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Archive for June, 2018

Weekly Market Update for June 29, 2018

by JM Hanley

The Dow was up on Friday, rising 55 points to close at 24,271. For the week, the Dow fell 1.3% (SP500 -1.3%) and year-to-date is now off 1.8% (SP500 +1.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell four basis points and closed at 2.86%.

Tech stocks underperformed this week. The business outlook for big technology firms is still bright. But their steady growth has made them popular to own, and there is concern that the premium the stocks now command may be unreasonable. Financial stocks also struggled. Worries persist that the interest-rate curve may invert. That occurs when shorter-dated Treasury bonds pay more than longer-dated.

Markets also remain troubled by turbulence in international trade. Despite the tariffs imposed by America, Chinese concessions have not been forthcoming. The European Union hasn’t yielded much ground either. For its part, the Administration is said to be discussing duties on forty-five billion dollars’ worth of auto imports. A number of German carmakers have reduced their profit outlooks for the year.

The economy continues to look somewhat peaky. Economists now say that GDP grew 2% in the first quarter. After months of rapid growth, consumer spending increased only modestly. So did shipments of capital goods. Fewer homes are under contract, but that’s largely because fewer were for sale in the first place. New-home sales hit a six-month high. Inflation remains elevated by recent standards.

Shares of CVS suffered this week after Amazon announced it had purchased a small online pharmacy, PillPack. While Amazon has mulled an entry into the pharmacy business for some time, major regulatory roadblocks remain. Investors still get skittish at any move made by the e-commerce behemoth.

The price of oil rose 8% this week, and closed at $74.15 a barrel. Supply has tightened, and may tighten further still. Crude stockpiles declined by nearly ten million barrels last week. It was the biggest draw of the year, and far exceeded analysts’ forecasts. Additionally, a power outage has halted production at a major Canadian oil-sands well operated by Syncrude. And American diplomats are pressing allies to shut off imports of Iranian oil by the fall.

Barron’s, the financial markets weekly, quoted Ulland’s own Nat Beebe this week. In a column titled “Overvalued Preferreds,” Nat gave his view on the technical rally in $25-par preferred securities.

The market, and our offices, will be closed next Wednesday in observance of Independence 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 June 22, 2018

by JM Hanley

The Dow was up on Friday, rising 120 points to close at 24,581. For the week, the Dow fell 2.0% (SP500 -0.9%) and year-to-date is now off 0.6% (SP500 +3.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points and closed at 2.90%.  Energy stocks performed well, while banks, tech companies, and industrial firms underperformed the market.

Trade disputes roiled three continents this week. After China issued retaliatory tariffs last Friday, the US threatened to impose duties on an additional $200 billion of Chinese goods. The received wisdom still holds that the world’s largest economies will pull back from the brink of a trade war. Shielding consumers from price rises will be more difficult in subsequent bouts.

Thus far, the impact has been minimal. Goldman Sachs estimates the proposed $200 billion in duties would cut just a tenth of a percent off US GDP, or about a dollar of the S&P 500’s earnings per share.

After the EU has issued retaliatory tariffs of its own, the White House responded with a threat to mark up European auto imports by 20%. It’s unclear if this will come to pass, but the size of the US export market gives America negotiating heft. German industrial barons are said to be amenable to compromise. North of the border, progress has stalled on the NAFTA rewrite.

Economic news was light this week. Homebuilders, coping with scarce labor and high lumber prices, have turned bearish. They still started construction on more houses last month than at any point in the cycle. The good times may not last; the number of building permits issued dropped considerably. The outlook also grew slightly darker in manufacturing. New business is slow, transport networks are stretched thin, and raw materials have gotten more costly.

The price of oil rose 6% this week, closing at $69 a barrel. At their meeting today in Vienna, OPEC and Russia agreed to increase production by a net 600,000 barrels. Investors had anticipated they’d open the taps even further, so energy stocks surged on the news. Energy investors were also cheered to see that the raucous geopolitical coalition comprising (among others) the Gulf monarchies, Iran, Russia, and Venezuela remains – for now – functional.

*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 June 15, 2018

by JM Hanley

The Dow was down on Friday, falling 85 points to close at 25,090. For the week, the Dow fell 0.9% (SP500 flat) and year-to-date is now up 1.5% (SP500 +4.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points and closed at 2.92%. The Administration approved tariffs on fifty billion dollars’ worth of Chinese products today; tariffs on an additional $16 billion are expected imminently. Beijing retaliated with tariffs of its own on $50 billion in American agricultural imports.

The Federal Reserve increased its interest rate a quarter of a percentage point. They also said they’d raise rates a total of four times this year, not three. Neither move was surprising. The Fed now takes a rosier view of the economy’s prospects. Torrid growth in household spending, they believe, will spur the pace of inflation. In Frankfurt, the ECB announced it would stop buying member states’ bonds in the coming months. The usefulness of the policy had waned since the worst of the sovereign debt crisis passed.

Inflation increased 0.2% last month, about as much as expected. The report was well-timed to validate the Fed’s more hawkish approach. The annual rate of 2.8% accelerated the most since February of 2012.

Consumers still feel good about the economy, though many have tempered their expectations for the future. Small business owners are about as bullish as they’ve been since 1973. A record number plan to expand, and most intend to increase prices. Retail sales rose again last month, lending credence to their reasoning.

The price of crude oil fell 1% this week to $65 a barrel – up 8% YTD. US crude stockpiles showed a surprise draw, of 4.1m barrels, and product inventories of gasoline (-2.3m bls) and diesel (-2.1m bls) fell as well. Up until Friday, oil prices had rallied to $67 a barrel on curtailments of supply in Libya due to rebel attacks, the strong EIA inventory report, and more toned down rhetoric regarding what Saudi Arabia/OPEC may do on June 22. However, speculator long derivative positions in crude remained elevated heading into the weekend and it’s likely many chose to neutralize (i.e. partially/fully close out) positions on Friday ahead of the meeting next week, leading to a $2 price drop.

It is now generally expected that OPEC/Russia will decide to increase group production rates, possibly by 0.5-1.0m barrels/day, but the amount of any bump is up in the air. Russia stoked fears in recent weeks that the bump could be as much as 1.8m barrels/day.

On Tuesday, a federal judge brushed aside antitrust concerns and ruled that AT&T could buy Time Warner. The news improved the odds that other mega-mergers would win regulatory approval. Shares of CVS and Aetna improved on the news. So did Fox, Comcast, and Disney.

*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 June 8, 2018

by JM Hanley

The Dow was up on Friday, rising 75 points to close at 25,317. For the week, the Dow rose 2.8% (SP500 +1.6%) and year-to-date is now up 2.4% (SP500 +3.9%). The yield on the 10-year Treasury (an important interest-rate indicator) rose six basis points and closed at 2.95%.

June is off to a sleepy start. Tax cuts and deficit spending have put wind in the economy’s sails. Stock buybacks and M&A have amplified these tailwinds in equity markets. With the corporate rate cut nearly in half, steeper valuations have thus far been supported by sustained earnings growth. The Administration’s newly hawkish approach on trade is a source of constant sound and fury. But while investors must adjust to day-to-day uncertainty, most doubt a trade war between the world’s largest economies will break out.

The price of crude was unchanged this week near $66 a barrel – up 9% YTD. US crude stockpiles showed a surprise build, of 1.5m barrels, and product inventories of gasoline (+4.6m bls) and diesel (+2.2m bls) both rose. Crimping oil prices was the inventory report as well as rising concern that OPEC may introduce plans at the June 22 meeting for a gradual unwinding of its production cuts. Some reports suggest a US government request – that OPEC increase production by one million barrels per day, to ease rising gasoline prices – may be partially behind any shift of course by members.

These headwinds were offset by the downwardly spiraling situation in Venezuela. Shipping port bottlenecks and declining production have prevented the country from upholding some June export commitments, and may spur a controversial declaration of force majeure on contracts.

Next week will be as busy as this one was quiet. On Tuesday morning, President Trump and Kim Jong-Un, North Korea’s leader, will meet in Singapore. Later that day, a federal judge will issue a decision determining whether or not the proposed merger of AT&T and Time Warner can proceed. The Federal Reserve will decide whether or not to raise interest rates on Wednesday. A new projection of future rate hikes is also expected.

The next day, their European counterparts will meet for the same purpose. Chairman Draghi will answer questions about Italy’s new Euroskeptic government and the ECB’s plans to reduce its holdings of member government’s bonds. Thursday will also bring a raft of data on consumer spending and capital investment in China.

America’s trade office will release a list of Chinese goods subject to the newly-imposed tariffs the day after that. Not to be outdone, the Bank of Japan will also issue its decision on domestic interest rates on Friday. And at some point during the week, the Administration will hold a press conference at which the leaders of several pharmaceutical companies will announce voluntary reductions in drug prices.

 

Ulland Investment Advisors

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