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Archive for July, 2018

Weekly Market Update for July 27, 2018

by JM Hanley

The Dow was down on Friday, falling seventy-six points to close at 25,451. For the week, the Dow rose 1.6% (SP500 +0.6%) and year-to-date is now up 3.0% (SP500 +5.4%). The yield on the 10-year Treasury (an important interest-rate indicator) was up six basis points, closing at 2.96%.

Once again, this week brought a litany of rumors, threats, and retractions as Washington renegotiates the nation’s trading relationship with Europe and China. Jean-Claude Juncker, president of the European Union, agreed to work towards eliminating tariffs on most industrial imports from the US. He also said the EU would purchase more American soybeans and natural gas. The agreement was light on details. In response, the Administration shifted plans for 25% tariffs on auto imports to the back burner.

America’s economy grew 4.1% in the second quarter. Consumers are spending more, and businesses are investing. Sales of existing homes proved the only weak spot.

The price of crude oil rose 1% this week at $68 a barrel – up 14% YTD. US crude stockpiles showed a larger-than-expected draw, of 6.1m barrels, and product inventories of gasoline (-2.3m bls) and diesel (-0.1m bls) also fell. Oil prices dropped on Monday as the US dollar gained versus global currencies, but the commodity later rebounded on the favorable inventory report and a turn lower in the dollar. Tensions remain inflamed between the US and Iran, as the latter reiterates threats to close the Strait of Hormuz while the former looks to snap back additional economic sanctions ten days hence.

This week’s earnings calendar brought a few surprises. Shares of Facebook suffered a substantial decline after it reported second-quarter earnings Wednesday evening. Fewer users are logging in on a daily basis. Advertising revenues have suffered. Even worse, the firm said the growth of revenues would slow in the second half of the year, even as expenses rise. New privacy regulations have taken a toll. But Facebook’s capacity to target advertising is still unmatched. Shares of the rapidly-growing social media behemoth remain attractively valued by the standards of big tech.

News from Amazon was better. The company’s most profitable divisions – cloud computing, advertising, and subscriptions – have bolstered profits across the firm. In the financial sector, Visa reported healthy growth. That apparently sufficed to justify the outsize gains in its share price this year. The acquisition of Visa Europe (a recent acquisition) is ahead of schedule. Anadarko Petroleum, Devon Energy, and Chimera, 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 July 20, 2018

by JM Hanley

The Dow was down on Friday, falling six points to close at 25,058. For the week, the Dow rose 0.2% (SP500 flat) and year-to-date is now up 1.4% (SP500 +4.8%). The yield on the 10-year Treasury (an important interest-rate indicator) was up seven basis points, closing at 2.90%.

Testifying before Congress, Federal Reserve Chairman Jerome Powell predicted that the labor market would remain strong for the next few years. This could keep inflation around 2%. Powell added that the uncertain climate for international trade could discourage companies from raising their workers’ wages and investing in their businesses.

Powell’s comments followed the release of the Fed’s semi-quarterly report. The “Beige Book” noted that manufacturers across the country are worried that tariffs will disrupt their supply chains. Otherwise, they said, higher supply and labor expenses have compressed their profit margins, but the costs largely were not being passed to consumers.

Consumer spending accelerated in the second quarter. But after accounting for the higher price of fuel, retail sales increased only modestly. Clothing and department stores are still losing the battle with Amazon. In other news, it’s still a seller’s housing market. Homebuilders aren’t really building more to meet demand. Construction materials have gotten expensive and qualified workers are hard to come by in today’s tight labor market.

The price of crude oil fell 4% this week to $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise build, of 5.8m barrels, while product inventories of gasoline (-3.2m bls) and diesel (-0.4m bls) both fell. The week’s entire $3 drop in oil occurred on Monday as the WSJ broke news that the White House and Western officials were “actively accessing whether to dip” into the country’s Strategic Petroleum Reserve (SPR) to “ensure oil markets remain well supplied amid a host of production disruptions” globally.

The Journal also suggested that US sanctions on Iran may not ultimately knock these barrels off the market. Instead, China may “vacuum up” barrels that others won’t buy, soothing the impact on prices. Despite the 4% decline in the commodity, the stock prices of domestic oil producers held firmer, dropping only 2% this week.

United Health Group expanded profit margins and increased its forecast earnings this year. It wasn’t quite enough to satisfy high expectations for the nation’s largest health insurer. General Electric continues to struggle. While the company has had success in getting expenses down, reorganizing its Power business has presented more of a challenge. Facebook, Amazon, Visa, and Granite Construction, 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 July 13, 2018

by JM Hanley

The Dow was up on Friday, rising 95 points to close at 25,019. For the week, the Dow rose 2.3% (SP500 +1.5%) and year-to-date is now up 1.2% (SP500 +4.8%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 2.83%.

Fed governors took different views this week. Fed Chair Jerome Powell repeated the oft-made point that tax cuts and higher government spending have further fueled an economy already well into an expansion. Two regional Fed presidents laid out a more aggressive pace of interest-rate hikes than what’s currently proposed. But a third, Atlanta Fed President Rafael Bostic, said he’d grown worried the interest rate curve would invert. An inversion, which occurs when shorter-dated Treasury bills pay more than longer-dated, often precedes a recession. Bostic said the risk could warrant slowing the pace of rate hikes.

Inflation is still gathering steam. It rose to nearly three percent last month on an annualized basis. Higher gas prices are partly, though not exclusively, to blame. In May, and again in June, inflation cancelled out the increase in wages.

Business owners are still happy. An index of small-business optimism is the sixth-highest on record. Thanks to the booming economy, sales are better than they’ve been in years. Lower taxes, and an easing of regulations, have made small-business owners more confident in their firms’ outlook. More and more say they intend to hire workers and add to inventories. Consumers have mixed feelings. Most are still quite optimistic they’ll keep (or find) jobs, and see their pay go up. But many, especially those with higher incomes, feel queasy about the new tariffs’ impact on the economy.

The price of crude oil fell 4% this week to $71 a barrel – up 18% YTD. US crude stockpiles showed a larger-than-expected draw, of 12.6m barrels, while product inventories of gasoline fell (-0.7m bls) and diesel rose (+4.1m bls). The bulk of the draw was driven by volatility in imports, with sharp declines of incoming barrels from Canada, Nigeria, and South America. Despite the positive inventory report, crude oil was pressured by the return of Libyan supply following last week’s force majeure as well as potential US state department sanctions exemptions for some countries sourcing Iranian shipments. Stock prices of domestic oil producers caught up a bit with the YTD rise in oil; the group is now lagging the commodity by just 1%.

A few of America’s largest banks reported second-quarter earnings today, heralding the unofficial start to earnings season. JP Morgan saw broadly based strength in its loans, credit, and trading businesses. Government fines continue to weigh on profits at Wells Fargo, but its loan quality remains good. United Health Group, General Electric, and Goldman Sachs, 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 July 6, 2018

by JM Hanley

It was a shortened and sleepy summer week on Wall Street. The Dow was up on Friday, rising 100 points to close at 24,456. For the week, the Dow rose 0.8% (SP500 +1.4%) and year-to-date is now off 1.1% (SP500 +3.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points and closed at 2.83%.

The jobs market keeps getting better. Payrolls increased by 223,000 in June. Unemployment technically rose to 4%, but that was because more Americans out of work started looking for jobs (and were thus counted in the numbers). Wages, on the other hand, still aren’t growing much.

Stagnant wages might stay the Federal Reserve’s hand in what would otherwise be a moment ripe for substantial interest-rate tightening.  In moments from their June meeting, Fed members agreed the economy was very strong. But the pace of inflation has reached just 2%, near the Fed’s long-term target. That kind of trend justifies only a gradual cadence of rate hikes.

Elsewhere, capital-goods orders, an important metric of manufacturing output, proved resilient. New orders are still coming in, but managers have added uncertainty over international trade to a list of worries that includes a scarcity of workers, expensive transportation, and the rising cost of supplies.

The price of crude was flat this week, hovering around $74 a barrel – up 22% YTD. US crude stockpiles showed a surprise build, of 1.2m barrels, while product inventories of gasoline fell (-1.5m bls) and diesel rose (+0.1m bls). Shrugging off the bearish inventory report as well as a WSJ article calling into question whether the Saudi Aramco IPO will ultimately occur, crude oil benefitted from Iranian threats to close the Strait of Hormuz (where a third of seaborne oil passes) and force majeure at two oil terminals in Libya. Stock prices of domestic oil producers have lagged the rise in oil prices over the past month, but we expect to see some catch-up this summer.

Earnings reports for the second quarter begin next week. A strong economy, and the full benefit of the corporate tax cut, should bolster earnings growth.

*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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