NDS Weekly Commentary (1/21/20) – Positive Momentum Continues

January 21, 2020

Markets continued to grind to new record highs last week due to positive bank earnings and commentary, another round of analyst price target revisions, and the official agreement of the China-US phase one trade deal.

For the week, the DJIA advanced 1.84% while the S&P 500 gained 1.99%. The tech-heavy Nasdaq was up 2.29%. International markets were also strong as the MSCI EAFE index gained 0.86% while emerging market equities (MSCI EM) increased 1.17% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, jumped ahead by 2.54% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week flat as the yield curve remained roughly the same. As a result, the 10 YR US Treasury closed at a yield of 1.84% (up ~1 bps from the previous week’s closing yield of ~1.83%). Gold prices closed at $1,558/oz. Oil prices pulled back under $59 per barrel last week as oil remains mostly range bound due to sufficient supply and tepid demand.

Economic data released last week was mostly in-line with expectations. The U.S. Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) advanced 0.2% in December, missing expectations of a 0.3% advance. CPI has increased 2.3% year over year. The BLS also reported that the Producer Price Index (PPI) for final demand edged higher by a modest 0.1%. Inflation remains well under control and of little risk to the market. Retail and food services increased 0.3% (month over month) in December to $529B, matching expectations. It increased 3.6% in 2019 showing consumer’s willingness to continue to spend and companies’ ability to pass on modest price increases.

We acknowledge that valuations on the market are elevated at current levels and momentum clearly has control of the market following a very strong 2019. Earnings season kicked off last week and so far the results have been positive versus consensus. Earnings reports will continue this week with 39 companies comprising the S&P 500 scheduled to report results. Over the next few weeks, earnings will be critically important for the positive momentum to continue. We continue to recommend investors stay close to their long-term target asset allocations and with a slight defensive bias.

“Life’s most persistent and urgent question is, ‘What are you doing for others?’ “Martin Luther King, Jr.