ND&S Weekly Commentary 8.13.18 – Victory in Japan Day

August 13, 2018

Last Friday was Turkey Day as the Turkish Lira declined 20% spreading fears throughout the global markets. As a result, equities for the week fell with the S&P 500 and DJIA declining .18% and .44%, respectively. The tech-heavy NASDAQ held its own returning 0.3% as large technology stocks regained momentum. International markets reacted to Turkey’s currency turmoil along with continued tariff announcements between the US and China. The MSCI EAFE fell 1.46% while emerging markets lost 0.98%. The 10yr US Treasury yield remained steady at 2.87%, moving down 0.08% for the week despite favorable economic news.

The US equity markets rose over 5% last month because of encouraging economic data and solid corporate profit results. With the majority of S&P 500 companies already reporting, their quarterly earnings rose an impressive 26% and even more encouraging revenue growth was 10%, twice as much as from a year ago.

This week’s economic reports include retail sales on Wednesday, housing starts on Thursday and the leading economic index on Friday.

We expect investors’ attention will remain on tariff tensions and other geopolitical headwinds, which should bring back more market volatility. We recommend staying diversified and looking for opportunities in US dividend paying companies as well as foreign equities offering attractive valuations.

“VJ Day, or Victory in Japan Day, marks the date of the Japanese surrender that ended fighting in the Pacific.”Doc Hastings

vj day

 

ND&S Weekly Commentary (8.6.18) – $1,000,000,000,000

August 6, 2018

US equities finished modestly higher last week in what was a busy week from political, economic, and company specific perspectives. For the week, the DJIA increased 0.05% while the broader-based S&P 500 climbed 0.80% for the week. International equities closed the week in the red with the MSCI EAFE off 1.45% and emerging markets closed lower by 1.66%. Treasury yields stayed relatively flat for the week, despite the FOMC characterizing the US economy as “strong” which would likely hint they will continue to raise rates at the current pace. The 10yr US Treasury briefly crossed 3% before closing the week at 2.97%. Gold and oil closed the week slightly lower.

Trade tensions escalated with China as the Trump administration announced they are looking into raising the tariff rate to 25% on $200 billion worth of Chinese goods … an increase from the 10% rate initially announced. China in-turn announced they would retaliate with tariffs on roughly $60 billion worth of US goods ranging from 5% – 25%.

Economic news for the week included – Personal consumption expenditures (PCE) came in at 1.9%, slightly below estimates of 2.0%; Markit/ISM mfg. PMI at 58.1, surpassing expectations and reaffirming continued expansion of US manufacturing; Nonfarm payrolls rose 157,000 in July which missed estimates for the month. However, there were upward revisions to both May and June that resulted in the unemployment rate dropping to 3.9%. Hourly earnings rose 0.3% in June having risen 2.7% from a year ago.

Tuesday, after the closing bell, Apple (AAPL) reported both revenues and earnings per share (EPS) that beat analyst expectations with its fiscal third quarter earnings report. In addition to the strong numbers, their forward revenue guidance came in ahead of market expectations which was enough to ultimately push the company’s market cap over $1,000,000,000,000 (that’s a lot of zeros), making it the first company to reach this historic valuation.

With 80% of S&P 500 constituents having reported, 2nd quarter earnings growth is estimated to be 24%. Those earnings figures are running very close to the 24.8% EPS growth rate in the first quarter. There will be 85 companies scheduled to report this week along with economic releases on Inflation, consumer credit and jobless claims. Have a great week!

“Great things in business are never done by one person. They’re done by a team of people.”Steve Jobs

Weekly Commentary (7/30/18) – Markets Move Higher on Strong Earnings & GDP

July 30, 2018

Stocks ended last week mostly higher on continued positive earnings reports and a strong second quarter GDP report. Second quarter earnings reports have been quite strong with most companies reporting in-line to better-than-expected earnings. On the economic front, Real U.S. GDP (GDP adjusted for inflation) grew at a 4.1% annual rate in the second quarter … the highest growth rate since 2014. New and existing home sales for June were a bit shy of expectations … we’ll keep an eye on housing to see if the recent weakness is just temporary. Also reported last week, the Flash U.S. Composite Purchasing Managers Output Index for July pulled back slightly. The good news out of the report was that the Flash Manufacturing PMI moved to a two-month high to help offset some weakness in the Flash U.S. Services Business Activity.

For the week, the DJIA gained 1.6% while the S&P 500 finished higher by 0.6%. The volatile Nasdaq lost 1.1% for the week as some high-flying technology stocks reported earnings a bit shy of heightened expectations (namely, Facebook and Netflix). Developed international markets finished in the black as the MSCI EAFE index moved up 1.4% for the week. Emerging markets recovered 2.2% last week as the U.S. dollar weakened. Small company stocks, represented by the Russell 2000, gave back 2.0% on profit taking. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower by 0.17%. As a result, the 10 YR US Treasury closed at a yield of 2.95% (up 6.1 bps from the previous week’s closing yield of 2.89%). Gold prices ticked lower by $2.70 to close at $1,222.60/oz. Oil prices dropped $0.92 last week as oil closed at $68.69/bbl.

The week ahead has a few important economic releases – PCE (headline and core), ADP/BLS employment reports, ISM Manufacturing and Non-Manufacturing along with an update on the International Trade balance. In addition to economic releases, we expect to see the continuation of 2nd quarter earnings releases. Trading should be somewhat light this week as many investors will be on vacation.

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. The weather is beautiful … make an effort to get outside and smell the roses as summer is in full swing!

“Just living is not enough … one must have sunshine, freedom, and a little flower.”Hans Christian Anderson

NDS Market Update (7/23/18) – Markets Struggle for Direction

July 24, 2018

Last week, stock prices ended little changed as major indexes struggled to move higher. In spite of upbeat earnings reports, uncertainty around trade and monetary policy rose, as white house criticism of the Fed for raising interest rates, weighed on stock and bond markets. The S&P 500, and the DJIA were up 0.04% and 0.2%, respectively, and the NASDAQ declined .07%. U.S. bonds were off 0.27% for the week, as the yield on the 10 U.S. Treasury note rose to 2.90%. Foreign stocks were mixed as the MSCI EAFE index closed higher by 0.63% while emerging markets declined 0.44%.

Investor attention will turn to earnings this week as one third of S&P 500 companies are due to report. Major companies such as Alphabet, Boeing, Coca Cola, Facebook, Amazon and Exxon Mobil are scheduled to announce results. The quarter should mark another strong showing for corporate earnings growth because of tax reform and a strong underlying economy. In economic news, reports are due on existing-home sales, durable goods orders, and the advance estimate for 2nd quarter GDP. Analyst estimates are calling for durable goods to be up 3.1% and a reading of 4.2% for GDP.

“We live in a rainbow of chaos.” – Paul Cezanne

 

NDS Weekly Commentary (7.16.18) – The Troll Under the Bridge

July 16, 2018

Last week, surging shares of technology companies once again sent the NASDAQ to a record high. The index finished 1.79% for the week and is now up 14% year-to-date. Both the S&P500 and the DJIA rose last week 1.55% and 2.32%, respectively.
After the White House announced it would assess 10% tariffs on additional $200 billion of Chinese goods, the market dipped. Shares rallied on strong corporate earnings reports and expectations to close out the week. International equities also were positive with developed markets returning 0.16% and emerging 1.71%.

Firming inflation and low unemployment has supported the Fed’s case for gradually increasing short-term rates to keep inflationary pressures in check. The Fed has lifted rates twice this year and have penciled in two more increases by year’s end. The 10yr US Treasury remained stable at 2.8%.

We are pleased with JP Morgan Chase (JPM) and Citigroup (C) both reporting second quarter earnings that beat analyst estimates. JPM’s profit rose 18% and C’s 16%, which are great results given revenue from interest margins have been in question due to the flattening interest rate yield curve.

We continue to recommend diversifying portfolios, insulating the effects of higher interest rates and capturing profits in overvalued holdings while selectively taking advantage of dividend growth opportunities. So far, decent mid-year results despite rate hikes, tariffs, trade wars, and the price of oil surging 60% over the last 12 months.

“Success is a journey, not a destination. It requires constant effort, vigilance and reevaluation…”Mark Twain

Weekly Commentary (7/9/18) – Markets Move Higher on Strong Jobs Report

July 9, 2018

Stocks ended last week mostly higher on good economic news despite increased rhetoric surrounding tariffs. The holiday-shortened week saw the Purchasing Managers’ Index jump to 60.2% (ahead of expectations for 58.5%). The Commerce Department reported on Tuesday that new orders for manufactured goods increased in May for the third time in four months. Friday was a big day as the Labor Department reported that the economy added 203,000 jobs in June (above consensus of 195,000 jobs). 601,000 workers reentered the workforce in June causing the unemployment rate to tick higher to 4.0% (up from last month’s reading of 3.8%). Also, April and May employment numbers were revised higher. A stronger economy is being felt across the board.

For the week, the DJIA gained 0.8% while the S&P 500 finished higher by 1.6%. Developed international markets finished in the black as the MSCI EAFE index moved up 0.6% for the week. Emerging markets finished lower by 0.68% on the trade rhetoric. Small-cap stocks, represented by the Russell 2000, jumped 3.1% on the week as small-cap stocks are mostly immune to trade wars. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up slightly (+0.2%). As a result, the 10 YR US Treasury closed at a yield of 2.82% (down 3 bps from the previous week’s closing yield of 2.85%). Gold prices ticked higher by $3.00 to close at $1,208.60/oz. Oil prices dropped $0.35 last week as oil closed at $73.80/bbl.

The week ahead has a few important economic releases – Consumer Credit, Consumer Sentiment, NFIB Small Business Survey and the PPI/CPI. In addition to economic releases, we expect to see the beginning of 2nd quarter earnings releases.

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. The weather is getting better … make an effort to get outside and smell the roses!

“People only see what hey are prepared to see.” – Ralph Waldo Emerson

NDS Weekly Commentary 7.2.18 – Happy 4th!

July 2, 2018

Markets remained volatile last week as trade fears continued to dominate the headlines. For the week, the DJIA declined 1.26% while the broader-based S&P 500 was off 1.31%. Small-Cap US equities fared worse with the Russell 2000 closing lower by 2.46%. International equities also finished the week in the red with the MSCI EAFE and MSCI EM down 1.03% and 1.41%, respectively. Treasury yields were lower across the board; this despite inflation numbers that exceeded estimates and are not in-line with the Fed’s 2% target. The 10yr US Treasury closed the week at a yield of 2.85%.

Economic data was generally positive for the week; as mentioned above, Core PCE came in-line with the Fed’s 2.0% inflation target … Durable goods orders fell 0.6% month over month but came in ahead of expectations, new orders of durable goods are up 9.9% from the same time last year … Consumer confidence remained high as the reading came in 126.4 … 1q18 GDP was revised lower to 2%.

Global mergers and acquisitions have surged 64% in the first half of 2018, surpassing the corporate spending spree that transpired in 2007. Given that M&A tends to peak late-cycle, some investors may view this news suspiciously. US corporations have a record amount of debt (6.3t) on their balance sheets, but also record amounts of cash on their balance sheets to service that debt and explore acquisitions. It would appear that the economic expansion has a bit more to go and one should expect additional consolidation in media, health care and private equity acquisitions.

Let the cookouts and firework shows begin! Happy 4th of July from your friends at Newman Dignan & Sheerar!

“We will stand by the right, we will stand by the true, we will love, we will die for the red, white and blue” – unknown

 

Weekly Commentary (6.25.18)-Tariffs Rattle the Markets

June 25, 2018

Last week, equity markets fell as escalating tariff tensions drove investors out of stocks particularly in the industrial, agricultural and auto sectors. For the week, the DJIA was off 2.03%, its worst weekly decline since March. The S&P 500 was down 0.87% and the NASDAQ was off 0.68%. International stocks were also down with the MSCI EAFE and emerging markets off 0.95% and 2.26%, respectively. Equity investors were concerned that trade wars would hinder global growth.

In the U.S., the best performing sectors YTD have been consumer discretionary, technology and energy. Energy stocks responded positively on Friday as the boost in oil production announced by OPEC turned out to be lower than previously feared. The price of oil jumped 4.6% its biggest one-day gain since 2016 and for the week crude was up 5.8%. Several energy stocks were up 2% on the day. YTD the worst performing sectors have been utilities and consumer staples although more recently consumer staple stocks have rallied as investors have become more defensive. U.S. treasuries also rallied last week with the 10 year Treasury closing at a yield of 2.90%.

This week look for economic reports on new home sales, durable goods orders and consumer sentiment. Volatility should remain elevated as markets react to the ever changing geopolitics and talks of tariffs. We would suggest investors take the long-term view and remain diversified in-line with one’s risk parameters.

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

 

Take A Hike

June 18, 2018

It was a busy week filled with major geopolitical events, a Federal Reserve interest rate hike along with somewhat hawkish commentary, and a judicial ruling that approved one of the largest corporate takeovers on record.

As a result of all of this hoopla, the markets were mixed last week. The S&P 500 advanced 0.07%, the DJIA was -0.84%, and the tech-heavy NASDAQ finished 0.34% higher. Both developed and emerging international equity markets were down 0.48% and 1.35%, respectively. The 10-year Treasury finished at a yield of 2.93% and is down 3.4% year to date.

As expected, on Wednesday, Federal Reserve officials raised their benchmark federal funds rate by a quarter percentage, the second rate increase this year. They suggested that there could be a total of four increases for 2018, which is one more than projected at their meeting in March. Fed Chairman, Jerome Powell, stated, “Growth is strong. Labor markets are strong. Inflation is close to target.” Supporting the Fed’s projections were the Labor Department, stating that wholesale prices climbed, and the government reporting that US retail sales also surged in May. Retail sales have risen 5.9% and 5% when gas is excluded, over the past 12 months. “The benefit of tax cuts, strong employment growth and a slow acceleration in hourly wage growth, consumption growth should remain strong into the second half of the year,” says Paul Ashworth, chief US economist at Capital Economics.

On Friday, President Trump approved a 25% tariff on $50 billion worth of Chinese goods. The move prompted China to come back with a 25% tariff on $34 billion worth of U S Goods. Both tariffs are scheduled to become effective on July 6th.

There was an historical ruling allowing AT&T to acquire Time Warner for $80 billion, rejecting the Justice Department’s attempt to block the deal over antitrust concerns. Following the decision, Comcast made a $65 billion cash offer to buy most of 21st Century Fox’s assets. A media buying frenzy is bubbling, as Comcast’s offer is likely to raise the competing $52.4 stock offer from Disney. All of the deals are opening the eyes of arbitrage investors, as well as investment bankers. Overall, mergers and acquisition activity is surging, spelling a potential extension of our longest bull market.

“Congratulations, I knew the record would stand until it was broken” ~ Yogi Berra

 

ND&S Weekly Commentary (6/11/18) – The Summit Showdown

June 11, 2018

Markets continue their Spring advance as equities finished another week in the green. For the week, the DJIA closed higher by 2.79%, while the broader-based S&P500 closed up 1.66%. Smaller US companies closed up 1.51% for the week. International equities were also positive as the MSCI EAFE and MSCI EM closed higher by 0.96% and 0.54% respectively. Yields moved higher across the curve causing a weekly decline of 0.22% for the US Barclays Aggregate. The 10Yr US Treasury closed at a yield of 2.93%, which is up from 2.89% a week ago.

The labor market remains tight, with the US Bureau of Labor Statistics reporting for the first time in its (JOLTS) survey history, that there were more job openings than jobless workers to fill them. Wage inflation has been somewhat muted with average hourly earnings rising just 2.7% in May. This could pressure companies at the margin as they compete for workers in a full labor market … something to be mindful of as we move forward.

Looking ahead, US and North Korean leaders will meet for their highly anticipated summit in Singapore on Tuesday with the discussion centered around the denuclearization of the Korean peninsula. This will likely be a long process but it is an unprecedented meeting nevertheless. The FOMC is set to meet this week with a 2nd rate hike in 2018 the likely outcome. With a tight labor market, 2Q GDP estimates approaching 4% and market expectations for an increase, it seems likely the FOMC will raise the Federal Funds rate at the conclusion of its meeting with two additional hikes likely later this year. In addition, the week will also include reports on CPI, Retail Sales, Industrial Production, and Consumer Sentiment.

Let’s Make it a Good Week!

“You cannot shake hands with a clenched fist.”Indira Gandhi