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Archive for August, 2017

Weekly Market Update – August 25, 2017

The Dow finished up on Friday, rising 30 points to close at 21,814. For the week, the Dow rose 0.6% (S&P 500 +0.7%) and year-to-date is now up 10.4% (S&P 500 +9.2%). The indexes’ modest gains follow back-to-back declines, though trading volumes were light in this second-to-last week of August. Somewhat dovish commentary from Fed Chairwoman Janet Yellen, along with incrementally positive economic data, cheered investors. Markets also were buoyed by signs of progress on tax reform. The yield on the 10-year Treasury fell one basis point on the week, closing at 2.18%.

US economic data were mixed this week. New home sales fell by 9% from June to July. Economists had expected the rate to hold steady. Existing home sales, which were expected to increase, declined as well. Durable goods orders dropped 6.8% in July. That was worse than the 6.0% forecast. Lagging aircraft orders weighed on the index. Markit’s manufacturing PMI, which tracks private firms’ economic activity, also came in below estimates. However, the services PMI beat expectations.

Stock and bond markets were pleased with Federal Reserve Chairwoman Janet Yellen’s speech at the Kansas City Fed’s annual Jackson Hole conference. Commentary from other Fed members earlier in the week emphasized ensuring global financial stability after years of low interest rates. Investors were consequently concerned that Yellen would use the speech to hint at a more aggressive approach to raising rates.  However, Yellen didn’t speak about the subject at all. This fits with the Fed’s more measured approach recently, in the face of slower-than-expected inflation. The dollar fell afterwards in currency-exchange trading. 

Elsewhere on the policy front, investors grew more hopeful about the prospects for tax reform.  Headlines this week seemed to indicate that key players have agreed upon the legislation’s main principles. However, concerns persist about Congress increasing the government’s debt ceiling by the end of September.

The price of crude oil fell 1% this week, back below $48 a barrel – down 11% YTD. US crude stockpiles showed an in-line draw of 3.3m barrels. Crude oil showed strength through Wednesday as another week of solid inventory draws brought the cumulative drawdown since March to 85m barrels while Libyan oil fields encountered disruption. However, as Hurricane Harvey moved towards the Texas Gulf Coast, investors became concerned that demand would get dinged more than supply would be curtailed, leading to a price pullback.

Highlights on next week’s economic calendar include the Dallas Fed manufacturing index on 08/28, consumer confidence on 08/29, and revised second-quarter GDP numbers on 08/30. Investors will be most interested in the nonfarm payrolls report, which will be released next Friday 9/1.  Employers are expected to have added 180,000 jobs in August, down slightly from the 209,000 added in July.  Unemployment is expected to stay at 4.3%.

 *The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

Weekly Market Update – August 18, 2017

The Dow finished down on Friday, falling 76 points to close at 21,675. For the week, the Dow fell 0.8% (S&P 500 -0.6%) and year-to-date is now up 9.7% (S&P 500 +8.3%). Geopolitical risks weighed on the market for a second straight week. U.S. and world leaders dialed back the North Korea tensions which troubled the market last week. However, concerns about the future of a pro-growth domestic policy agenda, especially tax reform, flared again. The yield on the 10-year Treasury was unchanged on the week, closing at 2.19%.

US economic data were mixed. July retail sales topped forecasts, climbing by 0.6%. That was twice as fast as they grew in June. In a similar vein, the University of Michigan’s consumer sentiment index also outperformed in preliminary August estimates. July factory capacity utilization met forecasts. The Conference Board’s LEI index, a business-cycle indicator, was likewise right on target at 0.3%. However, July seasonally-adjusted housing starts tumbled, missing Wall Street’s expectations.

Elsewhere, the world economy is enjoying a synchronized upswing. It is now forecast to grow 3.4% this year and 3.5% in 2018, a nice pick-up from 3.1% growth seen last year. Japan and the Eurozone, whose sluggish pace has long held back global growth, appear finally to have turned a corner. The IMF also revised its estimates of Chinese growth upwards. GDP is now expected to increase at an average yearly pace of 6.4% between 2018 and 2020. However, the same report advised caution on Chinese debt levels.

The week also saw increased commentary from the Federal Reserve regarding unexpectedly sluggish inflation. In the minutes of the Fed Open Market Committee’s July meeting, participants said that inflation had “declined” and “was running below 2%.” The probability of a third interest-rate hike at the Fed’s September meeting has fallen to 42% from 54% a month ago, according to futures markets. A hike is still expected in December.

The Fed is slated to begin its balance-sheet normalization in September. Markets expect its initial move to be limited. The process will be a lengthy and complicated one. The six largest central banks – the Fed, the European Central Bank, the Bank of Japan, the Bank of England, and the Swiss and Swedish central banks – now own $15 trillion of assets, more than one-fifth of their governments’ total debt. Each must work these holdings down.

The price of crude oil was essentially flat this week, remaining below $49 a barrel – down 9% YTD. US crude stockpiles showed a larger-than-expected draw of 8.9m barrels, while product inventories of gasoline were unchanged. Diesel inventories climbed 0.7m barrels.

Next week’s economic calendar is busy, including Markit’s US manufacturing PMI on 08/23, July existing home sales 08/24, initial jobless claims on 08/24, and durable goods orders on 08/25.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

Weekly Market Update – August 11, 2017

The Dow finished up on Friday, rising 14 points to close at 21,858. For the week, the Dow fell 1.1% (S&P 500 -1.1%) and year-to-date is now up 10.6% (S&P 500 +9.0%). After persistently shrugging off political and geopolitical discord for months – and in the meantime setting records for low volatility – the market indices finally showed signs their thick skins were not impenetrable. The S&P 500 dropped 1.7% from its Monday high through Thursday before Friday’s small bounce. The yield on the 10-year Treasury fell 6 bps Friday to 2.19%, down 3 bps for the week.

US economic data were mixed again this week. The NFIB Small Business Optimism Index improved further to 105.2 and June’s JOLTS nonfarm job openings data reached the highest level in its history (back to 2000), far outpacing forecasts. Inflation, however, continues to run below economists’ expectations for the 5th consecutive month. The soft inflation trend (1.7-1.8%) remains the primary obstacle to a third potential Fed rate hike later this year.

The war of words between North Korea and the US is largely being blamed for the “risk-off” sentiment seen mid-week. The ramp in nuclear rhetoric comes after Pyongyang conducted a series of missile tests (including 2 ICBM’s in July) and the UN responded with tougher sanctions this past weekend. This type of nuclear rhetoric has been ongoing for decades; however, intelligence officials have recently concluded that North Korea has produced a miniaturized nuclear warhead that can fit inside its missiles. While US stocks have a good track record of successfully rebounding following geopolitical events – and we are optimistic the current recovery still has further upside – some investors are concerned this event could bleed over into debt ceiling headwinds in Congress this fall and thus are taking some equity chips off the table.

The price of crude oil fell 1% this week to below $49 a barrel – down 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 6.5m barrels – and product inventories of gasoline rose (+3.4m bls) while diesel fell (-1.7m bls). Crude oil was doing well for most of the week driven by continued inventory draws – surpassing the $50 a barrel line – before monthly reports from OPEC and the IEA showed unfavorable revisions to the supply-demand picture late in the week.

Next week’s economic calendar highlights will include July advance retail sales on 8/15, housing starts on 8/16, capacity utilization and leading economic indicators on 8/17, and consumer sentiment on 8/18. Retail sales are expected to show improvement after a disappointing June report, with a consumer sentiment pickup as well. Housing and capacity utilization are expected to run similar to prior months,  while the leading economic indicators are expected to show some slowing from June.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

Weekly Market Update – August 4, 2017

The Dow finished up on Friday, rising 66 points to close at 22,092. For the week, the Dow rose 1.2% (S&P 500 -0.2%) and year-to-date is now up 11.8% (S&P 500 +10.2%). Market indices have shown little concern regarding geopolitical tensions among North Korea, Russia, and the US; however recently, fund flows have shown dollars leaving US equities in favor of foreign markets and fixed income dollars flowing into US Treasuries and investment-grade bonds from high yield. The yield on the 10-year Treasury fell 5 bps Friday to 2.22%, down 7 bps for the week, proving to be another good week for preferreds.

US economic data were mixed this week. July automotive vehicle sales as well as the ISM manufacturing report were a little soft, while June pending home sales and the July employment report were stronger than expected. In July, non-farm payrolls increased 209,000, above the market estimate of 180,000, and June’s employment gains were revised higher (to 231,000, from 222,000). The unemployment rate ticked down to 4.3%, as expected, while average hourly earnings rose 2.5% y/y.

Debate continues on where corporate tax rates will ultimately shake out if congress is successful in passing tax reform. When legislators return from recess they will need to quickly work on a debt ceiling raise or face a similar debt cliff crisis like we saw in August 2011. Earnings season continues to hum along, with over 70% of S&P 500 companies beating revenue expectations and a similar number surpassing EPS forecasts. On average, companies have expanded revenues by 5% and earnings by 10% y/y – both solid numbers.

The price of crude oil was roughly unchanged this week in the $49-50 a barrel range – down 8% YTD. US crude stockpiles showed a smaller-than-expected draw – of 1.5m barrels – and product inventories of gasoline (-2.5m bls) and diesel (-0.2m bls) declined as well. In addition to the continued inventory draws, oil prices were helped this week by drilling spending cuts from some large US producers and the continued turmoil in Venezuela. On Monday, some members of OPEC/non-OPEC will meet in Abu Dhabi to discuss, once again, group compliance and to pressure non-compliant members into cooperation.

Next week’s economic calendar highlights will include the NFIB Small Business Optimism Index on 8/8, July PPI inflation on 8/10, and CPI inflation on 8/11. Business optimism is expected to remain near record highs, while both inflation measures are forecast to stay in that 1.7-2.0% range. Q2 earnings should mostly wrap up next week as well.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

 

Ulland Investment Advisors

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