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Archive for September, 2015

Weekly Market Update – September 25, 2015

Stocks were mixed Friday as the Dow gained 113 points while both the NASDAQ and the S&P 500 Index finished in the red.  For the week the Dow was down .4% and for the year the index is now down 9.2%.

Stocks began the day higher Friday after Fed Chairwoman Janet Yellen late Thursday said that the recent turmoil in global financial markets would not have an effect on the Fed’s policy and that she expects interest rates to increase later in the year.  The rally soon faded as weakness in the biotech sector weighted heavily.  Biotech indices were down approximately 15% for the week, the sector’s worst week in seven years.  Fears of overvaluation and comments from Hillary Clinton on Monday stating she would take on “price gouging” within the pharmaceutical industry should she assume the Presidency contributed to the sector’s decline.

The yield on the 10-year Treasury rose 5 basis points Friday to 2.17%, up 4 bps for the week and now flat for the year.  Oil rose 1.7% Friday to settle at $45.70.  The most recent rig count report released Friday, which showed a further drop in the operation of domestic oil drilling rigs, helped give oil prices a boost.

Next week’s economic calendar highlights include a consumer confidence reading on Tuesday, a September manufacturing report and weekly jobless claims on Thursday and the September jobs report on Friday.  Expect consumer confidence to fall slightly, manufacturing activity to show a decline from August, weekly jobless claims to settle in the 270-280,000 range (from 267,000 this week) and the jobs report to show the creation of 200,000 jobs in September (versus 173,000 in August) and the unemployment rate holding steady at 5.1%.

Weekly Market Update – September 18, 2015

The Dow fell 290 points Friday as markets digested the Fed’s decision to keep interest rates unchanged.  For the week the Dow was down .3% and for the year the index is now down 8.8%.

On Thursday the Federal Reserve opted to hold interest rates steady, citing concerns about the global economy, market volatility and low inflation.  The Fed also stated it wanted to see “greater improvement” in the labor market before acting.  In response, markets sputtered on Friday as the prospect of an additional period of “wait and see” sentiment failed to incite any positive momentum.  The prevailing thought has been that the Fed will announce a rate increase in December at the latest, though even this action is not guaranteed, as the Fed warned that any further negative financial developments globally could restrain economic activity and put downward pressure on inflation – a recipe for further delay.  

The yield on the 10-year Treasury fell 9 basis points Friday to 2.13% on the heels of the Fed’s decision, down 5 bps for the week and now down 4 bps for the year.  Oil fell 4.7% Friday to settle at $44.68.  Global growth concerns weighed on prices despite a report showing a further reduction in the operation of domestic oil drilling rigs.

A brief update on one of our largest positions, Magnum Hunter: Magnum Hunter is an energy company that primarily explores for and produces natural gas in southern Ohio and West Virginia.  Preferred shares from Magnum Hunter are in many portfolios.  Natural gas prices have been hurt as much as crude oil prices and companies in this sector are stressed as much as the crude oil companies.  To improve its liquidity, Magnum Hunter has publicly announced that it is selling its pipeline, which they say is worth about $600 million.  Pipelines have been attractive to buyers as this sector consolidates and pipeline capacity is particularly short in the area where Magnum Hunter’s pipeline is located. 

Because of a delay in the announcement of the sale, there has been a lot of selling in Magnum’s preferred shares, the value of which has been hit hard.  Despite our continued conversations with management (as recently as this week), in which the company maintained its stance that a pipeline sale is coming, we have decided to start to reduce our preferred position.  Our initial plan was to wait until there was an announcement of the pipeline sale before we started selling because the announcement would be a positive catalyst for the price of the preferreds.  However, because of the delayed announcement, we expect to make an orderly reduction in this position over the next several weeks.  If you have any questions please don’t hesitate to contact us. We expect making this change will return the portfolios to their low volatility pattern that our clients have come to expect. 

Next week’s economic calendar highlights include August housing data on Monday and Thursday, weekly jobless claims on Thursday and consumer confidence and a revised Q2 GDP number on Friday.  Expect the housing data (existing and new home sales) to show a slight decline in activity from July, weekly jobless claims to be in the 270-280,000 range (from 264,000 this week), consumer confidence to dip slightly and the GDP revision to show growth of 3.5% in Q2 (versus the prior reading of 3.7%). 

Weekly Market Update – September 4, 2015

The heightened market volatility continued this week with the Dow and S&P 500 both falling over 2% before pairing the losses midweek, only to fall further on Friday.  The Dow and S&P 500 were down 1.66% and 1.53% on Friday leading to a -3.25% and -3.40% weekly performance.  Relative to equities, our trust preferred securities performed well with a generally flat performance on the week.

It was the recent usual suspects with concern over China’s slowing economy and speculation about the Fed’s September interest rate decision to blame for the market turbulence.  On Tuesday, China’s government sponsored purchasing managers’ index fell to a 3-year low to 49.7 signaling a small contraction in their industrial production.  This disappointing trend was further confirmed by a similar but separate Caixin/Markit purchasing managers’ contraction for the month of August.  Any reading under 50 suggests a contraction in industrial levels and the Caixin/Markit reading was the 6th consecutive month that the reading has been under 50.  Similarly, the United States’ own purchasing manager’s index conducted by the Institute for Supply Management was also a disappointment on Tuesday.  The reading of a 51.1 for the month of August, while signaling an expansion, was lower than expectations and a drop from July’s reading of 52.7.

Friday’s jobs report was notable as it was the last significant economic data that is to be released before the Fed makes its decision about interest rates in two weeks.  While the headline 173,000 increase in non-farm payrolls was disappointing as a reading over 200,000 generally indicates healthy growth, there were numerous positive offsetting factors – July’s job gains were revised up from 215,000 to 245,000, wage growth of .3% month over month and 2.5% year over year beat expectations, and the unemployment rate fell from 5.3% to 5.1%.  This positive news generated a negative market reaction, as it increased the possibility of the Fed raising interest rates.  However, there is still no clear consensus on whether the Fed will ultimately decide to raise interest rates.  The positive jobs report is adding to the recent market volatility.

Important market data to look out for next week includes the Initial and Continuing Jobless Claims on Thursday and the Core Producer Price Index on Friday, which will portend whether inflationary pressures are gaining momentum.  The Michigan Consumer Sentiment reading for the month of September will also be out Friday.

 

Ulland Investment Advisors

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