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Archive for May, 2018

Weekly Market Update for May 25, 2018

The Dow finished down on Friday, falling 58 points to close at 24,753. For the week, the Dow rose 0.2% (S&P 500 +0.3%) and year-to-date is now up 0.1% (S&P 500 +1.8%). The yield on the 10-year Treasury (an important interest-rate indicator) fell four basis points on Friday to 2.93%, down 13 bps for the week.

US economic data were mostly neutral this week. Housing sales, both new and existing, were a little soft while durable goods orders were better and consumer sentiment remains strong.  Next week we will get the second revised Q1 GDP estimate as well as the May jobs report and some manufacturing data.

The price of crude oil fell 5% this week to $68 a barrel – up 12% YTD. US crude stockpiles showed a surprise build – of 5.1m barrels – while product inventories of gasoline rose (+1.9m bls) and diesel fell (-1.0m bls). Oil prices were pressured by reports that OPEC may change directions and increase production at the upcoming June meeting to partially offset reduced output from Venezuela and Iran (recall compliance with the agreement is >100% of the agreed volume cuts). While many Middle East countries, Saudi Arabia included, seasonally increase production during the summer months to meet higher domestic demand, we are skeptical that OPEC is looking to make a change to raise quotas at the June meeting.

Shares of our largest equity position, Nutanix, were volatile this week with their earnings report in focus on Thursday.  While the stock was pressured, results were strong as both revenues and bookings surpassed expectations (key metrics we watch) and guidance for the year was raised.  Near-term profitability was a bit soft given continued expansion of the sales team, but we remain confident in the company’s long-term opportunity.

We are closed on Memorial Day (Monday).  Enjoy your day outdoors!

*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 May 18, 2018

by JM Hanley

The Dow was flat on Friday, rising a point to close at 24,715. For the week, the Dow fell 0.5% (SP500 -0.5%) and year-to-date is now flat (SP500 +1.5%). The yield on the 10-year Treasury (an important interest-rate indicator) rose nine basis points and closed at 3.06%.

The Administration is still re-negotiating the terms of the nation’s trade agreements with its North American neighbors and China. Progress is slow on both fronts. An American proposal to permit domestic firms to supply Chinese telecom giant ZTE – in exchange for China’s rolling back restrictions on US agricultural imports – fell through. Members of Congress had raised concerns about intellectual property theft. On fundamental issues like auto tariffs and financial services barriers, the Administration remains unsatisfied with China’s offers. This side of the Pacific, NAFTA negotiators missed a self-imposed deadline to have the agreement reworked by Thursday.

The Federal Reserve was unusually vocal this week. Deficit-financed tax cuts and higher federal outlays have accelerated economic growth (and inflation), but pushed up Treasury yields. Fed members disagree about their next steps. More hawkish members want to raise interest rates three more times this year. They believe the Fed’s 2% inflation target is unrealistically high, and worry that the yield curve may invert. That occurs when shorter-dated bonds pay more than longer-dated. Doves think concern about the economy overheating isn’t borne out by tepid wage growth. They are wary of prematurely snuffing out a long-awaited expansion.

Economic data this week were mostly positive. An economy accelerating after nine years of expansion makes for a strong housing market. The record-high price of lumber has made it harder for developers to turn a profit. Some first-time homebuyers have consequently been priced out of the market. Elsewhere, America’s industrial economy is booming at last. New orders and shipments were both up last month. Producers are struggling to keep pace with demand.

The price of crude oil rose 1% this week to $71 a barrel – up 18% YTD. US crude stockpiles showed an in-line draw this week, of 2.9m barrels, and product inventories of gasoline (-3.8m bls) and diesel (-0.1m bls) both fell. In addition to the favorable inventory report, oil benefitted from a stability-rocking election result in Iraq last weekend.

Venezuela, another major oil producer rocked by tumult, will vote on Sunday. Victory for the ruling party is all but assured. Reaction by the US, which threatened additional sanctions if Venezuela held elections, could further darken the geopolitical outlook. With investor sentiment in the energy space picking up pace, producers’ stock prices outperformed the commodity this week, rising 5%, and are now just 2% behind the rise in oil YTD.

Shares of Chinese tech conglomerate Tencent rose four percent after the firm reported revenues far higher than Wall Street’s expectations. Cloud computing, payments, and online gaming proved particularly lucrative businesses for the firm. Nutanix, 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 May 11, 2018

by JM Hanley

The Dow was up on Friday, rising 92 points to close at 24,831. For the week, the Dow rose 2.3% (SP500 +2.4%) and year-to-date is now up 0.5% (SP500 +2.0%). The yield on the 10-year Treasury (an important interest-rate indicator) rose two basis points and closed at 2.97%.

Inflation increased only 0.3% last month, more slowly than expected. Gas and housing got more expensive, but cars and plane tickets were cheaper. Take out energy and transportation and prices barely changed.  If inflation keeps plodding along like this the Federal Reserve won’t need an extra interest-rate hike.

The price of crude oil rose 2% this week to $70 a barrel – up 17% YTD. US crude stockpiles showed a surprise draw this week, of 2.9m barrels, and product inventories of gasoline (-2.2m bls) and diesel (-3.8m bls) both fell. Pressuring oil expectations this week were comments by Iran’s oil ministers arguing a reasonable band for oil of $60-65, as well as a mandate passed in California requiring solar roofs on all new single-family homes by 2020.  On the flip side, in addition to a positive crude report, oil benefited from a decision by the US to exit the Iran nuclear accord, an Israeli raid in Syria, and Venezuela having oil inventories seized by creditors.

Saudi Arabia, meanwhile, was a mixed bag.  On one hand, the Minister of Energy suggested reducing inventories below average levels may be required to encourage industry investments to meet future demand needs; but on the other hand, it was noted that Saudi Arabia may look to mitigate the impact of declines in Iran exports (i.e. increase in Saudi supply).

Companies continued to report their first-quarter earnings this week. Revenues at Ebix were higher than expected.  The firm is doing a roaring trade sending remittance payments in India. Axon, best known as the maker of Taser, reported another stellar quarter. Police chiefs across America and in Europe have lined up to buy its body cameras and evidence storage software. Shares of the firm have more than doubled in price since February 27.

CVS said the Administration’s new drug-price initiative wouldn’t cramp profits.  Previous chatter had suggested the government would take aim at pharmacy benefits managers, of which CVS’s unit is the largest.  But instead the plan merely tinkers with rebates paid to Medicare recipients. Tencent and L Brands, 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 May 4, 2018

by JM Hanley

The Dow was up on Friday, rising 332 points to close at 24,263. For the week, the Dow fell 0.2% (SP500 -0.2%) and year-to-date is now off 1.9% (SP500 -0.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell one basis point and closed at 2.95%.

Economic data this week were good, if not quite as good as the market anticipated. One hundred sixty-four thousand jobs were added to domestic payrolls last month. Hourly wages rose a bit, but the length of the average workweek didn’t change. Fewer of those unemployed are looking for work. Partially as a result, unemployment fell to 3.9%, its lowest point since 2000.

Those that are working got slightly more productive over the first three months of the year. That, plus low unemployment, increased employers’ labor costs. Other expenses are rising too. Manufacturing CEOs continue to bemoan the cost of supplies, which have reached a seven-year high. Non-manufacturing managers also are worried about America’s ongoing spat over trade. But new orders remain strong across the economy.

Consumers are feeling some of the boom. Personal incomes rose three-tenths of a percent last month. Spending climbed slightly faster. Home sales remain a laggard. The pace of new listings has slowed, so prices may simply have gotten too high. Oddly, construction spending also declined last month – a major surprise to industry analysts.

As anticipated, the Federal Reserve left interest rates unchanged at its meeting this week. Committee members said that inflation was good, but not good enough to justify higher rates.

The price of crude oil rose 2% this week to $69 a barrel – up 15% YTD. US crude stockpiles showed a surprise build this week, of 5.7m barrels, while product inventories of gasoline rose (+1.2m bls) and diesel fell (-3.9m bls). Despite the negative optics of the headline crude build, the inventory increase was primarily amongst West Coast terminals, where changes are less impactful to the market.

Meanwhile, crude saw strengthening support as we near the deadline next week for a decision on the Iran nuclear deal; Reuters notes the US President “has all but decided to withdraw.” Also boosting prices were surveys suggesting OPEC oil production declined in April versus March, largely on the back of a further drop in Venezuela. Venezuelan production rates have fallen by roughly 500,000-600,000 barrels per day over the past year, and are at risk of dropping a further 200,000 bls/d by year end, according to S&P Global Platts. Compliance with the OPEC agreed cuts remains exemplary and overall production is significantly below even targeted levels.

Companies continued to report their first-quarter earnings this week. Business is booming at Alibaba and Granite Construction. Higher sales and profit margins pushed up the share price of both. Good well results also helped the stocks of Anadarko Petroleum and Devon Energy, in a favorable environment for oil companies.

Earnings per share for stocks listed on the S&P 500 have increased 24% since last year. About half of that can be attributed to the corporate tax cut passed in December.

*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

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