What happened in July?

What happened in June?

What happened in May?

What happened in April?

President & CEO Dan Kraninger reflects on the first quarter of 2019 and provides insight moving forward.

“To Understand the things that are at our door is the best preparation for understanding those that lie beyond.”  

  - Hypatia

What happened in March?

What happened in February?

The strong start to the year continued in February with a positive month for equities. Relatively upbeat earnings and economic news outweighed continued uncertainty and concerns about slowing global growth.

One of the top stories from the month was the U.S. extending the deadline for increasing tariffs on Chinese goods, possibly signaling that an agreement is near. However, the month came to an end with no firm indication of a conclusion to the negotiations. Additionally, concerns remain that any agreement will not bring an end to the rivalry between the two countries. As negotiations continue, the Chinese manufacturing purchasing manager index dropped to its lowest level in three years – reinforcing some concerns of a global slowdown.

While global growth might be slowing, the U.S. economy appears to be strong. Positive economic data was released last month including the GDP growth rate from Q4 2018 beating estimates, personal income growth and a rebound in business investment. Doubts remain however over the sustainability of the decade-long expansion. The Federal Reserve’s current “patient” stance hints at these concerns.

Internationally, emerging markets had only a slightly positive month after a large rebound in January. The U.K. is still struggling to reach a Brexit agreement and Canadian Prime Minister Justin Trudeau is facing domestic political controversy.

President & CEO Dan Kraninger reflects on the fourth quarter of 2018 and provides insight moving forward.

“To different minds, the same world is a hell, and a heaven.”  

  - Ralph Waldo Emerson

Excerpts from a recent Q&A with our Portfolio Management Team.

What do you make of the recent volatility in the market and how has it, or hasn’t it, impacted your outlook and investment decisions for the portfolios?

What happened in December?

What's Going on with the market?

What happened in November?

What happened in May?

U.S. equities moved higher in May as positive fundamental data prevailed over headline news. Macroeconomic data continued to paint a rosy picture of the U.S. economy with consumer spending ticking higher in April driven by rising incomes and higher employment. The final tally from first quarter earnings was positive for companies in the S&P 500. In contrast, numbers released by the Commerce Department showed that corporate profits grew by a small amount in the first quarter from a year ago and, without the added benefit from the tax overhaul, profit growth would have been lower.

Geopolitical events were in focus throughout the month. The markets reacted rather severely to news of a new Italian government that may center on skepticism towards the Eurozone. Investors were worried about the state of Italian debt if the country decides to move back to the devalued lira and out of the Eurozone’s economic protection. These political concerns and U.S. trade tariffs impacted the EU market negatively in May. Emerging markets continued to struggle as the U.S. dollar strengthened, making their dollar denominated debt more expensive and pulling investors away from the riskier asset class. At the end of the month, the U.S. decided it would implement tariffs on steel and aluminum products from Canada, Mexico and the EU. This move raised concerns over potential retaliatory trade policies from these countries as well as the impact of higher priced goods on manufacturers and multinational corporations.

What happened in April?

Bolstered by strong corporate earnings reported for the first quarter, the S&P 500 Index experienced a small gain during the month of April. Of the 274 companies in the general market index that reported their first quarter earnings, almost 80% reported above analysts’ expectations. This number is above the long-term average of 64% and the four prior quarters’ average of 72%. Considering these strong numbers, the equity market’s reaction was relatively muted. The limited reaction may have been due to the equity market boost that already occurred in December from the tax overhaul, which somewhat priced in expected strong earnings for Q1. Trade restrictions and rising oil costs are putting pressure on manufacturers who are subsequently pushing some costs to consumers. As a result, inflation ticked higher in March, increasing by 2% from a year earlier according to the Commerce Department’s price index. A 2% rate of inflation is the Federal Reserve’s target and may put more pressure on the central bank to increase interest rates more quickly.

Across the globe, the pan-European index Stoxx Europe 600 gained in April on positive corporate earnings, despite some unfavorable economic news out of Germany and Italy. In the final hours before the deadline, the U.S. extended the implementation of tariffs going into effect on the Eurozone and other U.S. allies to June 1st, much to the relief of these countries.

What happened in March?

Equities advanced in early March but concerns over rising interest rates, global trade tensions, and a selloff in the technology sector stunted the rally and turned major stock indexes negative for the month. The S&P 500 Index posted a quarterly loss for the first time since Q3 2015. The Federal Reserve increasing their target interest rate in late March was largely priced into the market, however continually positive economic data had investors betting on a more aggressive schedule of rate increases in the coming years. U.S. tariffs and trade policies rattled the market with speculation of shrinking profit margins for multinational companies and material producers that rely on aluminum and steel imports. However, subsequent negotiations did help to quell some concerns. Growing controversy regarding Facebook’s handling of user data raised questions over possible increased regulation in the technology sector. As a result, the high-flying sector, which accounted for almost 25% of the S&P 500’s market value, drove the overall market lower.

Across the globe, European stocks rallied in the final week of the month to get back to relatively flat and Asian markets saw less of an impact from U.S. technology stocks’ decline, although trade tensions with the U.S. weighed on the Pacific region.

What happened in February?

February began with an abrupt reintroduction to stock market volatility. A selloff that started on January 26th extended to February and shaved 10% off of the S&P 500. This is the first time the general market index was pushed into correction territory since late 2015. The reasons behind the selloff are numerous but are largely based off a realization of and reaction to the increased likelihood of a spike in inflation and subsequently increasing interest rates and bond yields. One concern for equity investors is that rising bond yields will attract more investors to bonds, which will lower demand for stocks and pull prices lower. However, a strong Q4 earnings season and continually strong macroeconomic data drove the market higher from the bottom on February 9th. During this positive run of 5%+, the S&P 500 recorded its best week (2/12 – 2/16) since 2013. The new Federal Reserve Chairman, Jerome Powell, gave testimony to Congress affirming the strong state of the U.S. economy, accrediting speculation over rising interest rates and driving the general market down slightly at the end of the month. U.S. bond prices were pushed down by the 10-year Treasury yield climbing to 2.86% at the end of February from 2.73% at the start the month (bond prices decline as yields increase).

Across the globe, international stocks moved in sync with the U.S. stock market’s fall and subsequent rebound during the month. However, international markets ended the month lower than the U.S. due to similar inflation concerns, a lack of progress from Brexit discussions and Chinese factory activity slipping to a 19-month low.

“Everyone has a plan 'till they get punched in the mouth.” – Mike Tyson

Since the start of the year through market-close on January 26, the S&P 500 Index increased +7.6%. Then, over the next 6 trading sessions (January 30 – February 5), the index dropped –7.8%, giving back all the early year gains. Tough to swallow? Most certainly. Unexpected? No.

What happened in January?

U.S. equities got off to a strong start in 2018 as the three major domestic indexes hit new highs in January before drawing back at the end of the month. Despite the strong numbers, rising bond yields (the 10-year Treasury note hit its highest yield since April 2014) and large intraday declines in the final days of the month raised concerns over the sustainability of such a high-priced market. Volatility in the U.S. also picked up in January with the VIX hitting a five-month high. With over half of the companies in the S&P 500 having reported, 81% beat analysts’ estimates helping to push the S&P 500 to monthly gains on the final trading day of the month.

Across the globe, French GDP rebounded significantly last year growing at its fastest rate since 2011 and boosting Eurozone GDP growth. Often an economic laggard, France’s reemergence is a positive macroeconomic indicator for the Eurozone. Emerging markets continued their positive run into 2018, boosted by a weak dollar, globally low bond yields and increasing flows of investments from around the globe.

What happened in November?

Global equities continued to move higher as major market indices reached new milestones again in November, specifically the Dow Jones Industrial Average (DJIA) which moved above 24,000 for the first time ever. Coming 30 trading sessions after its last, this marks the 5th thousand-point milestone this year. The S&P 500 also hit a new high this year, passing 2,600 and moving up 3.0% for the month. Helping the cause, the U.S. GDP growth rate was revised up for the third quarter to 3.3% and the International Monetary Fund raised its global growth forecasts to 3.6% for this year and 3.7% next year.

Proposed U.S. tax reform legislation, a big driver of recent market advances, hit a snag over concerns about the impact of a significantly lower corporate tax rate on federal deficit. This complication will delay the next senate vote and likely extend the previously aggressive timeline of passage. In monetary policy news, Janet Yellen provided a mostly positive assessment of the U.S. economy in her congressional testimony and confirmed the Fed’s continued plan of gradual rate increases. Across the globe, a strong month (and a stronger year) for tech stocks that pushed the sector of the MSCI Emerging Markets Index above the financial sector for the first time since 2004 ended with declines in the final trading days of November.

NorthCoast Asset Management introduces four international ETF strategies

Global Select, International Select, International Select Hedged and Emerging Market Select are the newest offerings by NorthCoast and the firm is excited about the opportunity and timing.  

“International equities have been a long-standing research focus of NorthCoast and with the recent underperformance in international markets over the last few years, we believe now is a great time to offer these solutions to investors.” –Dan Kraninger, NorthCoast President  & CEO

Global Select, International Select, International Select Hedged and Emerging Market Select are the newest offerings by NorthCoast and the firm is excited about the opportunity and timing.  

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”  

– Ben Graham

 Uncertainty and surprise lead today’s market volatility

U.S. futures were pointed lower this morning and U.S. equity markets are expected to move in volatile action today as a result of the U.S. presidential election. In our position, last night’s election results do not indicate any substantial change of equity outlook in the near term.

“What’s the benefit of a 30-stock portfolio? Why the difference in position sizes?” 

Response by: Andy Burrow, Client Advisor

With the current available data, the probability of a rate hike in September is low. The market is currently pricing a 26% chance of a hike in September, 32% in November and 52% in December.   

On June 23, U.S. stocks were approaching new highs and on a trajectory to close the quarter and year-to-date in positive territory. Later that evening, citizens in Great Britain voted to remove their country from the European Union (EU), a politico-economic union of 28 nations.

What happened?

Great Britain voted by referendum yesterday to leave the European Union. British Prime Minister David Cameron gave notice of his resignation effective in three months.

What is the European Union?

U.S equities advanced over the final two weeks of May, temporarily dispelling the myth, “sell in May and go away”. The S&P 500 Index increased +1.7%, while the Russell 2000 Index moved +2.2%. The S&P 500 Index now sits +3.3% YTD heading into June. The boost in U.S. equities coupled with positive macroeconomic data has reignited speculation of another rate hike by the Federal Reserve. The U.S.

The U.S. stock market limped into May as the intra-month rally faded over the final two weeks of April. The S&P 500 ended the month +0.35% and sits +1.53 YTD. The Federal Reserve continued to play a “wait-and-see” game in its decision for another rate hike while commodity prices stabilized and the U.S. dollar weakened. As Q1 earnings season concludes, the results provided no clear answer to the strength of the U.S. economy.

U.S. equities (S&P 500) opened the year with an almost 6% decline in January, remained flat with a down-then-up February, and have since rallied over 6% in March to end the quarter +1.2% YTD. International equities (ACWI ex-U.S.) experienced even greater gains in March with a +8.1% return, paring earlier losses and sit -0.4% YTD.

After declining almost 6% to start February, the S&P 500 index has rallied over 7% since February 12 to finish the month nearly flat at -0.2% return. The index remains negative for the year at -5.2%.

Much of the fear and uncertainty that “strong-armed” equities in January has temporarily subsided.

 Major oil producers around the globe continue to seek agreements in limiting supply to increase prices

Stocks experienced their worst January since 2009 as U.S. equities (S&P 500) fell -5.0% while international equities (ACWI ex-U.S.) dropped -6.8% during the month. Global growth concerns (particularly in China), a continued decline in oil prices, and uncertainty in central bank action were believed to be the main drivers behind the weak start to 2016.

We entered 2016 hedged with almost 30% cash in our tactical U.S. equity portfolios. Since, the market has declined -8%. This negative start has improved our valuation metrics which in turn switched our market exposure model to a more bullish position.

The U.S. stock market presented challenges in 2015. While major U.S. indices ended the year relatively flat, the average stock ended in negative territory. When the markets closed on December 31, the S&P 500 Index produced an annual return of +0.74%, while RSP (Guggenheim S&P 500 Equal Weight ETF), a gauge of the average stock price, ended -2.7%.

Global stocks fell in November’s early trading sessions but pared losses over the last two weeks to end the month relatively flat. U.S. stocks (S&P 500) are +2.4% YTD with international equities (ACWI ex-U.S.) -3.9%YTD.

Hot Topics with Julia Zhu, Senior Vice President & Portfolio Management Team Member

The global macroeconomic expert provides insight to international growth concerns and the impact on equity and fixed income securities.

Global stocks regained footing in October with the S&P 500 rallying +8.4% and the All-Country World Index ex-U.S. (ACWI ex-U.S.) adding 7.4%, their largest monthly gains in four years. Much of the gain can be attributed to the overreaction to market sell-offs in August, coupled with central banks reaffirming enhanced stimulus efforts to bolster global markets.

President & CEO Dan Kraninger reflects on a volatile 3rd quarter and provides insight moving forward

In the five trading days from 8/19-8/25, the S&P 500 dropped almost 10% in value. One day later, on the 26th, with uncertainty and fear at recent highs, we published the following the message on our bullish outlook and sent it to each of our clients and partnering advisors. We encourage you to read the message here.

For over a quarter century, NorthCoast has been mindful of one key principle, creating a good long-term track record is more often built by avoiding losses as opposed to booking big gains. Every year since our founding in 1988, we have offered tactical investment portfolios that move to cash in an effort to avoid steep losses. It was this belief, coupled with our long-term performance that attracted Investor’s Business Daily (IBD) to partner with us in January 2006. We proved our mettle during the bear markets of 2000-2002 and 2008-2009 by preserving capital in client accounts.

In the midst of the stock market's swoon, it's important to keep things in perspective. Let's look back at recent history:

Does 7/7/11 – 10/4/11 look that scary now? -20.8% peak to trough (drawdown) on S&P 500 over a 3-month period... It traded higher by the end of February 2012.

What about the October 2014 correction, 9/19/14 – 10/15/14? Does that look scary now?  -9.4% peak to trough... Traded higher by mid-November 2014.

“Active funds and strategies are underperforming passive indices recently. And they’re cheaper too. Why not move my money to a passive strategy?” 

Response by: Joe Merkle, Client Advisor

By President & CEO, Dan Kraninger

"Volatility is not the same thing as risk, and anyone who thinks it is will cost themselves money" - Warren Buffett

As 2015 approaches its midway point, U.S. equities continue their soft ascent in positive territory. The S&P 500 gained +1.2% in May with an annual gain of 3.0% YTD.

Equities (S&P 500) softened over the recent week and capped off the month with a -1% drop on the last trading day. The S&P 500 now sits +1.7% YTD with international stocks (ACWI ex-U.S.) leading the charge at +8.7%.

by NorthCoast President & CEO, Dan Kraninger

“Your biggest opponent isn’t the other guy. It’s human nature.” - Coach Bob Knight

With 43 years of coaching and over 900 wins under his belt, I’m inclined to take note when Bobby Knight talks about what it takes to win in March. It’s easy for me to see how emotions like fear, conceit, pride, and anxiety can creep into locker rooms and prevent teams from reaching their ultimate goals.

February brought a strong rebound in stocks coupled with confirmation that volatility and uncertainty are prominent fixtures in the 2015 market. After a 3% decline in January, stocks rose almost 6% this month and now sit +2.5% YTD.

1. How is the global currency impact integrated in the forecast of our stock selection model?

For a second consecutive calendar year, U.S. equities dropped more than 3% in value during the month of January. The S&P 500 ended -3% as global macroeconomic worries and portfolio re-balancing took effect.

By NorthCoast President & CEO, Dan Kraninger

“The only function of economic forecasting is to make astrology look respectable.”

                                                                        --  John Kenneth Galbraith

Chief Investment Officer, Patrick Jamin, provides commentary and insight on the 2014 market and what lies ahead in 2015. 

NorthCoast Navigator

January 2015

Increased oil production growth globally and the rise of shale in the U.S. has led to the oversupply in the oil & gas industry dragging down oil prices.

NorthCoast Navigator

December 2014

1.       Do you think a delayed sales tax increase and a potential stimulus package in Japan will be effective in pulling Japan out of its recession?

"To think is easy. To act is hard. But the hardest thing in the world is to act in accordance with your thinking" - Johann Wolfgang von Goethe

Overview

Since October 1, the market has declined approximately 8% off its all-time highs. Our portfolio management team has provided three (3) key elements to the recent correction and what it possibly means moving forward.

1. Putting the recent pullback into perspective

The VIX Index (~ fear Index) is at its highest point over the past two years and makes incursions into this territory about once per quarter. In each instance, the market pulled back before resuming its ascent once the fear subsided and the VIX came back to a normal level.

"Conviction is worthless unless it is converted into conduct." - Thomas Carlyle

After a relatively volatile quarter, equities (S&P 500) ended with a 1.0% gain. A sell-off in July was quickly erased with an almost 4% run in August. September finished -1.5%, mostly on the angst of the global economic recovery and geopolitical tensions. Despite the headlines, the S&P 500 remains positive at +7.8% YTD and the All Country World Index (ACWI) at +3.7% YTD.