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Archive for November, 2016

Weekly Market Update – November 23, 2016

The Dow was up 59 points on Wednesday after the index closed above 19,000 for the first time in history with hopes that new economic policies will lead to higher growth. For the week the Dow was up 1.1%. Year-to-date the Dow is up 9.5%.

The interest rate spike has been reversing this week as investors calmed down from previous expectations. Preferred stock prices recovered some from the previous week’s decline. The bond market has been under pressure since Trump’s victory in the presidential election, as investors expect increased inflation related to expansionary fiscal policy. The market focus continues to be the complexity of tax reform, fiscal stimulus, worries about growth headwinds from tighter financial conditions, a higher U.S. dollar, and restrictive trade.

October’s existing home sales report continued strong with sales increasing 2% sequentially to 5,600,000, the best level since February 2007. Sales increased 6% from last year across geographic regions with median price up 6% to $232,000. The number of first-time buyers slowed down to 33% of October sales from 34% in the prior month. The report was also positive on labor market dynamics and signs of greater economic expansion.

The price of crude oil was 5.3% higher this week, following an unexpected decline in the U.S. inventories and the renewed optimism surrounding OPEC’s ability to finalize a preliminary production cut agreement reached in late September. Iraq officials said the country would cut production along with OPEC, and Iran’s oil minister indicated that OPEC is “highly likely” to reach a final agreement at its Nov. 30 meeting. Stronger U.S. dollars will continue to be a headwind for oil prices.

Corporate earnings are running ahead of expectations with upside surprises from Dollar Tree, Analog Devices, Hormel Foods, and Burlington Stores. Q3 earning reports will continue next week for widely held companies like Valspar, GUESS Inc., Tuniu Corp, Express Inc., etc.

Our office and the market will be closed Thursday, November 24, and Friday afternoon, November 25, in observance of Thanksgiving. Next week’s economic calendar highlights include Second Estimate of GDP and Consumer Confidence (Nov. 29), Crude Inventory (Nov. 30), Initial Jobless Claims and Auto-Sales (Dec. 1), and Non-farm Payrolls (Dec. 2). Among these, the Non-farm Payrolls will have the biggest impact on the market.

Have a great weekend and happy Thanksgiving,

Yansong Pang

Weekly Market Update – November 18, 2016

The Dow was down 35 points on Friday, though on the week the index was up 5.5%. Equities continued to surge in light of the Trump administration’s announced plans for major infrastructure spending and reduced regulation, along with likely corporate tax reform and new healthcare legislation. Year-to-date the Dow is up 8%.

Economic data on the week were mostly positive. Retail sales climbed 0.8% in October, beating consensus forecasts of a 0.6% gain. Auto sales (up 1.1%), gasoline (up 2.2%), and building materials (up 1.1%) drove the beat. The October numbers showed the highest growth in core retail sales since April. The producer price index (PPI) was unchanged in October, disappointing analysts. Excluding food and energy, the indicator fell 0.2% against expectations for a 0.2% increase. On the other hand, the consumer price index was up 0.4% from its September, and 1.6% from October of 2015. This marked the fastest annual growth rate in two years. Initial jobless claims came in at 235,000. This was considerably below Wall Street’s consensus estimate of 257,000 and marked their lowest level since November 1973. Elsewhere, new housing starts were a seasonally-adjusted 1.32 million. This beat the Street’s expectations of around 1.16m.

Federal Reserve members continued to signal that a December rate hike is likely. In a speech before Congress’s Joint Economic Committee, Fed Chair Janet Yellen said that the case for a near-term rate hike continued to strengthen. Though she acknowledged that uncertainty is likely to persist in the wake of the election, Yellen reiterated that gradual tightening was still appropriate. St. Louis Fed President Bullard affirmed this stance. He observed that the re-pricing in equities and the dollar since the election remained within the range of fluctuations over the previous year. One rate hike, he said, could therefore be enough to achieve equilibrium monetary policy. Investors put the odds of a quarter-percent rate hike in December at 91%. The US Preferred Index is down 3.2% on the month. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index, although all fixed income is down sharply since the election.

Crude rebounded to $45.70, finishing the week up around 5.3%. Trading was volatile throughout the week as analysts assessed the chances of a production cut at OPEC’s meeting at the end of the month. Reports of progress on a deal, including a suggestion Russia would cooperate with OPEC on such a measure, spurred crude prices to their best one-day gain since April on Tuesday. Prices retreated towards the end of the week amid persistent doubts that major producers could agree on the terms of a production deal. Rising US crude stockpiles and a strengthening dollar also weighed on prices.

Next week’s economic calendar highlights include new home sales (Nov. 23rd) and initial jobless claims (Nov. 24th). Additionally, a final few third quarter earnings reports will be released. DollarTree, HP, MedTronic, and Hormel Foods, among others, are scheduled to report. Volumes will likely be light during the second half of the week. Markets will be closed in observance of the Thanksgiving holiday next Thursday, and will only open for half a day on Friday.

Have a great weekend.

J.M. Hanley

Weekly Market Update – November 11, 2016

The presidential election has dominated the news and the market. Performance of equities diverged sharply from fixed income. Within equities, pharmaceuticals, financials, small caps, and infrastructure-related did well. Cash to buy these sectors came out of technology, gold, alternative energy, utilities among others. For the week the DOW was up 4.5%. Year-to-date it is up 7.84%. The broader S&P 500 for the week was up 3.6% to 2164. Year-to-date it is up 5.9%. The Nasdaq was up 3.6% to 5235 on the week; year-to-date it is up 4.59%.

What we are seeing in the market is a stronger concern that interest rates will rise. Trump’s infrastructure and tax proposals are viewed as potentially inflationary. The infrastructure proposal is similar to what Obama proposed, so it is more likely to be bipartisan. Trump also criticized the Fed for not raising rates. So, as a result of these factors, market interest rates have moved higher quickly, which depresses fixed income security prices. What does not change is the income generated by fixed income securities. If the value increases, the income stays the same. If the value goes down, the income stays the same. A second conservative factor is that some portfolio securities have dividends that start floating with interest rates after a certain period of time. These fixed-to-float securities are structured to defend against the impact of rising rates.

The Fed meets in December and is expected to raise rates one quarter of a percent. Most of that is now in the market. There might be one more raise or nothing in 2017. Once December passes, I expect the portfolio values to be less volatile than we are experiencing. If you keep your eye on the income from the portfolio, you will see a high level of stability. We expect a good dividend flow between now and the end of the year as well as some recovery in fixed income prices.

The decision to have Vice President-elect Pence head the transition team also should calm the markets. The more adults in the room, the better. The expectations are so low for Trump from the media that there is plenty of room to exceed them. A calming impact should take some of the heat out of interest rates.

Crude was down 2.1% to $43.97 Friday afternoon, off from a $44.07 close a week ago. Markets remained dubious about OPEC’s commitment to a production freeze in light of a record production surge and continued disagreement within the block. Corporate earnings for the week contained positive news for Priceline, Gap, and UPS. However, AMC Entertainment and CVS disappointed. This week marked the conclusion of the majority of Q3 earnings reports.

Highlights on next week’s economic calendar include retail sales (Nov. 15), the consumer price index (Nov. 17), and housing starts (Nov. 17). Continued market volatility stemming from the outcome of the election can also be expected.

Have a good weekend.

Jim Ulland

Weekly Market Update – November 4, 2016

The Dow was down 42 points on Friday as employment data signaled modestly slowing growth in the labor market and broader economy. For the week the Dow was down 1.5%. Year-to-date the Dow is up 2.7%.

Economic data came in mixed. October nonfarm payroll rose by a seasonally adjusted 161,000 from the prior month, though the longer-term growth trend remains low. ISM manufacturing index improved to 51.9 in October from 51.5 in September, while ISM non-manufacturing index came in at 54.8, down from September’s 57.1 level. Business activity was weaker in October at 57.7 against September’s 60.3 reading. Unit labor costs were up 0.3% on an annual basis vs. consensus for a 1.5% rise and prior increase of 3.9%. Hourly compensation was up 3.4%. Chicago Purchasing Manager’s Index fell to the lowest reading since May. Personal income for US consumers increased by 0.3% and personal spending increased by 0.5%.

The Federal Open Market Committee (FOMC) made no interest rate change at its November meeting, as was widely expected. The meeting released no guidance on an interest rate hike. However, it did note that household spending has been “rising moderately” (as opposed to “growing strongly,” from the September statement). One notable change was that Eric Rosengren, who voted for a hike at the September FOMC meeting, favored a hold in this meeting. The market’s attention now moves to the Fed’s December 13-14 meeting, which will include a scheduled press conference. Currently the market sees a 70% chance of a hike at that time. For the week, the U.S. Preferred Index was down 2.26%. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index.

The price of crude oil finished 9.5% lower this week, following the lack of progress on oil production deal to reduce output from the OPEC and non-OPEC producers. The deal is intended to be finalized at a 30-Nov OPEC meeting and OPEC’s Secretary-General stated that the deal remained “on course.” The EIA reported a record weekly 14.4M barrel crude inventory build on Wednesday, far in advance of the 1.5M consensus. The market remains skeptical about a production-freeze deal.

Corporate earnings are running ahead of expectations with upside surprises from Stamps.com, Air Lease, Alibaba, Ligand Pharmaceuticals, and Callon Petroleum Company.

Next week’s economic calendar highlights include Wholesale Inventories and Crude Inventories (Nov. 9), and Initial Jobless Claims (Nov. 10). Q3 earning reports will continue next week for widely held companies like Priceline, Uhal, Softbank, etc. The U.S. presidential election will add to the continued volatility of the market.

Have a great weekend,
Yansong Pang

 

Ulland Investment Advisors

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