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Archive for December, 2017

Weekly Market Update for December 29, 2017

The Dow finished down on Friday, falling 118 points to close the year at 24,719. For the week, the Dow fell 0.1% (S&P 500 -0.4%) bringing the year-to-date return to 25.1% (S&P 500 +19.4%, NYSE +15.8%). The nearly-5,000 point gain in 2017 was a record, and percentage-wise the second largest jump in a decade. US economic data were mostly absent this week, as were trading volumes with many investors on holiday break. After showing a swift rally to 2.50% last week, the yield on the 10-year Treasury declined 3 bps on Friday to finish at 2.41%, ending the year 7 bps lower than it began despite three Fed hikes.

On our fixed income side, despite being positioned defensively for rate hikes in the second half of the year, we are very pleased with our performance. While numbers are yet to be finalized, a rough cut suggests our fixed income portfolios were up over 6% this year, above our target of 5% and a solid return for clients dependent on a stable income stream. On the equity side, our portfolios likely outpaced both the S&P 500 and the Russell 3000 indices.

As we look to 2018 there are many reasons to be positive regarding the markets despite the bull cycle coming upon its nine-year mark. Tax reform is likely to boost corporate profits (potentially by 7-10% on average) and may provide a boost to economic growth. Capital availability and credit quality remain strong. Consumer, investor, and business confidence remain near multi-decade highs. Employment numbers and wage growth continue to show improvement. While we are cognizant that “everything looks good, until it doesn’t” and we are always on the lookout for signs of a turn, we don’t see a need to move defensive on the equity side or more defensive on the fixed income side in the near term.

The price of crude oil rose 4% this week to over $60 a barrel. Oil finished the year up over 12% after being down as much as 21% in June. US crude stockpiles showed a larger-than-expected draw this week – of 4.5m barrels – while product inventories of gasoline (+0.6m bls) and diesel (+1.1m bls) both rose. From the peak in inventories in February, the US has worked off (aka drawn down) over 167 million barrels of crude oil and petroleum products (~8% reduction). If we look just at crude, gasoline, and diesel that number is closer to 189 million barrels (~17% reduction).

Clearly the oil markets have been rebalancing after a period of excess supply in 2015-2016. On the equity side, we made a bet earlier in the year that this would be the case leading to a move in oil prices materially higher, and we are now seeing the benefits of our positioning. We think the inflows to the sector of late can continue in 2018.

The market (and our offices) will be closed next Monday in observance of the New Year. We will reopen on Tuesday and would love to answer any questions you have regarding your portfolios and positioning into 2018. Highlights on next week’s economic calendar include December manufacturing indices, automotive sales, and the employment report (Friday), along with FOMC meeting minutes.

Happy Holidays!

*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 December 22, 2017

by JM Hanley

The Dow was down on Friday, falling 28 points to close at 24,754. For the week, the Dow rose 0.4% (S&P 500 +0.3%) and year-to-date is now up 25.3% (S&P 500 +19.9%). The yield on the 10-year Treasury, an important interest-rate indicator, rose thirteen basis points, closing at 2.48%. Rising interest rates typically have a negative effect on fixed-income securities. Most of our preferreds pay a coupon that varies (are “floating” or will in the future) along with rates. Rising rates thus have a limited impact on our fixed income’s value. In the equity market, energy stocks performed particularly well as the price of oil continued to rise and the outlook for the new year brightened.

Tax reform passed both houses of Congress and was signed into law. The legislation cuts corporate taxes dramatically, but also modifies or eliminates a number of popular business deductions. Wall Street analysts, CFOs, and accountants will spend the next few months parsing which firms will benefit, and by how much. One analysis estimates that lower tax rates will increase firms’ earnings by an average of 7-10%.

Data released this week showed a housing market that continues to thrive. Seven hundred thirty-three thousand homes new homes were sold in November. That’s more than in any month since July of 2007. The median house cost $318,700. That price increased from the previous year, which reflects strong demand. All homes currently on the market would be sold in less than five months at the current pace of sales. Developers are thus working to bring more homes to market. Builders began construction on 1.3 million new homes last month, with a notable increase in single-family homes. The pace of building has only been that fast once before in the past ten years. The National Association of Homebuilders’ index reached an eighteen-year peak as a consequence.

The price of crude oil rose 2% this week to $58 a barrel – up 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 6.1m barrels – while product inventories of gasoline (+1.3m bls) and diesel (+0.7m bls) both rose. A number of small oil-related headlines contributed to the commodity tailwind this week, along with news of the federal tax changes. Amidst the recent softness in tech stocks the past few weeks, we have seen energy names among those beneficiaries of shifting dollars. We think the inflows can continue with traders noting clients are becoming more constructive on energy for 2018.

The market (and our offices) will be closed next Monday in observance of Christmas. Trading during the remaining four days of the week is expected to be very light. Highlights on next week’s economic calendar include the Dallas Fed’s manufacturing index on Tuesday, pending home sales on Wednesday, and retail inventories on Thursday.

*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 December 8, 2017

by JM Hanley

The Dow was up on Friday, rising 118 points to close at 24,329. For the week, the Dow rose 0.4% (S&P 500 +0.35%) and year-to-date is now up 23.1% (S&P 500 +18.4%). The yield on the 10-year Treasury fell one basis point, closing at 2.38%.  After big gains last week, investors took stock of the new terrain. Financial firms continued to perform well. They are expected to benefit from lower corporate taxes and higher interest rates. Tech stocks – which had fallen last week as investors shifted to sectors that would benefit more from the tax bill – recovered, and finished the week up.

There were few political headlines of consequence this week. Congress is now finalizing tax cut legislation. The Senate and the House of Representatives passed different bills which they must merge together into a single proposal. The final product will need to pass both houses of Congress before it is signed into law. Congress also passed a spending bill which funds the government through December 22nd. Lawmakers will use the next two weeks to hammer out a longer-term spending proposal. In Europe, Britain’s prime minister and the European Union’s president reached a preliminary deal on the UK’s exit from the EU. Now the two can begin negotiating a trade agreement to take effect after Britain leaves. Foreign stocks rallied on the news.

Today’s jobs report interested markets the most. The economy added 228,000 jobs in November, which was a bit more than analysts had expected. Unemployment remained at 4.1%. That’s the lowest it’s been since 2000. Wages continue to grow less than historical data suggests they should. Even though employers added more jobs than expected last month, wages increased 0.2% – below expectations. When unemployment is low, firms normally increase pay to attract and retain employees. Today’s weak labor force participation may be to blame. More Americans start applying for work when there are more jobs to be had. Fresh competition keeps wages down.

Additionally, productivity growth remains slow, and large numbers of highly-paid baby boomers are now retiring. In any event, today’s jobs report didn’t change the market’s belief that the Federal Reserve will raise interest rates when it meets later this month.

The price of crude oil fell 2% this week to $57 a barrel – up 7% YTD. US crude stockpiles showed a larger-than-expected draw – of 8.0m barrels – while product inventories of gasoline (+6.8m bls) and diesel (+1.6m bls) rose more than expected. Crude inventories in Cushing, OK – a key hub that investors watch – has now materially declined four consecutive weeks. Oil news was relatively muted this week. PDVSA, the Venezuelan national oil company, continues to face escalating challenges. This week, reports suggested they are almost out of airplane fuel and are therefore restarting some refinery plants that haven’t passed proper safety checks.

*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 December 1, 2017

by JM Hanley

The Dow was down on Friday, falling 41 points to close at 24,231. For the week, the Dow rose 2.86% (S&P 500 +1.53%) and year-to-date is now up 22.6% (S&P 500 +18.0%). The yield on the 10-year Treasury rose seven basis points, closing at 2.39%.

This week proved the exception to the market’s pattern this year of mostly ignoring political news. The major indexes climbed for the first four days of the week as the passage of the Senate’s tax bill grew more likely. Industrial and financial companies performed well. Firms in these sectors tend to pay high taxes and stand to gain most from a reduction in the corporate rate. Energy companies also performed well as the price of oil rose. Tech stocks, which pay a low effective tax rate, retreated.

As of Friday afternoon, the Senate appeared likely to pass tax cut legislation. Details of the bill continued to be refined in the hours before the vote. It appears that the Senate’s proposal would reduce the corporate tax rate to 20% and allow for limited deductions of state, local, and property taxes. It will probably allow domestic companies to bring profits held overseas to the US at a one-time tax rate of 14%.

The House of Representatives passed its own tax cut bill two weeks ago. It differs from the Senate’s in a number of respects. The two pieces of legislation would need to be merged together into a single bill, which both houses of Congress would then have to pass. To avoid these complications, the House may simply pass the Senate’s bill, which could then be signed into law.

The price of crude oil rose this week above $58 a barrel – up 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.8m barrels – while product inventories of gasoline (+3.6m bls) and diesel (+2.7m bls) rose. Oil prices benefitted from the 173rd OPEC Meeting which took place on Thursday. Member countries, along with their strategic non-OPEC partner countries, collectively decided to extend their group production cuts an additional nine months, carrying the agreement through year-end 2018. Saudi Arabia’s Minister of Energy noted that oil fundamentals are on firm ground and that, despite still elevated levels of storage, inventories are continuing on the right direction (i.e. lower), with no need for deeper cuts.

Third quarter earnings season here concluded with good news. Nutanix, one of our core equity positions, rose nearly 10% today after reporting earnings on Thursday night. In addition to better-than-expected sales and earnings growth, the company’s management noted that they had recently signed deals with Toyota, Scholastic, and ConocoPhillips.

*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