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Archive for May, 2015

Weekly Market Update – May 29, 2015

Friday’s second estimate for the United States’ first quarter GDP showed a contraction of 0.7% propelling the market indices lower on the day.  This was a downward revision from the first estimate on April 29th of a less than stellar though still positive 0.2%.  A stronger than expected consumer sentiment reading did little to quell the markets with the S&P 500 and Dow finishing down 0.63% and 0.64% for the day and down 0.88% and 1.21%, respectively, for the short week.

There doesn’t appear to be a consistent narrative driving the increased market volatility this week.  Investor complacency and the concern that there hasn’t been a 10% market correction since August 2011 isn’t comforting.  However, that theme is not new to this week and would have resulted in serious remorse given the stock market returns over the last couple of years.  Another suggestion is the lack of progress between European Union Officials and Greek authorities.  Greece is one week closer to being unable to manage its impending debt obligations.  Again, this is not new and unlike the situation in 2011, European Officials believe that Greece’s liabilities are ring-fenced and will not cause material harm to the European banking system.  The EU’s peripheral members are now on much sounder financial footing and European Officials are content to exert this leverage.  As such, it is unlikely that Greece is the primary driver behind this volatility.

The most plausible culprit for the increased volatility is the Fed and the speculation about the future of interest rates.  While the story isn’t new, it follows that as the Fed begins to normalize interest rates, one would expect volatility to normalize as well.  The Fed, through its quantitative easing programs, has been suppressing volatility for so long that even minor market swings has investors questioning what is going wrong.  Though higher volatility in the equity markets may be an unfortunate consequence of normalized interest rates, it will provide the Fed with more policy tools in its arsenal in the event of a future recession.  Ultimately, a small price to pay for more effective monetary policy from the US Fed.

Crude oil was up nearly 4.5% to $60.51 per barrel on Friday, owing to a drop in the Baker Hughes rig count.  The oil and gas rig count dropped by 10 to 875 – the lowest number since January 2003 and more than 50% off its 2014 peak.  This is the latest signal that the oil supply demand imbalance is correcting itself, which should benefit oil and gas securities. 

Important economic indicators released next week include April’s Personal Income and Spending numbers on Monday, the Fed’s Beige Book for June on Wednesday, and Nonfarm payrolls for the month of May on Friday.

Weekly Market Update – May 22, 2015

Markets dropped into the close on Friday causing the Dow and S&P 500 to finish in the red.  They were down 0.29% and 0.22%, respectively.  The Dow finished the week down 0.22%, while the S&P 500 was up slightly with a 0.16% gain. 

The Federal Open Market Committee (FOMC) minutes were released from April’s meeting on Wednesday.  As expected, the minutes strongly suggested that an interest rate hike in June was off the table and would remain data dependent going forward.  The lackluster economic data and lack of inflation to start 2015 has pushed the prospect of an increase in interest rates to September if not later.  While the unemployment rate is more 1% lower than the Fed’s previously announced target of 6.5%, the Fed has been reluctant to increase rates largely because wage growth has been nonexistent.  Janet Yellen and the Fed continue to walk a fine line of projecting a consistent message (to maintain their credibility), while at the same time allowing flexibility in their policy decisions.

European politicians continue to deliberate the possibility for another Greek Bailout.  Over the past several months, negotiations between European ministers and their Greek counterparts have taken the routine of two steps forward two steps back.  This week was no different, with the groups failing to make significant progress towards resolving their differences.  With Greece running out of cash to meet their debt payments and public pension obligations, the end of this game of financial chicken is nearing.

Next week we expect Magnum Hunter Resources, one of our larger positions, to announce one if not several liquidity enhancing initiatives.  These initiatives should help the company recover from the pressure it has been under lately.  Initial and Continuing Jobless Claims are reported on Thursday, with expectation for claims of 270 K and 2,250K.  This would represent a slight improvement for the Initial Jobless Claims and a slight increase for the Continuing Claims from the prior week.  The second estimate for Q1 GDP will be presented on Friday, with a downward revision from -.7% to -1.0%.

The market and our office will be closed on Monday in observance of Memorial Day.

Weekly Market Update – May 15, 2015

The Dow managed a 20-point gain Friday on a relatively quiet trading day.  For the week the Dow gained 0.5% and for the year the index is now up 2.6%.

Economic data released Friday was soft as industrial production (factory output) declined more than anticipated and consumer confidence dropped unexpectedly.  The data underscores the concern that growth in Q2 will be tepid at best, suggesting the Fed won’t act aggressively in raising interest rates this year.

The yield on the 10-year Treasury fell 10 bps Friday to 2.14%, down 1 bps for the week and now down 3 bps for the year. Through Thursday, May 14, our trust preferred portfolios were up approximately 3.5%, on average, versus .42% for the Barclays Aggregate Bond Index. 

Oil fell $.04 to $59.84 Friday, ending the week up 0.6%. Friday’s drill rig report showed the number of rigs drilling for oil declined by another 8 this week to 660, continuing its more than five-month decline. The price of oil is up approximately 34% from its low earlier this year.

Next week’s economic calendar highlights include April housing data on Monday and Thursday, weekly jobless claims also on Thursday and April inflation data on Friday.  Expect the housing data to show an increase in housing starts and existing home sales from March, weekly jobless claims to settle in the 260,000 – 270,000 range (from 264,000 this week) and prices to hold steady from March.

Weekly Market Update – May 8, 2015

An April jobs report that was below the average monthly increase in 2014 sent markets higher Friday.  The Dow finished the day up 267 points.  For the week, the Dow gained 0.9% and for the year the index is now up 2.1%.

The April jobs report showed the addition of 223,000 jobs last month (vs. 85,000 in March) and a drop in the unemployment rate from 5.5% to 5.4%.  Average hourly earnings increased 0.1% in April, below expectations of 0.2% but up 2.2% year-over-year.  Markets reacted positively as the report confirmed continued growth both in jobs and earnings, but not to a level that would suggest an immediate interest rate hike by the Fed.  The most likely scenario is a gradual interest rate increase will begin later in the year or in 2016.  

The yield on the 10-year Treasury fell 4 bps Friday to 2.15%, up 3 bps for the week and now down 2 bps for the year.  Despite Friday’s drop, interest rates gradually have risen higher in the past weeks in anticipation of Fed action.  Through Thursday, May 7, our trust preferred portfolios were up approximately 2.5%, on average, versus .62% for the Barclays Aggregate Bond Index. 

Oil rose $.52 to $59.47 Friday, ending the week up 0.5%.  Friday’s drill rig report showed the number of rigs drilling for oil declined by 11 this week, dropping the total number in operation to 668, down from 1,528 at this time last year.  Earlier in the week, oil inventories fell for the first time in 2015, an indication that supply is finally decreasing. 

Next week’s economic calendar highlights include April retail sales on Tuesday, weekly jobless claims and an April inflation report on Thursday and a consumer confidence reading on Friday.  Expect retail sales to show a slight decline from March, weekly jobless claims to settle in the 280,000 – 290,000 range (from 265,000 this week), prices to remain steady and consumer confidence to rise slightly.

 

Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464