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Archive for September, 2017

Weekly Market Update for September 29, 2017

by J.M. Hanley

The Dow finished up on Friday, rising 24 points to close at 22,405. For the week, the Dow rose 0.25% (S&P 500 +0.36%) and year-to-date is now up 13.4% (S&P 500 +12.5). Rising confidence that the Fed will raise rates in December, along with Congress’s release of a blueprint for tax reform, helped push the major indices to record highs for a second straight week. The yield on the 10-year Treasury rose three basis points this week, closing at 2.31%.

Economic data reported this week were mixed.  The Commerce Department now estimates that US GDP grew at an annualized rate of 3.1% in the second quarter.  This marks its fastest pace of growth in two years.  While positive, the second quarter compensated for sluggish growth in the first three months of the year. Elsewhere, personal consumption expenditures – an alternative measure of inflation – came in slightly lower than forecast.  Nevertheless, Chair Janet Yellen reiterated the Fed’s view that lagging inflation stems from mostly transitory factors. Markets now put the odds that the Fed raises interest rates in December at 78%.

In Washington, Congressional leaders released their outline for tax reform on Wednesday.  The plan would decrease the corporate tax rate and allow businesses to deduct the expense of new equipment more easily, among other measures. Many details of the legislation remain to be worked out.  Markets nevertheless reacted positively to the prospectus, particularly the equities of smaller firms.

 The price of crude oil rose 2% this week, above $51 a barrel – down 4% YTD. US crude stockpiles showed a larger-than-expected draw – of 2.6m barrels – and product inventories of gasoline unexpectedly rose (+1.1m bls) while diesel fell (-0.8m bls). Refinery utilization further improved to 88%, with the metric now nearly in line with the 3-year average of 90% for this time of year.

Oil prices benefitted again this week from developments in the Middle East. The semiautonomous region of Kurdistan – officially part of Iraq – voted strongly in favor of seeking independence, via a nonbinding referendum. The vote was criticized by the US and other int’l parties, particularly Baghdad, who believe it could destabilize the region. Given the large quantities of oil that are located in the Kurdistan region (>500k barrels/day of production), escalation between parties could disrupt the flow of crude and thus pressure oil prices higher.

 *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 for September 22, 2017

by JM Hanley

The Dow finished down on Friday, falling 10 points to close at 22,350. For the week, the Dow rose 0.4% (S&P 500 +0.8%) and year-to-date is now up 13.1 % (S&P 500 +11.8%). Corporate news was light in this second-to-last week of the third quarter.  Energy, financial firms, and some industrial companies performed best as investors anticipated higher inflation.  The yield on the 10-year Treasury rose five basis points this week, closing at 2.25%.

Housing data released this week reflected a market still feeling the impacts of hurricane season. Existing home sales declined 1.7% sequentially this month.  Construction of new houses also fell, for the second month in a row.  Analysts had expected both to increase.  Hurricane Harvey bears much of the blame.  Sales in Houston, the nation’s fourth-largest metropolitan area, declined 25%.  The blows to Texas’s and Florida’s economies also created uncertainty about the availability of building materials and labor. Not surprisingly, a Wells Fargo index measuring confidence among homebuilders fell.

The storm added to some already unfavorable trends in the housing market.  There are fewer homes for sale than usual.  Prices have climbed as a result, making a purchase too expensive for many would-be buyers.  The median home sale was $255,300 in July, up 6% on a yearly basis. It increased twice as fast as Americans’ incomes over the same period.

Markets spent the first half of the week awaiting the Federal Reserve’s Wednesday meeting.  When it came, there were few surprises. The Fed affirmed that it would begin reducing its holdings of US government bonds – so-called “balance-sheet normalization” – next month.  Fed governors collectively estimate that they’ll raise interest rates three times in 2017 and 2018.  That number was unchanged from the Fed’s June outlook, despite some recent evidence of slow inflation.  Wall Street now puts the odds of a December rate hike at over seventy percent.

The price of crude oil rose 1% this week, above $50 a barrel – down 6% YTD. US crude stockpiles showed a smaller-than-expected build – of 3.0m barrels – while product inventories of gasoline (-2.1m bls) and diesel (-5.7m bls) declined significantly. Refinery utilization did improve to 83%, but remains below the 3 year average of 92% for this time of year. Members of OPEC sounded more confident this week that oil market balances were improving and thus delayed any decisions on further agreement extensions. While we maintain a positive view of crude prices, we do expect producer hedging activity to increase with oil above $50 and a drawdown of the roughly six thousand drilled-but-uncompleted (DUC) wells to occur. Both will be headwinds as prices grind higher.

Highlights on next week’s economic calendar include the Dallas Fed.’s Manufacturing Activity index on 09/25, consumer confidence on 09/26, revised second-quarter GDP on 09/28, and personal income and spending on 09/29.

 *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 for September 15, 2017

by JM Hanley

The Dow finished up on Friday, rising 65 points to close at 22,268. For the week, the Dow rose 2.2% (S&P 500 +1.6%) and year-to-date is now up 12.6% (S&P 500 +11.7%). Relief after Hurricane Irma spared Florida the worst helped push the major indices to record highs.  Rising crude oil prices and strengthening bond yields also gave energy and financial stocks a boost.  The yield on the 10-year Treasury rose fifteen basis points this week, closing at 2.20%, on Thursday’s report of higher-than-expected inflation.

Hurricane Irma’s late pivot towards the Gulf Coast of Florida meant that its impact on the densely populated area near Miami was not as bad as feared.  Damage estimates dropped from $172B to $49B after the storm passed.  JP Morgan still projects that Irma will prove to have been one of the five-costliest hurricanes recorded.  Elsewhere, there was little news from Washington this week.  Negotiations continue on tax reform.

Economic data reported this week were mixed.  Retail sales fell 0.2% from July, the worst report in six months.  Economists surveyed had expected an increase.  Weak auto sales weighed on the index.  August industrial production also fell, by 0.9%. Hurricane Harvey bears part of the blame for both.

Markets were most interested in August’s inflation data released Thursday.  Despite plenty of commentary about sluggish inflation, prices increased at a faster overall rate than anticipated. Excluding food and energy costs, the “core” rate was 1.7% – the pace it’s held for the past four months.  Housing and gasoline expenses accounted for most of the increase.  The in-line report increased the chances of a December rate hike by the Federal Reserve, which investors now consider more likely than not.   The Fed has long flagged slow inflation as a development that could force it to postpone its rate-hike schedule.

The price of crude oil rose 5% this week, to nearly $50 a barrel – down 7% YTD. US crude stockpiles showed a smaller-than-expected build – of 4.2m barrels – while product inventories of gasoline (-8.4m bls) and diesel (-3.2m bls) declined significantly. Refinery utilization remained below 80%, which drove the drawdown in refined products and build in crude, but utilization should rebound sharply the next couple weeks.  Also aiding oil prices this week were upward revisions to global demand estimates by the IEA, as well as positive communication out of OPEC regarding potential agreement extensions and compliance monitoring.

Highlights on next week’s economic calendar include housing starts on 09/19, existing home sales on 09/20, and Markit’s US manufacturing and services PMI on 09/22.

 *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 for September 8, 2017

by J.M. Hanley

The Dow finished up on Friday, rising 13 points to close at 21,798. For the week, the Dow fell 0.86% (S&P 500 -0.61%) and year-to-date is now up 10.2% (S&P 500 +9.9%). This holiday-shortened week brought little corporate news. The major indices declined moderately on worries about Hurricanes Harvey and Irma and changes to the Federal Reserve policy goals, along with concern about North Korea.  The yield on the 10-year Treasury fell ten basis points on the week to close at 2.05%, its lowest level since mid-November.

It was a comparatively light week for major economic indicators. Factory orders declined by 3.3% in July, the most they’ve dropped since August of 2014.  Weak demand for aircraft was to blame. Excluding transportation, orders actually rose.  Likewise, non-transportation durable goods orders also increased in July, at a faster pace than they did in June. This improving manufacturing demand reflects more optimism by American businesses.  In other news, labor force productivity ticked up 1.5% in the second quarter. This was faster than economists had forecast, and marked an acceleration from the first quarter.  Productivity growth has nevertheless remained tepid by historical standards.  GDP growth has suffered as a result.

The price of crude oil was flat this week, at $47 a barrel – down 12% YTD. US crude stockpiles built this week – by 4.3m barrels – while product inventories of gasoline (-3.2m bls) and diesel (-1.4m bls) declined. The effects of Hurricane Harvey are now flowing through the numbers; however, nearly all Texas refining assets are back up and running and previously shut-in oil/gas production is online as well. Hurricane Irma could potentially string these disruptions out for another couple weeks, with Irma possibly having a more lopsided (negative) impact on supply/demand balances than Harvey.

While Harvey had only a moderate impact on major insurers, Irma will likely prove a different story. Much of the Houston metro did not carry flood insurance, so most property losses will unfortunately be borne by individual homeowners.  But insurers have major exposure to hurricane-prone Miami.  Insurers’ losses from Harvey are estimated to be $25 billion; losses from Irma could be five times worse.

News from Washington was mixed.  Congress raised the limit on what the federal government can borrow. The vote ensures that the Treasury will be able to meet the nation’s current financial obligations.  A separate bill necessary to fund the government also passed.  Markets were reassured. However, both pieces of legislation expire in the middle of December, when they will need to be passed by Congress once again.  December negotiations could complicate efforts at tax reform. 

Elsewhere on the policy front, markets are increasingly skeptical that the Federal Reserve will raise interest rates a third time at its December meeting.  The probability of a rate hike had fallen to 31%.  Comments from regional Fed members suggested a more cautious approach given slow inflation and a labor market with apparently more slack than most realized.  The Fed’s Vice Chair Stanley Fischer announced that he would step down in mid-October.  His replacement will have significant influence on Fed policy.  However, there’s no consensus on who it will be.

Highlights on next week’s economic calendar include small business optimism (9/12), inflation figures (9/14), and retail sales (9/15).

 

Ulland Investment Advisors

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