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Archive for April, 2017

Weekly Market Update – April 28, 2017

The Dow finished down on Friday, sliding 40 points to close at 20,940.  For the week, the Dow rose 1.9% (S&P 500 +1.5%) and year-to-date is now up 6.0% (S&P 500 +6.5%) driven by an increase in the likelihood of an Emmanuel Macron French Presidential win, reducing the perceived risk stemming from the Eurozone.  The yield on the 10-year Treasury was down 1 bp Friday to 2.29%, ending the week up 6 bps.  Our portfolios experienced a strong week – through Thursday, April 27, our trust preferred portfolios were up over 3.1% YTD versus the Barclays Aggregate Bond Index up 1.5%.

US economic data leaned negative this week. While the housing market showed strength (new home and pending sales positively surprised), consumer confidence ticked down, durable goods orders were weak, and GDP underwhelmed low expectations.  The preliminary Q1 GDP estimate for the US showed the economy growing at just 0.7% (weakest in 3 years) versus expectations of 1.0% and versus Q4 growth of 2.1%.  The GDP miss was partly driven by weak personal consumption, up just 0.3% versus expectations of +0.9%.  The UK saw a similar slowdown, with GDP growing just 0.3% versus 0.7% in Q4, also led by a soft consumer.  It is worth noting, however, that US Q1 GDP has been weak in recent years before accelerating in the remaining quarters.  According to the Wall Street Journal, Q1 GDP has averaged +1% since the recession, but +2.5% for Q2-Q4’s – so we’ll give Q1 “a pass.”

Republicans tried to set up a new vote on an ACA replacement for this weekend in time for the President’s 100th day in office, but found they are still lacking enough votes.  The Administration did release a tax proposal Wednesday, calling for a reduction in the corporate tax rate to 15% from 35%, including a 15% top rate for “pass-through entities.”  Treasury Secretary Mnuchin says the plan should pay for itself via economic growth.  On the personal income side, the proposal reduces the seven-tier personal tax bracket system to three tiers, eliminates the estate tax, and returns the top capital gains rate to 20%.

The price of crude oil fell a hair this week to slightly above $49 a barrel – now down 8% YTD.  The EIA reported that crude stockpiles declined this week – by 4.1m barrels – while a rise in product inventories of gasoline (+3.4m bls) and diesel (+2.7m) continued to concern the market.  We still contend that seasonal crude oil draws will begin in earnest in the coming weeks and will result in material crude inventory reductions in the second half, with OPEC extending their cut agreement through year end.

Next week’s economic calendar highlights will include April ISM Manufacturing and automotive vehicle sales on Monday (5/1), the Fed’s FOMC rate decision on Wednesday (5/3), Q1 non-farm productivity on Thursday (5/4), and the April employment report Friday (5/5).  ISM manufacturing is expected to tick down while the vehicle sales pace bounces back (to 17.1m from 16.5m in March).  The FOMC is expected to leave the Federal Funds Rate unchanged at the 0.75-1.00% range.  The big unemployment report is expected to show a sharp bounce back in job growth from an unexpectedly low +89k in March to +190k in April, but with a slight uptick in the unemployment rate.

Have a great weekend!

Weekly Market Update – April 21, 2017

The Dow finished down on Friday, sliding 31 points to close at 20,547.  For the week, the Dow rose 0.5% (S&P 500 +0.8%) and year-to-date is now up 4.0% (S&P 500 +4.9%).  The yield on the 10-year Treasury was flat Friday at 2.23%, and ended the weak roughly unchanged as well despite dipping to 2.17% on Tuesday.  Our portfolios continue to perform well – through Thursday, April 20, our trust preferred portfolios were up close to 3% YTD versus the Barclays Aggregate Bond Index up 1.7%.

US economic data was somewhat negative this week.  The April Empire State Manufacturing Index dropped sharply to 5.2 from 16.4 in March.  Housing data was mixed with March annualized housing starts of 1.22m missing expectations for 1.25m and a disappointment from the NAHB Index of market conditions, while permitting surprised to the positive.  March “core” inflation, as measured to the consumer, was up 2.0% y/y versus expectations of 2.3%.  On the positive side, The Conference Board’s leading economic indicators (LEI Index) increased 0.4% m/m, above expectations for a 0.2% gain.  Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, stated “The March increase and upward trend in the U.S. LEI point to continued economic growth in 2017, with perhaps an acceleration later in the year if consumer spending and investment pick up.  The gains among the leading indicators were very widespread.”  The Architectural Billings Index (ABI), a leading indicator of non-residential construction activity was also positive, showing a solid rise in March.

Republicans’ efforts to replace the ACA are once again coming back into focus (not the first time we’ve said that), with reports suggesting moderate and more conservative groups within the GOP party coming to agreement on additional key healthcare legislative points.  The President contends there is a good chance congress could come to a vote next week, though gov’t aides downplayed those chances.

Outside the US, Eurozone manufacturing activity for April hit a six-year high and China Q1 GDP grew faster than expected (+6.9% y/y).  North Korea remains a market wildcard with US Vice President Pence stating that the “era of strategic patience is over,” shortly following a failed North Korean missile test.  One of North Korea’s few allies, China, may be an important player in whether this situation de-escalates going forward.

The price of crude oil fell nearly 7% this week to slightly under $50 a barrel – now down nearly 8% YTD.  The EIA reported that crude stockpiles decline this week – by 1.2m barrels – while a rise in product inventories of gasoline (+1.6m bls) for the first time in eight weeks concerned the market.  The drop in oil pressured our energy holdings; however, we believe recent weakness was driven by technical factors, not macro fundamentals, and that negative sentiment will prove transient as we move through the spring. 

Next week’s economic calendar highlights will include March new home sales and The Conference Board’s Consumer Confidence Index on Tuesday (4/25), March pending home sales and preliminary durable goods orders on Thursday (4/27), and the Q1 advance GDP estimate for the US on Friday (4/28). 

Have a great weekend!

Weekly Market Update – April 13, 2017

The Dow finished down on Thursday, sliding 138 points to close at 20,453.  For the week, the Dow was down 1.0% (S&P 500 -1.1%) and year-to-date is now up 3.5% (S&P 500 +4.0%).  The yield on the 10-year Treasury fell 1 bp Thursday to 2.23%, ending the week down 14 bps.  

US economic data was mostly positive this week.  The NFIB Small Business Optimism Index remained high in March at 104.7.  The University of Michigan’s Consumer Sentiment Index rose to 98.0 in April, above expectations of 96.9, while the Current Conditions subcomponent rose to its highest level since 2000.  This week’s initial jobless claims fell to 234,000, better than expectations.  However, one of the measures of inflation (PPI) rose only 1.6% y/y in March, below expectations of 1.8%.  The other inflation measure (CPI) will be released tomorrow along with advance retail sales.

Earnings season for the first quarter is now underway, with major banks kicking things off this week.  J.P. Morgan, Citigroup, and PNC all reported positive surprises, while Wells Fargo was neutral to slightly negative.  Recall, we hold significant positions in the major banks.  Tax reform is still in limbo with Gary Cohn, Director of the National Economic Council, suggesting that a bill may not pass before the August legislative recess, contrary to the target of Treasury Secretary Steven Mnuchin.  On the geopolitical front, tensions surrounding North Korea and their nuclear ambitions are of increasing concern to the market.

The price of crude oil climbed 2% this week to $53 a barrel – now down just 1% YTD.  The EIA reported that crude stockpiles decline this week – by 2.8m barrels – following three weekly builds, and also that product inventories of gasoline (-3.0m bls) and diesel (-2.2m bls) continue to fall hard despite US refinery utilization on the rise.  On Monday, the International Energy Agency stated the global oil market is very close to reaching a supply-demand balance despite lowering their forecast for 2017 demand and noting demand growth will slow for the 2nd straight year.  Despite a slowdown from very strong growth in 2015, we’d note demand is still very strong, growing well over 1 million barrels per day y/y and we believe we are in a balanced market today.  Our energy holdings, both in equity and fixed income strategies, should stand to benefit from a potential rise in oil prices towards $60 by year end.  The US rig count rose 8 this week (+11 oil, -3 gas), roughly in-line with YTD averages.

Next week’s economic calendar highlights will include the April Empire Manufacturing Index on Monday (4/17), March housing starts and permitting data on Tuesday (4/18), and the Conference Board’s Leading Economic Indicators for March on Thursday (4/20).  We will see if the market rebounds next week after falling below its 50-day moving average on Wednesday for the first time since the election.

Have a great weekend!

Weekly Market Update – Apr. 7, 2017

The Dow finished down on Friday, sliding 7 points to close at 20,656.  For the week, the Dow was flat (S&P 500 -0.3%) and year-to-date is now up 4.5% (S&P 500 +5.2%).  The yield on the 10-year Treasury rose 3 bps Friday to 2.38%, ending the week down 1 bps. 

US economic data were mixed this week. ISM manufacturing index came in at 57.2 as expected. Auto sales were 16,500,000 SAAR, below a consensus of 17,300,000. Factory orders were up 1.0% as expected while durable goods orders were up 1.8% vs. 1.7% expected.  Employment report largely missed expectations with non-farm payrolls increased by 98,000 vs. the 180,000 consensus estimate. On the bright side, unemployment rate dropped to 4.5% from 4.7% while wages were up 2.7% y/y, as expected. New York Fed President Dudley suggested that they may gradually let securities mature without reinvesting the proceeds to begin normalizing the Fed’s balance sheet later this year. Other Fed members echoed his comment.

Oil rose 3.3% this week to $52, down just 3% YTD now. Crude prices hit one-month highs Friday as the U.S. launched airstrikes in Syria, which raised concerns that conflict in the oil-producing regions could spread. Renewed optimism that major crude suppliers will extend their output cuts also helped increase oil prices recently. The OPEC countries will meet at the end of next month to decide whether to extend the 6-month output cuts.

Next week’s economic calendar highlights will include the March NFIB Small Business Optimism Index on Tuesday (4/11), the University of Michigan Consumer Sentiment Index on Thursday (4/13), March inflation data on Thursday and Friday (4/13 & 4/14), and advance retail sales on Friday also. 

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