ND&S Weekly Commentary 12.20.21 – The Fed and Omicron Rattle Markets

December 20, 2021

Global equities declined last week as the Omicron variant concerns remained in the forefront. Adding to the fray, the U.S. Federal Reserve announced last week that its run of ultra-easy monetary policy will be ending soon in response to rising inflation.

For the week, the DJIA lost 1.67% while the S&P 500 gave back 1.91%. The tech-heavy Nasdaq finished the week lower by 2.94%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 0.46% while emerging markets (MSCI EM) retreated 1.75%. Small company stocks, represented by the Russell 2000, were also weak as they closed lower by 1.68%. Fixed income, represented by the Bloomberg/Barclays Aggregate, grinded out a gain of 0.35% for the week as yields were quite volatile in response to the Fed policy changes. As a result, the 10 YR US Treasury closed at a yield of 1.41% (down 7 bps from the previous week’s closing yield of ~1.48%). Gold prices closed at $1,808/oz. – up 1.17% on the week. Oil prices slid 1.13% last week to close at $70.86/bbl.

The FOMC wrapped up their December policy meeting last Wednesday announcing that they will accelerate the reduction of its monthly bond purchases. At the current pace, the monthly purchases should conclude in March 2022. Additionally, Fed officials indicated that we could see as many as 3 rate hikes in 2022. The shift in policy was somewhat expected in response to persistent inflation that the Fed now sees at 5.3% for 2021.
In economic releases last week, the Producer Price Index (PPI) for November came in higher than expectations rising to a record 9.6% y/y. The Flash PMI from Markit Economics ticked lower to 57.8 missing consensus of 58.3. Both the manufacturing and services sectors remain in expansion territory. Retail sales for November increased 0.3% m/m missing consensus estimates of a 0.8% increase.

This will be a holiday-shortened week for the markets as volatility should remain elevated. Over the weekend, Senator Joe Manchin announced that he wouldn’t support the Build-Back-Better legislation as currently presented. This should have little impact on the markets overall as most of the focus will remain on the Omicron variant. Equity investors have been rewarded with strong returns in 2021 with very few setbacks in the S&P 500, DJIA and Nasdaq. Markets are long overdue for a breather after the big run-up. As such, we continue to suggest that investors remain diligent and stay close to long-term asset allocation targets.

Stay safe and enjoy the holiday season!

“The Grinch hated Christmas! The whole Christmas season!
Now, please don’t ask why. No one quite knows the reason.
It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all
May have been that his heart was two sizes too small.”

How The Grinch Stole Christmas – Dr. Seuss

Weekly Commentary (12/13/21) – Markets March Higher, Again     

December 13, 2021

Equity markets finished broadly higher last week as investors continued their love affair with stocks.  Investors seem to be thinking that inflation, though quite high, may have peaked.  Also motivating investors is the news that the symptoms of the omicron variant seem to be fairly mild.

For the week, the DJIA jumped 4.05% while the S&P 500 gained 3.85%.  The tech-heavy Nasdaq finished 3.62% higher. For the week, the MSCI EAFE Index closed ahead by 2.44% while emerging market equities (MSCI EM) added 1.15%.  Small company stocks, represented by the Russell 2000, finished in the green by 2.45%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was weak as it finished lower by 0.72% for the week as yields moved higher on renewed signs of stronger inflation.  As a result, the 10 YR US Treasury closed at a yield of 1.48% (up 13bps from the previous week’s closing yield of ~1.35%).  Gold prices closed at $1,782.90/oz. – barely up 0.05%.  Oil prices moved higher on easing concerns for the omicron variant and renewed U.S.-Iran tensions.

Economic news released last week confirmed that inflation pressures persist.  The November Consumer Price Index came in at +6.8% – although it was as expected, the CPI number marked the highest reading in close to 40 years.  Perhaps we have seen the peak in inflation, but there is no doubt that consumers and businesses are feeling the pinch.

The week ahead will feature reports on the Producer Price Index, Retail Sales and Manufacturing and Service PMIs.  Potentially market-moving news could follow the Fed’s monetary policy meeting that wraps up on Wednesday.

Markets may take a breather this week after last week’s big run-up.  As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Stay safe and enjoy the holiday season!

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

NDS Weekly Commentary 12.6.21

December 6, 2021

It was a tumultuous week for the markets as a result of concerns over the Omicron Covid-19 variant and more hawkish commentary from the Federal Reserve.

For the week, the DJIA and S&P 500 lost 0.8% and 1.2%, respectively, and the NASDAQ fell 2.6%. U.S. small company shares also slid 3.8% as measured by the Russell 2000. Foreign stocks were mixed with developed markets (MSCI EAFE) falling 0.9% while emerging markets (MSCI EM) rose 0.2%. Within the S&P 500, the communication services sector slid 2.8% and the consumer discretionary sector declined 2.3%. Similar to stocks, crude oil ended the week 2.6% lower at $66.38/bbl.

Concerns over the Omicron variant spreading and affecting economic growth resulted in the yields on government bonds to fall sharply. The yield on the 10yr U.S. Treasury note slipped to 1.35% from 1.48% the week prior. The Federal Reserve chairman, Jerome Powell, testified before Congress and indicated that there is a concern about persistent inflation and Covid-19 spreading that will place more pressure on supply chains. He suggested that the Fed may speed-up plans to taper their bond-buying stimulus program.

On the economic front, November non-farm payrolls rose by just 210,000 versus estimates of an expected gain of 545,000. However, the U.S. labor participation rate increased and the unemployment rate declined from 4.6% to 4.2%.

To be sure, investors respond more to reactive fiscal and monetary policies than the fear of the Covid-19 pandemic itself. On Friday, the U.S. stock market volatility, as measured by the CBOE Volatility Index (VIX), rose to its highest intra-day level in over 10 months. As we regrettably acknowledge that Covid will be around for quite a while and political reactions abound, we expect market volatility to continue.

This week ahead, economic data to be reported include inflation, productivity and consumer sentiment.

“More money has been lost trying to anticipate and protect from corrections than actually in them.” -Peter Lynch

ND&S Weekly Commentary 11.29.21 – Markets Retreat on Variant Discovery

November 29, 2021

Markets pulled back during the holiday-shortened week as concerns of a fast-spreading strain of the coronavirus triggered the worst trading session of the year on Friday.

For the week, the DJIA lost 1.95% while the S&P 500 gave back 2.18%. The tech-heavy Nasdaq finished the week lower by 3.52%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 3.71% while emerging markets (MSCI EM) retreated 3.61%. Small company stocks, represented by the Russell 2000, were weak as they closed lower by 4.13%. Fixed income, represented by the Bloomberg/Barclays Aggregate, eked out a gain of 0.13% for the week as yields were quite volatile. As a result, the 10 YR US Treasury closed at a yield of 1.48% (down 6 bps from the previous week’s closing yield of ~1.54%). Gold prices closed at $1,801/oz. – down 3.56% on the week. Oil prices tumbled over 10% last week as traders fretted that lock-downs could reduce demand for transportation fuels.

It was a relatively slow week for macroeconomic data. U.S. consumer spending increased more than expected in October as activity jumped 1.3% month-over-month. Retailers expect holiday sales to be the best in years although there are some concerns of clogged supply chains and port delays. The number of workers filing for unemployment benefits fell to 52-year low of just 199,000, from 270,000 the week prior. The labor markets remain tight with personal income rising 0.5% in October. Lastly, President Joe Biden reappointed Jerome Powell to a second term as Chairman of the Federal Reserve. Notably, the 10yr Treasury note backed up to 1.65% in the wake of the announcement, partially on the belief that Powell will be less dovish in the wake of more-persistent-than-expected inflation.

We expect markets to be choppy as we wait on more news from the scientific community as it relates to Omicron variant. As with the other variants that have recently popped up, we think the pain will be short lived. As always, we plan to look through the day-to-day noise and focus on longer-term objectives. Investors should stay close to their long-term asset allocation targets and re-balance as necessary.

“Thanksgiving is a time of togetherness and gratitude.” – Nigel Hamilton

Weekly Commentary (11/22/21) – Markets Finished Mixed for the Week

November 22, 2021

Markets finished mixed last week as investors cheered continued strong earnings from corporate America only to be discouraged by resurgent cases in COVID-19. Austria became the first country in Europe to re-impose a full lock-down.

For the week, the DJIA lost 1.29% while the S&P 500 gained 0.36%. The tech-heavy Nasdaq finished the week 1.27% higher. For the week, the MSCI EAFE Index finished lower by 0.78% while emerging market equities (MSCI EM) struggled and closed lower by 1.25%. Small company stocks, represented by the Russell 2000, finished in the red by 2.83%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was relatively flat as it finished up 0.09% for the week as yields moved slightly lower as some economic data released last week suggest that inflationary pressures may begin to ease next year. As a result, the 10 YR U.S. Treasury closed at a yield of 1.54% (down 4 bps from the previous week’s closing yield of ~1.58%). Gold prices closed at $1,851.20/oz – down by 0.89% on the week. Oil prices were materially lower for the week as crude closed at $76.10 per barrel, lower by 5.81%. Oil is up 56.84% year-to-date … certainly denting consumers’ pocketbooks and businesses’ margins.

Economic news released last week was fairly encouraging. The NY Empire State Manufacturing Index for November came in much better than expected as it rose to 30.9 from 19.8 the previous month. October retail sales for retail and food services showed year-over-year growth of 16.3%, well ahead of an expected reading of 13.9%. The Philly Fed Manufacturing Index for November came in at 39, much better than the consensus of a slight increase to 24. Offsetting the excellent retail sales and manufacturing numbers was a weak October Housing Starts. Housing Starts in October fell to 1.52 million against the expected rate of 1.576 million – this reflects the third time in the past four months that housing starts fell.

This holiday-shortened week will feature reports on October existing and new home sales, Consumer Sentiment, October Durable Goods and weekly jobless claims. We also expect President Biden to nominate Federal Reserve Chairman Powell to another term.

November and December have usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Best wishes for a Happy Thanksgiving!

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.”Oprah Winfrey

ND&S Weekly Commentary 11.15.21 – Persistently Transitory Inflation

November 15, 2021

The major US Stock indexes all fell less than 1% last week, ending a five week positive run as inflation fears weighed on financial markets. For the week, the S&P 500 slipped 0.27%, the DJIA declined 0.56% and the Nasdaq slid 0.68%. The best performing sector was materials, up 2.6%, as inflation fears mounted. The recently passed infrastructure bill bodes well for materials and commodities. International equities were mixed with developed markets (MSCI EAFE) falling 0.34% while emerging (MSCI EM), which relies more on commodity exports, rose 1.71%.

Bond prices fell with the 10-year U.S. Treasury yield at 1.58% up from 1.45% the previous week. As inflation fears mount, the concern is that the Federal Reserve will begin raising interest rates sooner than they have indicated.

Inflation concerns were responsible for a 3% surge in the price of gold which ended the week at $1,864 per ounce, the highest level in more than five months. Energy prices have nearly doubled from last year.

On the economic front, the government reported on Wednesday that the Consumer Price Index (CPI) climbed 6.2% from a year ago, the highest level since 1990. The “core” CPI, which excludes food and energy, increased 0.6% in October, exceeding a consensus of 0.4%. Core prices are up 4.6% versus a year ago and energy prices soared 4.8% in October. The Produce Price Index (PPI) reading was 8.6%, the highest since 2010.

With the holiday season approaching, all eyes this week will be on retail sales and earnings from major retailers. On Tuesday, U.S. retail sales will be released and Walmart reports its earnings. Target and TJX follow on Wednesday and Ross Stores, Macy’s, Kohl’s, and B.J.’s on Thursday.

With the third quarter earnings season behind us, we expect more volatility in the financial markets. We recommend re-balancing portfolios in keeping with long-term objectives. Please do not stretch for higher income yields as pressure mounts for rising interest rates.

“Inflation is the one form of taxation that can be imposed without legislation” – Milton Friedman

ND&S Weekly Commentary 11.8.21 – The Fed Begins to Taper

November 8, 2021

Equity markets moved higher last week as a result of favorable economic data and corporate earnings announcements. The equity markets shrugged off any potential taper tantrum as the Federal Reserve announced the start of tapering its open-market purchases of Treasuries and mortgage-back securities.

For the week, the DJIA advanced 1.43% while the S&P 500 gained 2.03%. The tech-heavy Nasdaq increased 3.08%. Small company stocks, represented by the Russell 2000, jumped 6.11% last week on favorable economic data pointing to domestic economic growth ahead. Developed international markets also moved higher as the MSCI EAFE index gained 1.64% while emerging market equities (MSCI EM) were flat on the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.64% as yields continued their recent reversal lower. As a result, the 10 YR US Treasury closed at a yield of 1.45% (down ~10 bps from the previous week’s closing yield of ~1.55%). Gold prices closed at $1,802/oz. – up 1.06% on the week. Oil prices moved lower last week to close at $81.27 per barrel in-spite of OPEC+ producers rebuffing a U.S. call to pump more oil by sticking to their existing production plans.

The major economic-related news last week was the announcement from the Federal Reserve that they will begin to taper their monthly pace of asset purchases. In particular, the Fed will reduce purchases of Treasuries (currently $80b) by $10 billion per month and mortgage-back securities (currently $40b) by $5 billion. The Fed expects to keep tapering those purchases by a further $15 billion each month which means the tapering would conclude in June 2022. The next policy step would be for the Fed to begin increasing its Fed Funds Target Rate (currently 0%-0.25%) at some point in 2022 as conditions continue to improve. In other economic news, the ADP Employment Report for October estimated 571,000 jobs were added in October marking a sharp acceleration from the 302,000 jobs added in September. The ISM reported their October Manufacturing Index reading at 60.8% which beat expectations of 60.3%. Their Non-Manufacturing Index for October increased to a record 66.7%. There will be reports on inflation (CPI & PPI) and job openings expected later this week.

Earnings season starts to wind down this week with 13 S&P 500 Index members, as well as one DJIA company reporting third-quarter results. The end of year has usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations and begin to re-balance as necessary.

“There cannot be a crisis next week. My schedule is already full.” – Henry Kissinger

Weekly Commentary (11/1/21) – Markets Close Out October on a Strong Note

November 1, 2021

Markets finished mostly higher last week to close out a strong October. For the month, all four major domestic market indexes finished between 4% – 7% higher.

For the week, the DJIA gained 0.40% while the S&P 500 tacked-on 1.33%. The tech-heavy Nasdaq finished the week 2.70% higher. For the week, the MSCI ACWI ex-USA Index finished lower by 0.82% while emerging market equities (MSCI EM) dropped 2.20%. Small company stocks, represented by the Russell 2000, finished in the green by 0.26%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was up 0.52% for the week as yields moved meaningfully lower on slower economic growth projections As a result, the 10 YR US Treasury closed at a yield of 1.55% (down 11bps from the previous week’s closing yield of ~1.66%). Gold prices closed at $1,783/oz – down by 0.71% on the week. Oil prices were relatively steady for the week as crude closed at $83.57 per barrel, lower by 0.23%. Oil is up 72.24% year-to-date … certainly denting consumers’ pocketbooks and businesses’ margins.

Earnings season is in full swing with 279 of the companies in the S&P 500 having reported results. Overall, earnings are beating estimates by 10.3% with over 79% of companies topping estimates. Financials and energy reported the strongest results while industrials have trailed. By the end of this week, we expect that roughly 90% of S&P 500 companies will have reported quarterly results. Quite a few companies have warned about supply chain shortages, and we expect this to be an issue for the next few quarters. Interestingly, mentions of ‘supply chain’ in quarterly earnings calls were up 58% during 2Q21 earnings season while mentions during the current quarter are expected to be even higher. Ultimately, these issues will be resolved and margins will improve, but supply constraints certainly present a challenge for companies today.

The big news this week, besides earnings releases, will be the results of the Fed meeting on Tuesday and Wednesday. It is widely expected that the Fed will announce the beginning of tapering of its monthly asset purchases. The Fed has done a reasonable job of telegraphing its intentions so we expect little impact in the markets from their announcement. Lastly, we hope to hear news out of Washington on two very important fiscal stimulus packages … fingers crossed.

November and December have usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations.

“Be kind whenever possible. It is always possible.” – Dalai Lama

ND&S Weekly Commentary 10.25.21 – Busy Earnings Week Ahead

October 25, 2021

The Dow Jones Industrial Average (DJIA) and S&P 500 recorded fresh records last week as the major indexes brushed aside worries of inflation and higher interest rates.

For the week, the S&P 500 jumped 1.6%, the DJIA gained 1.1% and the tech-heavy Nasdaq closed up 1.3%. International equities also fared well as developed markets (MSCI-EAFE) rose 0.63% and emerging markets (MSCI-EM) were up 0.75%.

So far, 117 companies in the S&P 500 have reported third- quarter earnings with 84% posting better-than-expected numbers according to Refinitiv. Strong earnings reports from banks, consumer companies and manufacturers have mitigated concerns of the inflationary pressures on corporate earnings and revenues. Given the string of stronger-than-expected results so far, this week’s docket may have heightened expectations to clear. Scheduled to report this week are Facebook(FB), Apple(AAPL), Amazon(AMZN), Alphabet(GOOG), Visa(V), UPS(UPS), and Microsoft(MFST) to name a few.

Interest rates continued their ascent with the U.S. 10 year Treasury yield touching 1.70% before falling to 1.64% on Friday, a five-month high. On Friday, Jerome Powell, the Federal Reserve chair reiterated his somewhat dovish comments on tapering, interest rates and inflation. The price of U.S. crude oil rose again, climbing above $84 a barrel.

Overall the economic news was not that encouraging last week. Industrial production was down for the second straight month with a decline of 1.3% in September. Despite the decrease, industrial production still rose 4.3% for the third quarter as a whole. Housing starts and permits also fell 1.6% in September. A lot of the recent economic data reports have had to contend with shortages in materials and labor. This week GDP will be reported on Thursday and there will be a slew of earnings reports from big tech and one-third of the companies in the DJIA.

“Perpetual optimism is a force multiplier.” – Colin Powell

ND&S Weekly Commentary 10.18.21 – Markets Brush Off Inflation Fears

October 18, 2021

Markets reacted positively last week in-spite of inflationary pressures that look more persistent than expected.

For the week, the DJIA tacked-on 1.58% while the S&P 500 gained 1.84%. The tech-heavy Nasdaq finished the week 2.18% higher. International markets also had a strong week as the MSCI EAFE Index finishing up 2.42% while emerging market equities (MSCI EM) increased 2.13%. Small company stocks, represented by the Russell 2000, also finished the week in the green by 1.47%. Fixed income, represented by the Bloomberg/Barclays Aggregate, rebounded 0.33% from recent weakness due to higher inflationary pressures and continued talk of a Fed taper. As a result, the 10 YR US Treasury closed at a yield of 1.59% (down 2 bps from the previous week’s closing yield of ~1.61%). Gold prices closed at $1,773/oz. – up 0.96% on the week. Oil prices continued their march higher to close at $82.28 per barrel, higher by 3.65%. The dramatic increase in oil prices has pressured the Biden Administration to implore domestic energy producers to increase production to help curb rising prices.

Consumer prices rose 5.4% year over year in September, as global supply chains remain disrupted. Price increases in food, shelter, energy and health care  all contributed to the uptick in inflation. Inflationary pressures should ease slightly once logistical logjams are unraveled, but the process is taking longer than expected. At the urging of the White House, Southern California ports will now operate 24/7 to alleviate some of the bottlenecks. With supply chains a mess, adding to the problem is the surge in labor demand. September’s JOLTS report released last week showed the number of job openings to be 10.9 million. Consumers continue to spend, defying expectations of a pull-back amid the supply problems. Retail sales for September increased 0.7% m/m, much higher than a forecasted decline of 0.2%.

We are still in the midst of seasonally weak period for the markets. 3rd quarter earnings season will continue this week with a number of notable earnings reports in energy, industrials, financials, and health care so volatility in some areas of the market should be expected. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Enjoy the beautiful colors that Fall brings!

“There are no secrets to success. Its is the result of preparation, hard work, and learning from failure.”Colin Powell