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Archive for December, 2016

Weekly Market Update – December 30, 2016

The Dow was down 57 points on Friday after the investors were digesting the large market move since the election. For the week the Dow was down 0.9%. Year-to-date the Dow is up 13.4%.

U.S. Treasuries yields rose from a record low earlier this year as market expectations shifted towards stronger growth, higher inflation and a faster pace of interest rate increases by the Federal Reserves. The expected expansionary fiscal policy and lighter regulations proposed by President-elect Donald Trump also contributed to higher interest rates. The yield on 10-year Treasury note closed the year at 2.4%. Our preferreds ended the year substantially outperforming the Barclay’s Aggregate Bond Index.

Consumer confidence for December rose to 113.7, ahead of the 108.2 consensus estimate and up from 109.4 in November. It was the strongest reading since 2001 and came after a steep rise in November. The post-election surge in optimism was most pronounced among older consumers. November pending home sales fell 2.5% vs. a consensus 0.4% gain. The index is now down 0.4% year over year and at its lowest level since January. The sharp rise in mortgage rates, along with low inventory, discouraged would-be buyers. National Association of Realtors’ chief economist said higher borrowing costs cloud the outlook for 2017.

The price of crude oil was 1.5% higher this week, on pace for its biggest annual gain since 2009, up about 45% year-to-date. Saudi Arabia and its OPEC allies pledge to cut output has fueled a gradual rally since this agreement. Skepticism of OPEC’s commitment and worries over U.S. companies continuing to drill have prevented oil prices from reaching higher, as most market watchers are waiting to see the production reports for the first few months of 2017.

Our office and the market will be closed Monday, January 2 in observance of New Year’s Day. Next week’s economic calendar highlights include Construction Spending (Jan. 3), Crude Inventories and Auto Sales (Jan. 4), Initial Jobless Claims (Jan. 5), and Nonfarm Payrolls (Jan. 6). Among these, the Non-farm Payrolls will have the biggest impact on the market. Corporate earnings for Q4 will start in the week of January 9th.

Have a great weekend and Happy New Year!

Yansong Pang

(庞岩松祝新的一年一切都好!)

Weekly Market Update – December 23, 2016

The Dow was flat on Friday but up slightly on the week at 19,933. Markets were fairly quiet the week before the Christmas holiday. Financials continued to outperform, as they have since the election, amid optimism about rising interest rates. Healthcare equities retreated given ongoing concerns about political uncertainty and debates over drug pricing. The US Preferred Index is down 2.3% since the election. Our preferred strategy continue to outperform this index and the Barclay’s Aggregate Bond Index. Our preferreds are up so far in December.

The week brought another round of important national and international political headlines. Investors continued to applaud the deregulatory initiatives of the new administration, though some balked at perceived anti-trade policies. In its quarterly meeting Tuesday, the Bank of Japan opted not to raise interest rates but expressed optimism about the world’s third-largest economy for 2017. BoJ chief Haruhiko Kuroda argued that a number of factors, including a weaker yen and improving industrial production, could push GDP growth up to 1.5% in the coming year (from 1.3% in 2016). Elsewhere, Deutsche Bank and Credit Suisse both announced settlements with the Department of Justice in lawsuits related to the subprime crisis. Deutsche Bank’s $7.2B fine was better than investors expected, pushing shares up 0.5%; Credit Suisse’s $5.3B levy was worse than expected, forcing the stock down 0.5%. Additionally, Italy announced that it would bail out its third-largest bank, Monti dei Paschi di Siena.

Economic data on the week were largely mixed. Third-quarter GDP figures were revised up to 3.5% (ahead of the expected 3.2%) on the strength of growing imports and private inventories. Income growth was flat in November – analysts were looking for an uptick of 0.3% – while personal spending climbed 0.2%. It climbed 0.4% in October. Initial jobless claims were up to 275,000. This was well ahead of the consensus estimate of 255,000, and marks the largest weekly increase since April of 2014. In other macroeconomic news, weakness in transportation weighed on otherwise positive durable goods numbers. Orders dropped 4.6% in November, worse than the Street’s estimate of 4.1%. Existing home sales were a bright spot. They climbed 0.7 % from the previous month (15.4% from a year ago), the fastest rate of expansion since the financial crisis. According to the National Association of Realtors, a strong jobs market and the anticipated rise in interest rates drove the surge. Inventories have now fallen for eighteen consecutive months, a trend predicted to intensify through 2017.

Crude oil showed slight gains on the week. The WTI index increased 2.2% to $53.06 a barrel. Prices retreated early in the week following an unexpected increase in domestic crude inventories. Investors were also concerned about a report that thirteen new domestic rigs came on-line in the past week – an indicator of continued recovery in US shale – as well as an announcement by Libya’s National Oil Corporation that it had reopened a major pipeline that had been closed due to the country’s ongoing civil war. Prices ultimately recovered, buoyed by optimism about last week’s deal between OPEC, Russia, and other major producers to cut crude output. Nevertheless, uncertainty remains high. Analysts expect crude to continue trading in a relatively narrow range until early next year, when investors have a chance to assess whether or not oil-producing countries are sticking to the terms of the production-cut agreement.

Highlights from next week’s economic calendar include revised consumer confidence (Dec. 27), initial jobless claims (Dec. 29), and natural gas inventories (Dec. 29). Trading will be lighter this week between Christmas and the New Year’s holiday.

Weekly Market Update – December 16, 2016

The Dow was down slightly on Friday, flat on the week at 19,843.41. The post-election rally lost some steam following the Federal Reserve’s announcement Wednesday that it intended to raise rates three times in 2017. Bond yields, and the dollar, also climbed on the news from the Fed. The US Preferred Index is down 4% since the election. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index. Our preferreds are up so far in December.

The Federal Reserve announced Wednesday that, as widely expected, it would raise rates by a quarter percent. More surprising was the board’s guidance for three quarter-percent rate hikes in 2017. Wall Street had predicted two. Chairwoman Janet Yellen said that inflation and employment levels have made substantial progress towards the Fed’s targets. However, both remain low and the macroeconomic outlook is still uncertain – justifying continued caution in monetary policy. Yellen avoided comment on Trump’s proposed infrastructure plan, saying only that the economy could likely reach full employment without fiscal stimulus.

Domestic economic indicators this week were mostly positive. The Small Business Optimism Index rose to 98.4 in November, up thirty-five basis points since October. The index increased sharply after the election, as business owners anticipate lower taxes, less regulation, and savings from an Obamacare overhaul. A net 23% of respondents now report plans for new hiring, up from 9% before Trump’s victory. Elsewhere, retail sales rose only 0.1% in November, falling short of the consensus estimate of 0.3% growth. Particularly weak auto sales – down 0.5% to their worst level since March – bore most of the blame. Department store sales fell 0.2% heading into the holiday shopping season. Persistent weakness in this sector will likely amplify concerns about shopping-mall traffic as ecommerce continues to gain ground. The producer price index (PPI) climbed 0.4%, well ahead of expectations of 0.1%, driven mostly by higher prices for services. The consumer price index (CPI) was up only 0.2%, about in line with expectations. Weekly initial jobless claims stayed low, tumbling 4,000 to 254,000.

Crude oil showed slight gains on the week. The WTI index increased 1% to $52 a barrel. Prices surged early in the week after OPEC struck a production cut deal with major producers outside the cartel. These non-OPEC members (dominated by Russia) agreed to cut production by 558,00 barrels per day. Though this was a smaller cut than the industry wanted, it nonetheless marked the first instance of cooperation between OPEC and non-OPEC producers since 2001. Investors, however, soon grew more bearish amid concerns that a surging dollar and rising US interest rates could lead to weak demand for crude in the upcoming year. Prices recovered somewhat on Friday as the dollar’s climb petered out and OPEC member-states signaled their determination to follow through with production cuts. The very cold weather is expected to cut into inventories of heating fuel and natural gas.

Highlights from next week’s economic calendar include revised third-quarter GDP figures (Dec. 22), initial jobless claims (Dec. 22), personal income (Dec. 22), and new home sales (Dec. 23). Volumes may be lighter as investors head home for the Christmas holiday.

Weekly Market Update – December 9, 2016

The Dow was up 142 points on Friday. It finished the week up 512 points at 19,756. Performance continued to vary considerably by sector. Financials saw continued gains, as investors wagered that a Republican agenda of deregulation, infrastructure stimulus spending, and corporate tax reform would give banks’ earnings a boost. Biotech and pharmaceuticals, on the other hand, struggled this week after the president-elect vowed to bring down costly drug prices. The US Preferred Index is down 3.14% since the election. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index, although all fixed income is down since the election.

The week also brought significant political developments In Europe. The reaction to Italy’s rejection of a referendum on proposed constitutional changes was muted. Markets had largely priced in a “no” vote. The measure’s failure prompted the resignation of centrist Prime Minister Matteo Renzi, necessitating the formation of a new national government. The subsequent political uncertainty has jeopardized plans to recapitalize Italy’s seriously troubled banking industry. Those concerns grew more urgent Friday following the ECB’s rejection of a plan for private-sector recapitalization – leaving a government bailout as the only viable solution. Additionally, the ECB announced Thursday that it would extend its inflationary quantitative easing program for nine months in light of still-sluggish growth in the Eurozone.

It was a quiet week on the domestic economic front. The ISM manufacturing index hit 57.2, well ahead of the expected 55.5 reading, driven by stronger employment. Jobless claims dropped to 258,000, down 10,000 from the previous week and below the 260,000 consensus. New jobless claims have been below 300,000 since March of 2015 – the longest such period since 1970 – and, taken with the steady stream of positive payroll data, suggest that the labor market is approaching full employment. Crude oil was flat on the week, closing at $51.41 Friday afternoon. Markets are awaiting the outcome of a meeting tomorrow between OPEC and non-OPEC producers concerning a proposed production cut agreement.

Likewise, the Federal Reserve offered little additional guidance to investors. St. Louis Fed President Bullard, though cautiously optimistic that Trump’s proposed stimulus could boost the economy, reiterated the need for a careful approach to rate hikes in the face of sluggish growth. William Dudley, president of the New York Fed, said that despite market optimism future fiscal policy remains uncertain.

Highlights from next week’s economic calendar include retail sales (Dec. 14), the consumer price index (Dec. 15), initial jobless claims (Dec. 15), and housing starts (Dec. 16). On Wednesday, all eyes will be on the December meeting of Federal Reserve’s Open Market Committee. The Fed is expected to raise rates a quarter of a percent.

 

Ulland Investment Advisors

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