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Archive for February, 2017

Weekly Market Update – February 24, 2017

The Dow finished up on Friday, rising 11 points to close at 20,821 – marking eleven consecutive record highs.  For the week, the Dow was up 1.0% (S&P 500 +0.7%) and year-to-date is now up 5.4% (S&P 500 +5.7%).  Despite the upward move, US corporations did become a bit more cautious as share repurchases slowed to a six-week low.

US economic data appears mixed this week.  January existing homes sales were better, rising 4% y/y, with median home prices up 7% y/y while inventories are down 7% y/y.  New home sales were up as well, +5.5% y/y at a 555k annualized pace but missed expectations in the range of 570-575k.  The University of Michigan’s consumer sentiment reading for February was better at 96.3, still at decade-high levels.  But January’s ABI reading, a measure of non-residential construction activity, fell into contractionary territory for the first time since September – albeit with a silver lining as the new projects component of the index rose to 60 from 57.6 in December.  The Fed’s January FOMC minutes suggested a rate hike may be justified “fairly soon;” however, we still suspect the first hike of 2017 won’t come until mid-year.  Lastly, weekly jobless claims of 244k were up w/w, but remain relatively low.

Outside the US, German business confidence is good, with the IFO index at the highest level in four years.  China home prices rose a strong 12% in January but continue to slow, and the robustness of growth has cooled as only 45 of 70 major tracked cities saw y/y gains.  The Bank of Japan’s Haruhiko Kuroda said this week that he likely wouldn’t seek to push government rates further into negative territory, suggesting a more positive view on inflation and economic growth moving forward.

The price of crude oil was up ~1% on the week, still hovering around $54 a barrel – roughly flat YTD.  EIA reported crude stockpiles increased again this week – only by 0.6m barrels versus estimates of 3.4m barrels and versus heavy builds the prior two weeks – but also that product inventories of gasoline (-2.6m bls) and diesel (-4.9m bls) fell hard from the prior week.  Crude imports look like they are slowing as the impact of the OPEC cut takes effect, while exports are at record levels, and gasoline demand rebounded a bit this week.  The rig count continues to rise, up 3, but showed a sharp slowdown from the YTD weekly average of +13 rigs.

The yield on the 10-year Treasury declined 5 bps Friday to 2.32%, finishing a steady downward move this week.  The yield finished down 13 bps for the week and is still down 16 bps for the year.  Part of the drop may be attributed to speculation of any infrastructure bill being postponed until next year.  Through Thursday, February 23, our trust preferred portfolios were up over 1.8% YTD, substantially more than 0.7% for the Barclays Aggregate Bond Index.

Next week’s economic calendar highlights will include January durable goods orders and the Conference Board’s consumer confidence on Tuesday (2/28), February ISM on Wednesday (3/1), and weekly jobless claims on Thursday (3/2).  President Trump is scheduled to address congress for the first time on Tuesday (2/28) as well, and the markets will keep a keen ear on what is said.

Have a great weekend!

Weekly Market Update – February 17, 2017

The Dow held onto its streak on Friday, rising 4 points to close at 20,624 – marking seven consecutive record highs.  For the week, the Dow was up 1.7% (S&P 500 +1.5%) and year-to-date is now up 4.4% (S&P 500 +5.0%).

US politics continue to garner a lot of attention; however, the market seems willing to accept Washington volatility as deregulation, potential tax reform, and favorable economic data continue to nudge the markets higher.  The path of least resistance is currently up, with reflation expectations a major driving force.  January CPI rose 0.6% m/m vs. expectations of 0.3% and PPI rose 0.6% vs. expectations of 0.3%. 

In addition to the strong inflation data, we saw solid January retail sales (+0.4% m/m vs. consensus 0.1%), January housing starts (1.246m annualized vs. consensus 1.226m), and weekly jobless claims (239k vs. consensus 245k) despite softer January Industrial Production (-0.3% m/m vs. consensus of flat).  Another economic check, courtesy of The Conference Board, shows leading economic indicators (the LEI Index) increased 0.6% in January versus 0.5% in December and only 0.2% in November.  Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, stated “The January gain was broad based among the leading indicators.  If this trend continues, the U.S. economy may even accelerate in the near term.”  Likewise, the NFIB showed small business optimism rose to 105.9 in January, from 105.8 in December, to the highest level since December 2004.  They note that the surge in optimism that some investors flagged as fleeting may have some staying power.

The price of crude oil was flat on the week, closing Friday at $53.72 a barrel – also flat YTD.  Oil fell during the first half of the week with growing concern surrounding inventory builds in the US and strengthening US Treasury yields, but regained ground in the latter half of the week – similar to last week – as the 10-year Treasury interest rate faded and the US dollar weakened.

The yield on the 10-year Treasury declined 3 bps Friday to 2.42% after rallying earlier in the week – up 1 bp for the week and still down 6 bps for the year. Neither Yellen’s testimony this week nor the drop in the 10-yr yield did much to change the course of winds behind the big banks.  The S&P Banks were up 3.1% this week, ahead of the S&P 500 by 1.6%.  Earnings also boosted sentiment as several of the large European banks beat earnings projections.  Through Thursday, February 16, our trust preferred portfolios were up over 1.5% YTD, substantially more than 0.3% for the Barclays Aggregate Bond Index. 

Next week’s economic calendar highlights will be busy, including FOMC minutes on Tuesday 2/21, January existing home sales on Wednesday 2/22, January new home sales on Friday 2/24, and the February University of Michigan Sentiment Index on Friday as well.  The pace of home sales is expected to continue picking up, while sentiment has been trending in the positive direction.

Have a great weekend!

Weekly Market Update – February 10, 2017

The Dow kept its advance going this week, climbing 97 points on Friday to close at a record 20,269.  For the week, the Dow was up 1.0% (S&P 500 +0.8%) and year-to-date is now up 2.6% (S&P 500 +3.5%).

Markets benefited this week from surprisingly low jobless claims, reinforcing last week’s favorable January employment report, as well as renewed reflation momentum and de-escalating tensions between Eurozone lenders and IMF officials on their Greek bailout review.  This week’s jobless claims fell 12,000 to just 234,000 – better than the consensus forecast of 249,000 and only a hair off this cycle’s low of 233,000 reported back in November.  The University of Michigan’s sentiment index ticked down in February to 95.7 versus consensus 98.0 and the prior 98.5 reading in January; however, the index remains very favorable.

In the US, talk of infrastructure stimulus got a boost this week after the National Governors Association sent the Trump administration a list of 428 “shovel-ready” projects.  Tax reform, which has jockeyed back and forth in priority for the Administration and House Republicans, moved back to the spotlight this week after the President stated Thursday that “something phenomenal” could be announced in the next few weeks.  White House press secretary Sean Spicer also confirmed a comprehensive tax reform plan (corporate and individual rates) would be outlined in the coming weeks.

In other international news, President Trump has told Chinese President Xi Jinping that he will respect the “One China” policy (which states that a country cannot hold official diplomatic relations with both Taiwan in addition to mainland China) in an effort to ease relations between the two countries.  Japan’s Prime Minister Abe met with the President today, but the meeting was relatively uneventful as commentary on potential currency manipulation of the Japanese yen seems to have been sidestepped.  There remains some uncertainty in the markets ahead of the G20 meeting in Baden-Baden, Germany on March 17-18.  The group may face opposition from the Administration on a number of issues.

After crude oil fell mid-week to $51 due to a very large crude inventory build in the US, the commodity rebounded the last two days to close the week roughly flat, near $54.  The improved sentiment was driven partly by growing optimism regarding compliance with the OPEC-led global supply reduction (compliance was already 90% in January).  A favorable IEA report, which lifted 2016 & 2017 global crude demand estimates, as well as favorable January import data out of China also contributed to the late-week rally.  We think the set-up for energy investments in 2017 looks favorable and are actively evaluating opportunities.

The yield on the 10-year Treasury rose 1 bp Friday to 2.41%, down 5 bps for the week and still down 7 bps for the year. Through Thursday, February 9, our trust preferred portfolios were up over 1.5% YTD, substantially more than 0.2% for the Barclays Aggregate Bond Index. 

Next week’s economic calendar highlights will be busy, including January inflation data on 2/14 & 2/15, January industrial production on 2/14, January retail sales on 2/15, and January housing and weekly jobless claims on 2/16.  All of this data will influence the Fed’s thinking on interest rates.

Have a great weekend!

Weekly Market Update – February 3, 2017

After falling and struggling to find direction during the week, stocks jumped on Friday to close back near record highs after a slightly favorable monthly jobs report and executive orders signed by President Trump to ease financial regulations.  The Dow climbed 186 points to cross the 20,000 mark once again, led by 2-4% gains among the banks.  For the week, the Dow was down 0.1% and year-to-date is now up 1.6%.

The January employment report showed a gain of 227,000 jobs (beating estimates of 180,000 and the prior month’s 157,000) driven by strong gains in construction, retail, and financial industries.  The unemployment rate ticked up to 4.8% from 4.7% due to more Americans entering the workforce (participation rate of 62.9% up from 62.7%).  Average hourly earnings came in a bit weak, up just 0.1% versus the prior month (+2.5% versus last year) and below expectations of 0.3%.  During January, manufacturing activity expanded at its fastest rate in two years, with the ISM index climbing to 56.0 vs. the consensus forecast calling for 55.0.

The Federal Reserve, at its February meeting this week, kept benchmark overnight interest rates unchanged.  We believe strong employment and a gradual rise in inflation will push the Fed to raise rates a couple times this year.  Current uncertainty surrounding the new Trump administration may cause the timing of these hikes to come in the second half. 

Rising rates – in addition to executive orders that aim to weaken the Dodd-Frank Act, including the Volker rule – are good for bank financials, increasing their ability to lend or deploy capital at better terms.  Rates were roughly flat this week, but are positioned to continue their rise.  Despite bank stocks posting their strongest trading day since November and showing nearly 20% outperformance versus the S&P 500 since the election, we believe the banks have more room to run. UIA holds a sizeable position in preferreds issued by financial firms, including many of the largest banks, which should perform well as rates continue to rise.

Next week’s economic calendar highlights will include weekly jobless claims on Thursday and another consumer confidence report on Friday.  Weekly jobless claims are expected to total 250,000 while consumer confidence should continue its march higher.

This week at UIA, Jared Plotz joined the firm as the new Director of Research, a Carleton grad and Iowa MBA.  He will draw upon his experiences both on the sell-side at Robert W. Baird in Milwaukee and buy-side including Cornerstone Capital Management in the Twin Cities to lead the research efforts at UIA going forward.  We’d also like to mention that Schwab has reduced commission charges by $2 per trade, from $8.95 to $6.95, which will benefit clients.

We hope you enjoy your weekend!

 

Ulland Investment Advisors

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