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Archive for March, 2017

Weekly Market Update – March 31, 2017

The Dow finished down on Friday, sliding 65 points to close at 20,663.  For the week, the Dow was up 0.3% (S&P 500 +0.8%) and year-to-date is now up 4.6% (S&P 500 +5.5%).  The yield on the 10-year Treasury fell 3 bps Friday to 2.39%, ending the week down 2 bps.  

US economic data was favorable this week.  The Conference Board’s Consumer Confidence Index rose to 125.6, above forecasts of 114 and now at the highest level since 2000.  Pending home sales were strong, up 5.5% y/y.  The Chicago manufacturing PMI looked good at 57.7 vs. the prior 57.4 reading.  And initial jobless claims of 258k were above expectations of 247k, but down sequentially from 261k.  US equity flows were negative for a second straight week; however, Technology, Energy, and Financials all saw inflows – sectors that we currently hold a positive bias towards.  Bonds continue to see inflows.

In policy news, the Administration began rolling back Obama environmental executive orders, issued orders aimed at foreign trade abuses, and communicated a more modest approach to reworking the NAFTA trade agreement.  Tax reform is currently front and center among the White House and legislators.

Next week’s economic calendar will be quite busy, with ISM manufacturing and US auto sales on Monday (4/3), factory and durable goods orders Tuesday (4/4), and the big March employment report on Friday (4/7).  The employment report is typically a significant market mover, and this month payrolls are expected to rise by 180k, the unemployment rate is expected to remain steady at 4.7%, and average hourly earnings growth is expected to remain around +2.7% y/y. 

Have a great weekend!

Weekly Market Update – March 24, 2017

Ulland Investment Advisors in the News. On Friday Barron’s featured Ulland Investment Advisors’ article,

“The Risks of Passive Investing: Trouble Ahead for PFF”.  

 http://blogs.barrons.com/incomeinvesting/2017/03/24/is-pff-getting-too-big-for-the-preferred-market/

Ulland’s article highlights the specific risks associated with the PFF, most of which relate to the massive size of the ETF ($17 Billion). Not to be lost on readers however, is our argument that active management is an attractive way for investors to gain access to the preferred market.

A Full Version of the article can be found here:

http://www.ullandinvestment.com/category/market-commentary/

The Dow finished down on Friday, falling 60 points to close at 20,597.  For the week, the Dow was down 1.52% (S&P 500 -1.4%) and year-to-date is now up 4.2% (S&P 500 +4.7%).  The yield on the 10-year Treasury fell 1 bp Friday to 2.40%, ending the week down 10 bps.  Through Thursday, March 24, our trust preferred portfolios were up over 2% YTD, substantially more than the Barclays Aggregate Bond Index, which was up 0.6%.

US economic data was mixed this week.  February new home sales came in at 592,000 SAAR, better than January’s upwardly revised 558,000 level. Existing-home sales dropped 3.7% to 5,480,000 SAAR. Realtors saw improved foot traffic, but low supply in the affordable range was pressuring prices. January pricing index was flat vs. a consensus increase of 0.5%. Initial jobless claims rose 15,000 to 258,000, ahead of 240,000 consensus.

The bill to repeal and replace the Affordable Care Act has been pulled. Many investors viewed the bill as a barometer of the Trump administration’s ability to implement its wider policy agenda, including tax reform and infrastructure spending plans.  Tax law changes are particularly hard to make since taxpayers are affected differently.  The administration’s efforts to reduce existing regulation continue, although the full impact of any change may take a year or more.  The final approval this week of the Keystone XL Pipeline permit is one of the larger regulatory changes so far.

The price of crude oil was down 1% on the week to ~$48 a barrel – down ~10% YTD.  There is a growing concern that OPEC’s pledge to reduce global inventories will encourage the U.S. producers to boost production. The oil cartel and some non-OPEC countries have agreed to cut output by 1.8 million barrels a day. This agreement will expire at the end of June and the oil market is closely observing whether the production cuts will be extended at the OPEC’s meeting May 25th. The US rig count rose 20 this week (+21 oil, -2 gas). $50 oil is the breakeven price in many oil fields.

Next week’s economic calendar may be a bit quieter, with Consumer Confidence on Tuesday (3/28), Pending Home Sales and Crude Inventories on Wednesday (3/29), Initial Jobless Claims on Thursday (3/30), and Chicago Purchasing Manager Index on Friday (3/31). 

Have a great weekend!

Weekly Market Update – March 17, 2017

The Dow finished down on Friday, sliding 20 points to close at 20,914.  For the week, the Dow was up 0.1% (S&P 500 +0.2%) and year-to-date is now up 5.8% (S&P 500 +6.2%).  The yield on the 10-year Treasury fell 4 bps Friday to 2.50%, ending the week down 9 bps.  Through Thursday, March 16, our trust preferred portfolios were up over 1.5% YTD, substantially more than the Barclays Aggregate Bond Index, which is flat.

US economic data was generally as expected this week.  The NFIB Small Business Optimism Index remained high in February.  Inflation is tracking around 2% y/y.  The FOMC hiked the federal funds rate as expected by 25 basis points to 0.75-1.00%.  Housing starts for February came in at an annualized pace of 1.29 million.  And the Conference Board’s Leading Economic Indicators for February were up 0.6% m/m, similar to last month.  This past week, investors continued to move funds into equities, particularly US value funds and materials stocks, at an accelerated pace.

Obamacare remains at the center of congressional and media attention.  Republicans are actively massaging the administration’s proposal and the President is reportedly making concessions to Medicaid requirements as well as some alterations to proposed tax credits.  Tax reform remains next in line for consideration and infrastructure stimulus seems to be on the backburner. 

The price of crude oil was up 1% on the week to ~$49 a barrel – down ~9% YTD.  EIA reported crude stockpiles declined this week – by <1m barrels – after nine weeks of builds, and also that product inventories of gasoline (-4.2m bls) and diesel (-5.2m bls) continue to fall hard as refinery utilization is down almost 4 percentage points y/y.  Saudi Arabia sounded a bit more positive this week as Oil Minister Al-Falih reassured oil markets that an extension of the OPEC cut was very much on the table for the OPEC meeting May 25th.  The US rig count rose 20 this week (+14 oil, +6 gas).

Next week’s economic calendar may be a bit quieter, with housing data (prices, existing-home sales, pending-home sales) on Wednesday (3/22) and Thursday (3/23), weekly jobless claims also on Thursday (3/23), and durable goods orders on Friday (3/24). 

Have a great weekend!

Weekly Market Update – March 10, 2017

The Dow finished up on Friday, rising 45 points to close at 20,903, partly recovering from a mid-week softening.  For the week, the Dow was down 0.5% (S&P 500 -0.4%) and year-to-date is now up 5.8% (S&P 500 +6.0%).  The yield on the 10-year Treasury fell 3 bps Friday to 2.57%, but ended the week up 9 bps.  The yield is now up 9 bps since the beginning of the year as well.

US economic data was generally positive this week.  January factory orders positively surprised, up 1.2% m/m vs. the 1.0% expectation.  The January trade balance was in line (-$48.5bn).  Weekly initial jobless claims came in slightly weaker, but continuing claims were better.  And the big February employment report was encouraging; non-farm payrolls added 235,000 jobs (vs. 190-200k expectation), the unemployment rate of 4.7% was in line, and average hourly earnings growth (+2.8% y/y) was also as expected.  This past week, investors continued to move funds into equities, particularly Financials, and inflation-protected treasury bonds as “Fedspeak” continues to heat up and as market expectations shift more “hawkish” (i.e. towards higher interest rates).

House Republican leaders unveiled their replacement plan for Obamacare, which was met with mixed responses.  We won’t run through the details here, but the plan will require some massaging to win over governors and legislators.  The tax reform plan is still being written and timing could be pushed out.  The President, Paul Ryan, and Kevin Brady (House Ways and Means Chairman) are all sticking to a summer timeline, but Senate Majority Leader Mitch McConnell and Finance Committee Chair Orrin Hatch suggested that a passage before Congress’ August recess was unlikely.  In Europe, ECB chief Mario Draghi kept policy unchanged given underlying core inflation remains well below 2%, but did state that the “sense of urgency” for further accommodative actions has passed.

The price of crude oil was down ~9% on the week to $48 a barrel – down ~10% YTD.  EIA reported crude stockpiles increased again this week – by over 8m barrels – but also that product inventories of gasoline (-6.6m bls) and diesel (-2.7m bls) continue to fall.  Like Saudi Aramco did last week, Iran lowered their official selling prices (OSPs) to Asia for April delivery, which has sparked some concerns of competitive intensity and the likelihood of an OPEC cut extension for the second half of 2017.  On the other hand, geopolitical turmoil in Iraq and Libya continues to threaten production in those regions.  The US rig count rose 12 this week (+8 oil, +5 gas).

Next week’s economic calendar highlights will include the February NFIB Small Business Optimism Index on Tuesday (3/14), February inflation data on 3/14 & 3/15, February retail sales and the FOMC rate decision on Wednesday (3/15), February housing starts on Thursday (3/16), and the Conference Board’s Leading Economic Indicators for February on Friday (3/17).  The FOMC’s rate decision on Wednesday is the most likely item to move the markets next week, although the likelihood of a rate hike (from a 0.50-0.75% federal funds rate to a targeted 0.75-1.00%) is now close to certain.  The odds of a March rate hike suggested by Bloomberg, and based on fed funds futures data, is close to 100% versus 40% two weeks ago and 28% a month ago.  We had expected two or three rate hikes this year, and at this point it appears the latter may be more likely.

Have a great weekend!

 

Ulland Investment Advisors

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