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Archive for February, 2018

Weekly Market Update for February 23, 2017

by JM Hanley

The Dow was up on Friday, rising 348 points to close at 25,310. For the week, the Dow rose 0.4% (SP500 +0.6%) and year-to-date is now up 2.4% (SP500 +2.8%). Technology stocks performed well, while the consumer goods sector underperformed. The yield on the 10-year Treasury, an important interest-rate indicator, rose three basis points, closing at 2.92%. Equity markets continued to recover from a steep decline at the beginning of this month. Firms’ fourth-quarter earnings have been good. Investors have also gained confidence that the current yield on US Treasury bonds won’t threaten stocks’ growth.

Existing home sales fell last month.  While sales of condominiums increased, it was not enough to offset a big drop in sales of single-family dwellings.  The total number of homes for sale has declined nearly 10% over the past year.  Yet interest from potential buyers remains strong. With more demand and less supply, prices are up.  New homes, which are being built at the fastest pace in ten years, could help ease the pressure.

Elsewhere, a survey of manufacturing firms found that most managers remain optimistic.  Their only complaint was that the cost of supplies continues to increase. A parallel survey of the service sector recorded similar results.

Members of the Federal Reserve have gotten more optimistic about US growth. The corporate tax cut, strong growth abroad, and relaxed regulation could push the economy to expand more quickly.  Minutes of the committee’s January meeting revealed that some Fed members are now discussing raising interest rates four times to combat the accompanying inflation.

The price of crude oil rose 3% this week to $63 a barrel – up 5% YTD. US crude stockpiles showed a larger-than-expected draw this week – of 2.3m barrels – while product inventories of gasoline (+0.2m bls) rose and diesel (-2.5m bls) fell. Oil prices were down to start the week before rallying after the stockpiles report. In addition to the larger crude draw, the report showed that gasoline and diesel demand continue to remain robust and production growth this week was minimal. Headlines suggesting that Saudi Arabia is firmly committed to the OPEC production cut – even in the event of a supply shortage – were warmly received by energy investors, as were indications that Libya may have trouble maintaining current production levels.

Companies continued to report their earnings for the fourth quarter this week. Stamps.com benefited from a strong holiday season for e-commerce shippers. Its stock finished the week up over eight percent.  Devon Energy’s equity suffered after the firm offered a disappointing growth outlook for 2018. K2M, Envision Healthcare, Nutanix, and Callon Petroleum, among others, will report earnings next week.

*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 February 16, 2018

by JM Hanley

The Dow was up on Friday, rising 19 points to close at 25,219. For the week, the Dow rose 4.3% (SP500 +4.3%) and year-to-date is now up 2.0% (SP500 +2.2%). After a precipitous drop last week, equity markets bounced back. Large tech firms, banks, and payment companies did particularly well. Healthcare and car companies underperformed the market. News of quickening inflation weighed on the prices of US government bonds. The yield on the 10-year Treasury, an important interest-rate indicator, rose three basis points, closing at 2.89%.

Economic data released this week underscored the economy’s momentum. Developers are now building new homes at the fastest pace in ten years. Construction of multifamily units, in particular, has grown rapidly. With all the positive signs, US consumers now report that they feel more optimistic about the economy than they have at any point since 2004. Inflation has picked up. Data for last month revealed that prices rose over two percent since January 2016 – the fastest pace in more than a year. Many analysts had correctly predicted that inflation would pick up, since wages grew last month.

Retail proved to be one of the few weak spots. Sales fell 0.3% in January, the worst decline in eleven months. Industrial production was also a bit weak. Many managers blamed the rising cost of supplies.

The price of crude oil rose 4% this week to $61 a barrel – up 2% YTD. US crude stockpiles showed a smaller-than-expected build this week – of 2.3m barrels – while product inventories of gasoline (+3.6m bls) rose and diesel (-0.4m bls) fell. In addition to the smaller crude build, a sizeable draw at the Cushing hub, along with strong product demand and a weaker US dollar, pushed commodity prices up. We continue to believe the supply-demand setup is favorable for oil producers this year, particularly after we exit the refinery maintenance period occurring February to April.

Companies continued to report their earnings for the fourth quarter this week. Granite Construction’s stock rose after the firm reported that its revenues grew more than expected, and its profit margins expanded. By now, 80% of companies listed on the S&P 500 have reported fourth-quarter results. Nearly four out of five have recorded revenue growth. Earnings per share have grown 15.2%, on average, which marks the fastest pace since the third quarter of 2011. Medtronic, Devon Energy, Stamps.com, and Nutanix, among others, will report earnings next week.

The market, and our offices, will be closed Monday in observance of Presidents’ Day.

*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 February 9, 2018

by JM Hanley

The Dow was up on Friday, rising 330 points to close at 24,190. For the week, the Dow fell 5.2% (SP500 -5.2%) and year-to-date is now off 2.1% (SP500 -2.0%). The yield on the 10-year Treasury, an important interest-rate indicator, rose two basis points, closing at 2.86%. The downturn this week proved to be the indexes’ worst in over two years. Yet it follows a 5.6% gain last month, the best January in decades. Equities now trade at the same level they did at the end of November.

In Washington, Congress approved a spending bill on Friday morning. The legislation funds the government through March 23rd and lifts the debt ceiling (authorizes the Treasury to borrow funds as needed) for two years. These measures should reassure investors.

The bill also increases total spending by $500 billion over the next two years. This, and the $1 trillion in tax cuts passed last year, amount to a major stimulus for the US economy. Yet the economy had already been growing at a healthy pace, and wages were rising. Investors have grown concerned that resulting inflation could force the Fed to raise interest rates quickly. For their part, Fed members insisted the downturn wouldn’t alter their interest-rate strategy. Bill Dudley, president of the New York Fed, said equities’ fall wasn’t deep enough to worry central bankers yet. Others noted the pullback wasn’t linked to weakness in the broader economy.

Economic data this week proved largely positive. ISM’s survey of non-manufacturing businesses noted a better-than expected outlook. New orders, prices, and employment were all up from December. The service sector proved the only weak spot. These trends are consistent with 4% GDP growth, but might not be sustainable. The cost of fuel and other raw materials rose, which could spur inflation higher.

The price of crude oil fell 10% this week to $59 a barrel – down 2% YTD. US crude stockpiles showed a larger-than-expected build this week – of 2.4m barrels – while product inventories of gasoline (+3.4m bls) and diesel (+3.9m bls) also rose. E&P management teams continue to express discipline; however, this week’s report also estimated that production surged higher in the US. The  new gov’t budget deal would also seek to reduce the Strategic Petroleum Reserve by 45% over the ensuing 10 years. Such an action adds incremental supply to a market which is still trying to rationalize excess inventories.

Companies continued to report their earnings for the fourth quarter this week. Anadarko Petroleum produced more oil and higher profits than anticipated. It also announced it would quadruple the dividend it paid shareholders. Granite Construction and Chimera Investments, among others, will report earnings next week.

*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 February 2, 2018

by JM Hanley

The Dow was down on Friday, falling 665 points to close at 25,521. For the week, the Dow fell 4.1% (SP500 -4.0%) and year-to-date is now up 3.2% (SP500 +3.3%).

Today’s jobs report revealed that the economy added 200,000 jobs in January.  The unemployment rate remained 4.1%.  Average wages increased almost 3% from a year ago.  Unemployment has been falling for years, yet pay had remained unusually stagnant.  The wage growth seen last month indicates that trend finally might be changing.

The interest rate, or yield, paid on US Treasury bonds rose sharply this week.  The yield on the 10-year Treasury rose twenty-two basis points, closing at 2.84%.  Investors have grown wary of the wage rises detailed in the jobs report. Americans are also taking home more pay even if they didn’t get a raise, since the income tax cuts Congress passed late last year took effect on the first of this month.  When pay increases, consumers have more cash in their pocket.  Inflation is feared. 

To tame inflation, the Federal Reserve usually increases interest rates. The Fed announced late last year that it would raise interest rates three times in 2018.  Investors doubted that they’d go through with it.  Yet meeting minutes released this week reveal that the Fed is sticking to its target.  The interest to be paid on bonds is partly determined by this rate set by the Fed.  If the Fed raises rates, newly-released fixed-income offers a higher return than securities already on the market.  The price of old issues (including Treasuries and corporate debt) almost automatically goes down. 

We have positioned most of our portfolios to defend against the threat of higher interest rates.  Floating rate and fixed-to-float securities pay an interest rate that rises automatically along with interest rates.  These securities have largely held their ground as traditional fixed income has retreated.

The price of crude oil fell 1% this week to $65 a barrel – up 8% YTD. US crude stockpiles showed a larger-than-expected build this week – of 7.0m barrels – while product inventories of gasoline (-2.0m bls) and diesel (-1.9m bls) both fell. So far, E&P management teams have stayed disciplined in their spending outlooks for 2018; however, only the large, global, integrated companies have reported thus far. Small- and mid-sized company reports won’t come until later this month.

Many of the largest technology firms reported their fourth-quarter earnings this week.  Alibaba, the Chinese equivalent of Amazon, saw its sales and earnings grow rapidly once again.  The company also noted that it would take a large share in its e-payments affiliate.  Confusion over the deal pressured its stock downward.  Amazon had no such problems. It had an outstanding holiday retail season, and its cloud computing segment continues to return high profits. Apple also reported.  Rumors had spread that sales of its new iPhone X were quite slow.  Yet its numbers proved better than feared. SoftBank, General Motors, and Anadarko Petroleum, among others, will report next week.

*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