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
ND&S Weekly Commentary (10.11.21) – Markets Move Higher to Regain Some Lost Ground
October 11, 2021
Despite starting the week on a sour note, markets rallied over the back-half of the week as the Senate passed a bill allowing the debt ceiling to increase by $480 billion. The bill now moves to the House where it is expected to pass early this week.
For the week, the DJIA gained 1.22% while the S&P 500 tacked-on 0.79%. The tech-heavy Nasdaq finished the week barely positive as it closed just 0.09% higher. For the week, the MSCI ACWI ex-USA Index finished up 0.65% while emerging market equities (MSCI EM) bounced off their lows and gained 0.84%. Small company stocks, represented by the Russell 2000, couldn’t keep up with larger stocks and dropped 0.38%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was down 0.78% for the week as yields moved meaningfully higher on higher inflationary pressures and continued talk of a Fed taper. As a result, the 10 YR US Treasury closed at a yield of 1.61% (up 13 bps from the previous week’s closing yield of ~1.48%). Gold prices closed at $1,756/oz. – down slightly by 0.04% on the week. Oil prices continued their march higher to close at $79.35 per barrel, higher by 4.57%. No doubt, higher oil prices (up 63.5% year-to-date) are denting consumers’ pocketbooks and businesses’ margins.
Friday’s payroll report was the big economic news of the week. After a poor payroll showing in August, investors were hoping that September’s payroll report would show renewed strength in employment gains. Investors were disappointed. Non-farm payroll net adds in September came in at only 194k, well under expectations for a gain of 500k and the slowest pace of job gains this year. The unemployment rate came down from 5.2% to 4.8%, but the labor force participation rate also declined (fewer people seeking jobs). Tight labor markets have been evident in supply chain bottlenecks from trucking to housing, and companies have been warning about cost pressures that will likely impact 3rd and 4th quarter earnings. Speaking of earnings, this week kicks off 3rd quarter earnings season with reports due from a host of companies including, JP Morgan, BlackRock, Bank of America, Wells Fargo and Delta Airlines.
Markets are still in a seasonally weak period (September through late October) so investors should not be surprised by increased volatility. We suggest that investors stay diversified and try not to get bogged down in the day-to-day noise of the financial talking heads. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.
“The world is round so that friendship may encircle it.” – Pierre Teilhard de Chardin
ND&S Weekly Commentary 10.04.21 – Headwinds Intensify
October 4, 2021
Markets pulled back last week as headwinds intensify. The S&P 500 entered its first 5% pullback in 11 months as investors fretted about a looming government shutdown (averted, for now), supply chain shortages, labor pressures, rising inflation and lack of progress in Washington on infrastructure spending.
For the week, the DJIA lost 1.4% while the S&P 500 gave back 2.2%. The tech-heavy Nasdaq finished the week lower by 3.2%. International markets also finished in the red. For the week, the MSCI EAFE Index finished lower by 3.1% while emerging market equities (MSCI EM) were down 1.4%. Small company stocks, represented by the Russell 2000, held their own to finish slightly lower by 0.2%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was down 0.12% for the week as yields moved marginally higher. As a result, the 10 YR US Treasury closed at a yield of 1.48% (up 1 bps from the previous week’s closing yield of ~1.47%). Gold prices closed at $1,757/oz – up 0.4% on the week. Oil prices jumped 2.6% last week to close at $75.88 per barrel.
It was a relatively quiet week for macroeconomic data. On Monday, the Commerce Department reported that the preliminary reading for new orders for manufactured durable goods climbed 1.8% in August, better than expectations for a 0.6% monthly advance. On Wednesday, the National Association of Realtors reported that August Pending Home Sales grew 8.1%, ahead of consensus estimates for a 1.3% advance. On Thursday, second quarter GDP was revised up from an annual rate of 6.6% to 6.7%. On Friday, reports showed that personal consumption grew in August at an annual rate of 11.6% – ahead of personal income growth of 6.1% over the past year. In testimony before Congress, Fed Chair Powell conceded that inflation will likely remain elevated before moderating next year towards the Fed’s 2% target. Lastly, a government shutdown was averted as Congress passed stopgap funding to fund the government through early December (the debt ceiling was not raised).
Markets are still in a seasonally weak period (September through late October) so investors should not be surprised by increased volatility. We suggest that investors stay diversified and try not to get bogged down in the day-to-day noise of the financial talking heads. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Welcome to Fall!
ND&S Weekly Commentary 9.27.21 – Fall Is Upon Us
September 27, 2021
Halloween came early this year with investors spooked by one of China’s real estate developers, Evergrande, warning of defaulting on its bonds. Investors received a treat from “the man behind the screen” Federal Reserve Chairman, Jerome Powell, who decided to hold off on tapering the Fed’s asset purchases and made favorable comments about the sustained strength of the economy. As a result, the financial markets fluctuated throughout the week, ending the week in positive territory.
For the week the S&P 500 closed up 0.52%, the Dow Jones Industrials Average gained 0.62% and the tech-heavy Nasdaq rose 0.03%. International equities were weak with developed markets (MSCI EAFE) down 0.26% and emerging markets (MSCI EM) declining 1.01%. U.S. Treasuries fell last week as concerns about inflation, labor and supply shortages and the haggling over increasing the federal debt limit weighed on the bond market. The yield on the 10 year U.S. Treasury increased from 1.37% to 1.45%. Gold closed at $1,747 virtually unchanged and the price of oil (WTI) closed at $73.98/bbl up $1.97, near a 3 year high.
China’s regulatory pressures continued to affect stocks and cryptocurrencies as the People’s Bank of China issued a statement barring domestic and overseas financial institutions from providing cryptocurrency transactions. Cryptocurrency prices have and will be very volatile until regulatory risks are better understood. On the economic front, the hawkish Fed comments were surprisingly welcomed by investors and was seen as confirmation that the economy was able to stand on its own without the tremendous liquidity provided by the Fed. The nearest headwind is Congress passing legislation to fund the government to prevent a shutdown by September 30.
In economic reports released last week, new home sales rose 1.5% last month, above the 1% consensus to a seasonally adjusted annualized rate of 740,000. The U.S. unemployment number for the previous week was 351,000, slightly higher than the estimate of 335,000. At the end of July, job openings were at a record high of 10.9 million, which has greatly added stress to labor costs and productivity. This week’s economic reports will include durable and capital goods orders, S&P Case-Shiller home price index (year over year), consumer confidence, pending home sales, employment and core inflation.
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You don’t buy what is popular and do well.” –Warren Buffet
ND&S Weekly Commentary 9.20.21 – Markets Pulled Back Again – Seasonal Weakness
September 20, 2021
Markets pulled back last week as investors navigate what is a seasonally weak period for the markets.
For the week, the S&P 500 declined 0.54% while the DJIA was down fractionally (0.05%). The tech-heavy Nasdaq was off 0.46%. The lone bright spot was small-cap US companies as the Russell 2000 increased 0.45%. International markets struggled last week with developed markets (MSCI EAFE) down 1.38% and emerging markets (MSCI EM) off 2.19%. Bonds were flat on the week as the yield curve was virtually unchanged. The 10yr U.S. Treasury increased 2bps to close at a yield of 1.37%. Gold closed at $1,756/oz. – down 2.25% on the week. Oil (WTI) closed at $71.96/bbl., marking an increase of 3.23%.
Investors continue to debate the transient nature of inflation. The U.S. Labor Statistics reported the Consumer Price Index (CPI) increased 0.3% in August following a 0.5% advance in July. Over the last 12 months, the CPI has increased 5.3%. In other economic releases, industrial production increased 0.4% in August missing estimates of a 0.5% increase. Retail and food-service sales advanced 0.7% in August, well ahead of a forecasted decline of 0.7%. This week, the FOMC will hold their September meeting where they will debate the unwinding of the extraordinary support they have given the economy since the pandemic struck 18 months ago. No action is expected at the conclusion of this meeting, but most economists assume they will begin tapering their $120 billion of monthly bond purchases later this fall.
Markets seem to be in the midst of a little consolidation phase while looking for the next catalyst. Major averages have been relatively quiet but there have been quite a bit of cross currents racing below the surface. The cyclical sectors, namely Materials, Industrials, and Energy started off 2021 strong but are flat to down since April. Info. Technology, Communication Services, Health Care and Real Estate are all up double digits during the same time period. Markets should remain a bit choppy until earnings reports begin in early October.
We continue to suggest that investors position portfolios with a slight defensive bias close to their long-term target asset allocations. Markets could be a bit volatile over the next few weeks … hang in there!
“Our attitude toward life determines life’s attitude towards us.” – John N. Mitchell
Weekly Commentary (9/13/21) – Markets Take a Breather
September 13, 2021
Markets pulled back during last week’s holiday-shortened sessions with all four days posting moderate declines. Despite the pullback, markets are still close to all-time highs.
For the week, the DJIA lost 2.15% while the S&P 500 gave back 1.69%. The tech-heavy Nasdaq finished the week lower by 1.61%. International markets also finished in the red. For the week, the All Country World Index ex-USA was a bit better than domestic performance, but still finished lower by 0.50% while emerging market equities (MSCI EM) were also down 0.50%. Small company stocks, represented by the Russell 2000, were weak as they closed lower by 2.81%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was flat as it eked out a gain of 0.02% for the week as yields moved slightly higher. As a result, the 10 YR US Treasury closed at a yield of 1.35% (up 2 bps from the previous week’s closing yield of ~1.33%). Gold prices closed at $1,789.60/oz. – down 2.26% on the week. Oil prices jumped 0.62% last week to close at $69.72 per barrel.
It was a relatively slow week for macroeconomic data. On Thursday, the Department of Labor reported that initial jobless claims for the week ending September 4 were a pandemic-low 310,000 – a decrease of 35,000 from the previous week and better than the 335,000 consensus. These numbers seem to indicate that there has not been a rise in layoffs due to the Delta variant. On Friday, the U.S. Bureau of Labor Statistics (BLS) reported that the seasonally adjusted Producer Price Index (PPI) for final demand jumped 0.7% in August – higher than expectations for a 0.6% increase. August’s year-over-year increase in the PPI was 8.3% – the highest on record. Core PPI advanced only 0.3%, below consensus of 0.6%. Supply constraints are quite clear in August’s price increases as demand remains relatively strong.
September is the only calendar month with a negative return for the Dow Jones Industrial Average over the last 100 years (the median return for the S&P 500 in September for the last 25 years is slightly positive). A few big historical events have certainly weighed on September average returns – the Great Depression, the 1974 bear market, the 2001-2002 bear market and the 2008 global financial crisis. Of course, past returns do not predict future returns. Volatility should pick up over the next few weeks as Washington struggles with stimulus packages and tax reform. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the last weeks of summer!
“In the sacrifice of first responders and the mutual aid of strangers, in the solidarity of grief and grace, the actions of an enemy revealed the spirit of the people. And we were proud of our wounded nation.” – President George W. Bush
ND&S Weekly Commentary 8.30.21 – Summer Flew By
August 30, 2021
Markets reached all-time highs again last week as dovish comments by the Federal Reserve gave investors’ confidence to shrug-off the Afghanistan withdrawal crisis and the threat of two hurricanes. The Food & Drug Administration (FDA) approval of the Pfizer-BioNTech vaccine gave confidence toward an on-going recovery.
For the week, the DJIA increased 0.98%, the S&P 500 rose 1.54%, and the tech-heavy Nasdaq climbed 2.82%. U.S. small cap stocks, as measured by the Russell 2000, soared 5.06% and have returned 47.1% over the last 12 months. International stocks also had a strong week with developed markets (MSCI EAFE) and emerging markets (MSCI EM) adding 1.86% and 4.29%, respectively. Oil prices jumped 10.6% last week as hurricane Ida forced the shut-down of 96% of oil production capacity in the Gulf of Mexico.
So far this year the S&P 500 has returned 20% and has not had a 5% pull-back since last November. There has been a lot of sector rotation within the markets of late. Energy had a roaring start to the year but has given some back recently and is down 9.4% for the quarter as oil prices have declined. The best sectors recently has been the more defensive areas, utilities and healthcare, which are up 7.8% and 6.6%, respectively, while the S&P 500 has risen 4.9% this quarter.
On Friday, the Federal Reserve Chairman Jerome Powell stated that tapering of asset purchases could begin before the end of the year. Mr. Powell also reiterated that he remains confident that the inflation surge being felt this year is temporary. Yields drifted higher last week with the 10yr U.S. Treasury closing at a yield of 1.31% (5bps higher from the previous week).
Economic news last week revealed some possible slow-down in consumer spending and economic growth. Personal spending for July rose only 0.3% which missed consensus. The preliminary GDP report for 2nd quarter 2021 came in at 6.6% versus and estimate of 6.7%. The initial weekly jobless claims rose slightly to 353k. This week’s economic reports includes housing starts, consumer confidence, hourly earnings, and trade balance.
Historically, September has been the worst month of the year for the S&P 500, which has declined an average of 0.56% since 1945. With the devastation of hurricane Ida, the crisis in Afghanistan and the uncertainty of a delta variant surge, we would not be surprised by a market pull-back. We recommend a slightly cautious bias and for investors to remain in-line with long-term investment goals and asset allocation.
“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.” – Warren Buffett
ND&S Weekly Commentary 8.23.21 – Markets Recede from Records
August 23, 2021
Stocks gave some back last week following reports that US retail sales declined and the US Fed is considering tapering its asset purchases this year.
For the week, the DJIA declined 1.01% while the S&P 500 moved lower by 0.55%. The tech-heavy Nasdaq lost 0.70%. International markets were under pressure last week as developed markets (MSCI EAFE) finished lower by 2.94% % while emerging market equities (MSCI EM) gave back 4.61%. Small company stocks, represented by the Russell 2000, dropped 2.47% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.16% for the week as the yield curve moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.26% (down 3 bps from the previous week’s closing yield of ~1.29%). Gold prices closed at $1,779/oz. Oil prices dropped to $62.32/bbl from $68.93/bbl the previous week.
The release of the Federal Reserve July meeting minutes indicated that the Fed might begin tapering asset purchases before year-end. The Fed will host its annual Jackson Hole symposium (virtually) this week and Federal Reserve Chair Jerome Powell is scheduled to deliver his remarks on Friday. Market participants will be awaiting any insights as many central bankers aim to move away from easy policy. In other economic news last week, retail sales in July came in lower than expected and fell 1.1%. Despite the decline, the $617.7 billion in sales still represents a 15.8% increase from a year ago.
After a strong 8 months to start the year, we see markets grinding along over the next few weeks to months looking for a catalyst. Markets have so far been resilient to talks of “Fed tapering” and rollbacks of government stimulus as they have mostly looked to strong 2nd quarter earnings. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.
“Set your goals high, and don’t stop till you get there.” – Bo Jackson
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