.  Oil has surged 26% during the last three months, its largest quarterly gain since 2009.

US economists are still concerned about the flattening yield curve with both the 10 year and 30 year Treasury yields touching record lows.  The current yield of the 30Yr Treasury is 2.19% while the 10 year is 1.38%.  These tightly narrowing spreads tend to indicate sluggish economic growth going forward.

Thirty-one out of thirty-three banks passed the 2nd round of the Fed’s annual stress tests, allowing the banks that passed to commence share buy-backs and to increase dividends.  Buyer beware, bank interest rate margins are being squeezed with rates at all time lows.  Lower margins will weigh heavily on earnings.

All eyes will be on second quarter earnings and guidance along with this week’s June employment report.

What the heck is going on out there?” – Vince Lombardi

Uncertainties Abound Post-Brexit

June 27, 2016

Despite a strong start to the week, the “Brexit” black swan became a reality Thursday evening.  Global equity markets were caught flat-footed following the U.K.’s decision to leave the European Union (EU).  For the week, the DJIA closed down 1.55% while the broader-based S&P 500 finished lower by 1.62%.   Smaller US companies reflecting the Russell 2000, closed 1.48% lower. Developed international markets finished the volatile week with the MSCI EAFE shedding 1.72% while MSCI EM closed up 0.14% for the week.  With an investor flight to quality, treasury yields moved lower, the dollar strengthened against the (€) Euro, and gold moved higher closing at a 2yr high.

The U.K. decision to leave the EU came as a surprise to the markets, especially the “smart money” that bet on the “Remain”.  In addition to the immediate market declines, we will most likely see continued volatility in equities and a number of currencies. S&P has downgraded the U.K. credit rating to AA and markets do not like uncertainty. There are many questions; will there be another U.K. referendum … Scottish referendum … who will succeed Cameron … who might be next … in addition to the uncertainty of how a country exits the EU which has never happened before. The fall out could result in an endless number of scenarios which is adding to the uncertainty.  Experience has taught us that macroeconomic or geopolitical shocks generally create opportunities in specific businesses or entire sectors. The market price shocks tend to be much more inflated than the actual change in value of a company.  Companies will continue to adapt to the political uncertainty around the globe and maximize profits/value for their shareholders, employees, and businesses.  We do not see this event being any different.

Although “Brexit” dominated the headlines, there was positive news last week.  Importantly, the U.S. banks all passed the stress tests of their capital requirements. This is a positive, with the banks finally being able to increase their dividends as well as commence share buy backs.   This, after years of banks boosting their capital reserves and paying enormous ex post facto fines and legal settlements following the 2008/09 financial crisis.

We encourage everyone to take the longer view and avoid the knee-jerk reactions that come in uncertain times.

“In investing, what is comfortable is rarely profitable.”  –  Robert Arnott

“Brexit” Dominates

June 20, 2016

The market broke out of a two-week sideways pattern on the downside last week, with the S&P 500 declining 1.2%. The Russell 2000 and the tech-heavy Nasdaq fell even further, as Fed fumbles and “Brexit” fears weighed on markets. Note that the Mail’s Brexit survey favoring “remain” circulated on Sunday, and investor sentiment improved dramatically on Monday morning.

This week offers several significant events. This includes Yellen’s monetary testimony on Tuesday, bank stress-test results on Thursday, and most significantly the British vote to leave the European Union. Finally, the annual rebalancing of the Russell 1000 and Russell 2000 will occur on Friday.

GDP growth of only ~2% has been characterized as the new normal, seemingly implying that slow growth is inevitable. This ignores several self-inflicted obstacles, including the dramatic increase in the corporate regulatory burden. One particularly egregious example is the FCC’s recently upheld decision to turn the 1996 Telecom Act on its head and to start regulating the internet as if it was a natural monopoly. This has already produced a noticeable slowing of investments by Internet Service Providers.

“…the government solution to a problem is usually as bad as the problem and very often makes the problem worse”Milton Friedman

ND&S Weekly Commentary

June 13, 2016

Last week, equity prices mostly declined as concerns rose about global growth and Britain’s June 23rd referendum on whether to remain in the European Union. For the week, the S&P 500 finished down 0.1%, the NASDAQ declined 0.95%, and the MSCI EAFE fell 1.72%. Federal Reserve Chairwomen Janet Yellen took a more dovish tone during Monday’s speech distancing the Fed from an expected rate hike at their June policy meeting.  As a result, interest rates moved lower across the board with the 10 year U.S. Treasury yield closing the week at 1.64%, the lowest since May 2013. Government bond yields hit record lows in Japan, Germany, and the U.K. with many issues now having negative yields.

This is a packed week of macroeconomic reports including CPI, retail sales and housing starts. In addition, the FOMC will conclude its June policy meeting on Wednesday.

Our hearts and prayers are with the victims and their families of the horrific terrorist attack in Orlando on Sunday morning…