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Archive for October, 2017

Weekly Market Update for October 27, 2017

by JM Hanley

The Dow was up on Friday, rising 33 points to close at 23,434. For the week, the Dow rose 0.45% (S&P 500 +0.23%) and year-to-date is now up 18.58% (S&P 500 +15.8%). Strong third-quarter earnings reports from large tech companies including Amazon, Google, and Microsoft pushed stocks higher.   Higher-than-expected growth in third quarter GDP also gave equities a boost.

The yield on the 10-year Treasury rose five basis points this week, closing at 2.43%.  Confidence that the Federal Reserve will raise interest rates in December continues to grow. The yield on the 10 Year has climbed nearly four-tenths of a percentage point since early September as a consequence.  A seemingly small move in yields on Treasury bonds can have a sharply negative impact on traditional fixed income, since the securities’ yield will decrease relative to new issues.  In anticipation of rising rates, most of our fixed-income securities are preferred stock with a floating-rate component – thus, mostly protected from this scenario.  Our fixed-income strategies continue to outperform the benchmark Barclays Aggregate Bond Index by a widening margin.

Third-quarter GDP grew 3% from the previous year, according to the first estimate.  This was substantially better than the 2.5% expected by economists.  The outperformance came despite the headwinds from an especially disruptive hurricane season.  Private capital investment and business inventory growth were particularly strong.  Personal consumption, which grew at a slower pace than in the second quarter, proved to be the only weak spot.

The price of crude oil rose 4% this week to nearly $54 a barrel, jumping into positive YTD territory after being down as much as 17% in June. US crude stockpiles, when added to product inventories of gasoline and diesel, both fell dramatically. Refinery utilization popped back above the 3-year average following the prior week’s hurricane curtailments as refiners look to capture favorable product spreads.  Lower-48 oil production has been relatively flat over the past two months which has helped draw down elevated levels of both crude and product inventories in the US.  While oil prices have recovered lost ground this year, oil stocks are still off quite a ways from their highs. We expect that gap to narrow.

Third-quarter earnings reports brought more good news.  In Ulland portfolios, shares of Amazon climbed 13% on Friday after the company reported strong profits expansion.  Google’s stock also rose substantially after it reported accelerating growth in advertising revenues. And Granite Construction reported that its backlog of projects had grown to a year’s worth of revenue, pushing its equity nearly 9% higher.  The good news may continue next week. Alibaba, Facebook, Anadarko Petroleum, and Envision Healthcare, among others, are expected to report.

*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 October 20, 2017

by J.M. Hanley

The Dow was up on Friday, rising 166 points to close at 23,324. For the week, the Dow rose 2.00% (S&P 500 +0.86%) and year-to-date is now up 18.04% (S&P 500 +15.0%). The yield on the 10-year Treasury rose ten basis points this week, closing at 2.38%. Third quarter earnings reports pushed stocks higher.  Three-quarters of companies have reported earnings higher than Wall Street’s expectations, though profits growth has slowed from recent quarters.  Progress on tax reform also gave equities a boost.

Economic data released this week presented a mixed picture. There continued to be a divergence between “soft” data assessing economic sentiment and “hard” data tracking actual production and sales.  The Empire Manufacturing Index, which measures sentiment among industrial producers, reached its highest point in eight years this month.  Industrial production rose 0.3% in September.  Manufacturing output was a bit sluggish. 

Elsewhere, the National Association of Homebuilder’s housing market index reached its highest point in six months.  However, starts for new housing were a bit lower than analysts had anticipated. Weakness in multi-family units weighed on the numbers, and new building permits were also low. Existing home sales did a bit better.  Sales climbed 0.7% in September, faster than most had anticipated. Average sales prices rose substantially from a year ago.  High prices could be discouraging some would-be first-time buyers.

In Washington, the Senate passed a 2018 budget which will also enable Congress to begin work on tax reform in earnest.  The bill passed Thursday was crafted in such a way that the process could move along more quickly than anticipated.  The tax reform bill has yet to be released, and many details continue to be negotiated.  The news pushed equity valuations higher.   Elsewhere in the capital, interviews continued for the next chair of the Federal Reserve.  The choice seems to be between current Fed governor Jerome Powell and Stanford economist John Taylor.  Powell would be expected to continue status-quo policies, while Taylor could take a more conservative approach.

The price of crude oil rose 1% this week to ~$52 a barrel – down 3% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.7m barrels – while product inventories of gasoline (+0.9m bls) and diesel (+0.5m bls) both rose. Refinery utilization again dropped below seasonal norms driven by Hurricane Nate curtailments. Nate also shut-in significantly more oil & gas production in the Gulf of Mexico than that of Harvey.

Third quarter earnings reports brought mostly good news.  In Ulland Portfolios, health insurer United Health Group climbed seven percent after it reported that it paid out less in claims than forecast.  Next week will be a busy one.  Google, Amazon, Granite Construction, and General Motors, among others, are expected to report.

*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 October 13, 2017

by JM Hanley

The Dow was up on Friday, rising 31 points to close at 22,872. For the week, the Dow rose 0.43% (S&P 500 +0.15%) and year-to-date is now up 15.7% (S&P 500 +14.0%). The yield on the 10-year Treasury fell seven basis points this week, closing at 2.28%.Third quarter earnings reports began in earnest this week with most big banks announcing results. JP Morgan, Citibank, and Bank of America reported strong results.  Wells Fargo’s were less so, weighed down by falling profits.

Economic indicators brought largely positive news.  From investors’ perspective, Friday’s inflation report was most important.  Consumer prices in September increased 0.5% from the previous month.  While this was somewhat less than markets had expected, it was still faster than the pace in August.  Gasoline prices, which rose substantially this month as a consequence of hurricanes in the Gulf of Mexico, accounted for three-fourths of the increase. Prices rose 0.1% when food and energy were excluded.  The Federal Reserve is still expected to raise interest rates in December.

Better news came in retail. Sales in the sector increased the most since March of 2015.  Harvey and Irma made their influence felt here as well: auto sales were particularly strong, as car owners in Texas and Florida repaired and replaced their storm-damaged vehicles. Consumer confidence provided another bright spot. Sentiment in September reached its highest point since the beginning of 2004.

Policy discussion in Washington had little impact on markets. Congressional leaders continued to discuss which deductions should be curbed to fund tax reform. The President’s executive order deregulating individual marketplaces for health insurance pressured some hospital-related stocks.  However, the impact was limited to that part of the healthcare sector.

The price of crude oil rose 4% this week, back above $51 a barrel – down 4% YTD. US crude stockpiles showed a larger-than-expected draw – of 3.9m barrels – and inventories of gasoline rose (+2.5m bls) while diesel fell (-1.5m bls). Refinery utilization continued to improve driven by strong processing margins along the Gulf Coast, prompting more refineries to defer maintenance. Oil prices benefitted this week from Q3 production shortfalls from some US producers, as the North American rig count continued its slide. A large drop in European crude inventories and the decertification of the Iran nuclear agreement by the White House also contributed to the price rise.

Highlights on next week’s economic calendar include industrial production (10/18), housing starts (10/18), and existing home sales (10/20).  Third quarter earnings announcements will ramp up.  In Ulland portfolios, United Health Group, Intuitive Surgical, and Iberia Bank, among others, will report.

*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 October 6, 2017

by JM Hanley

The Dow was essentially unchanged on Friday, falling 2 points to close at 22,774. For the week, the Dow rose 1.65% (S&P 500 +1.19%) and year-to-date is now up 15.2% (S&P 500 +13.9%). There was little major corporate news this week. Financial stocks performed the best. Investors anticipate that rising interest rates will benefit banks, energy companies, and industrial firms, among others. The yield on the 10-year Treasury rose four basis points this week, closing at 2.35%.

This week’s economic data presented a mixed picture. Today’s jobs report earned the most attention. Nonfarm payrolls declined by 33,000 in September. This marks the first time jobs numbers have declined since September of 2010. Economists surveyed had expected the economy to add 88,000. Hurricanes Irma and Harvey seemed to be to blame, as the steepest declines came in food services, drinking establishments, and other industries most adversely affected by the storms. Next month’s jobs number should show a restoration of storm-related lost jobs. The unemployment rate actually declined to 4.2% and wages rose.

Additionally, August’s jobs figure was revised upwards, which was expected. But it was more than offset by a downward correction to the July numbers. Better news came in cars and manufacturing. Both reported better-than-expected sales in September.

Commentary from Federal Reserve members reinforced the belief that the board will raise interest rates in December. Most blame the slow inflation seen recently on cyclical factors, and expect that low unemployment and steady growth will push it back on track. Strong wage growth this past month strengthens their case. Markets now put the odds of a December rate hike at 93%. Elsewhere in Washington, Congressional leaders continue to negotiate the details of tax reform legislation, which continues to fuel a strong stock market.

The price of crude oil fell 5% this week to $49 a barrel – down 8% YTD. US crude stockpiles showed a larger-than-expected draw – of 7.0m barrels – and product inventories of gasoline rose (+1.6m bls) while diesel fell (-2.6m bls). Refinery utilization is now in line with the 3-year average for this time of year, although Tropical Storm Nate could develop into a hurricane and make landfall near refineries in the Gulf. Oil prices were pressured by a production restart of a large field in Libya, as well survey results that showed a rise in OPEC production this month.

Highlights on next weeks’ economic calendar include small business optimism (10/10), September CPI (10/13), a measure of inflation, retail sales (10/13), and consumer sentiment (10/13). Q3 earnings releases start next week with banks among the first on Thursday and Friday.

 *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