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Archive for September, 2018

Weekly Market Update for September 28, 2018

by JM Hanley

The Dow was up on Friday, rising 18 points to close at 26,458. For the week, the Dow fell 1.1% (SP500 -0.5%) and year-to-date is now up 7.0% (SP500 +9.0%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 3.07%.

Wednesday’s meeting of the Federal Reserve went according to script. The Fed raised interest rates by a quarter of a percentage point. They also removed the word “accommodative” from official guidance, a sign that the central bank has grown more concerned about inflation as the economy booms. But in a cautious bit of doublespeak, Chairman Powell said he still considers policy to be effectively accommodative. Fed governors now say the economy will grow faster than previously thought: 3.1% this year and 2.5% the next. They still anticipate they’ll raise rates once more this year, and three times in 2019.

Italy’s debt-ridden government, now controlled by a coalition of populist parties, will increase deficit spending to 2.4% of GDP. This marks the outer bound of what analysts believed sovereign bond markets would tolerate. Banks and other financial stocks suffered this week as a result.

Italy’s debts add up to an eye-watering 130% of GDP. Anemic employment and productivity growth means that ratio is hard for Rome to recalibrate on its own. But the scale of the problem – Italy has the world’s ninth-largest economy – makes it difficult for the European Union to bail it out, as occurred in Greece. The budget drafters still need Brussels’ seal of approval, which is unlikely to be forthcoming. There’s plenty of uncertainty to come.

The price of crude oil rose 3% this week to $73 a barrel – up 21% YTD. US crude stockpiles showed a surprise build – of 1.9m barrels – while product inventories of gasoline rose (+1.5m bls) and diesel fell (-2.2m bls). Despite the somewhat weak US inventory report, oil was boosted by reports that China is cutting back on Iranian imports while benchmark prices in Oman quickly climbed $10 higher. China is the largest buyer of Oman crude, representing over 70% of Omani barrels.

Back in the US, Energy Secretary Perry denied reports that the US planned to tap the strategic petroleum reserve (SPR) despite the President’s call for lower energy prices. The US issued additional sanctions against Venezuelan President Maduro’s regime whilst speculation is rising that a multilateral military coup could emerge in the not-to-distant future. We expect oil prices will continue grinding higher as we approach the Nov. 6th restart of US energy sanctions on Iran; their exports have already declined by over 800,000 barrels per day during the past two months, ahead of the restart and faster than many anticipated.

Today marks the last day of the third quarter. Firms will begin reporting their third-quarter earnings the week after next.

*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 September 21, 2018

by JM Hanley

The Dow was up on Friday, rising 87 points to close at 26,744. For the week, the Dow rose 2.3% (SP500 +0.9%) and year-to-date is now up 8.2% (SP500 +9.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose seven basis points, closing at 3.07%.

Trade-related news actually buoyed equity markets this week. The Administration announced on Monday that it would impose duties on an additional $200 billion in Chinese imports, as anticipated. However, the 10% tariff rate, which was lower than expected, represents a modest conciliatory gesture. Both Washington and Beijing have good reasons to get a deal done. Two other trends helped. The dollar has weakened, which aids emerging market economies. And China introduced new spending to stimulate its flagging economy. All of this news was enough to power emerging-markets funds upwards for the first time in a long time.

As investors’ appetite for emerging-market risk returned, they shifted funds from safe options including US Treasury bonds. Treasury yields rose for that reason and others. The Federal Reserve still seems more concerned with full employment than righting the interest rate curve (which would require raising rates more aggressively). The Fed also looks likely to sell a significant share of its own Treasury holdings at the end of October. Anticipation of this deluge has dragged prices down.

The price of crude oil rose 3% this week to $70 a barrel – up 17% YTD. US crude stockpiles showed an in-line draw – of 2.1m barrels – while product inventories of gasoline fell (-1.7m bls) and diesel rose (+0.8m bls). Oil prices moved steadily upwards throughout the week as we approach a joint OPEC-Russia oil strategy meeting this weekend. The market continues to tighten as production declines in Venezuela and exports in Iran begin rolling over due to sanctions, both reducing OPEC spare capacity.

The key question remains how much Saudi Arabia el al. are willing to offset these impacts. In the US, the President called for OPEC to raise production to lower crude, and consequently gasoline, prices. Through year end, supply risks seem higher than any potential demand reduction that may result from shakiness in emerging markets.

Highlights on next week’s economic calendar include consumer confidence on 9/25, new home sales on 9/26, the Fed’s interest-rate decision on 9/26, and the final estimate of second quarter GDP on 9/27.

*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 September 14, 2018

by JM Hanley

The Dow was up on Friday, rising nine points to close at 26,155. For the week, the Dow rose 0.9% (SP500 +1.2%) and year-to-date is now up 5.8% (SP500 +8.7%). The yield on the 10-year Treasury (an important interest-rate indicator) rose six basis points, closing at 3.00%.

Trade uncertainty has moved markets in ways that are often underappreciated. Equity investors enjoyed a banner year in 2017. Management teams soaked in a corporate tax cut and a lighter regulatory touch. After the market suffered a correction in January, major investment managers perceived that portions of the US equity market were fully valued. They began to shift funds abroad in search of returns. Then the trade wars began. Domestic markets looked like a safe harbor. Funds flowed back, raising stock prices. Now domestic valuations look full again.

Earnings growth, red-hot in the second quarter, may slow in the third. The dollar has gained value, so foreign profits are worth less since they are reported in dollars. The market typically reacts poorly to such a deceleration. Midterm elections in the US are also approaching. Equities are usually weakest in midterm years as investors fret about shifts in the political landscape. That hasn’t happened this year for the reasons described above. If control of the new Congress is divided between the two parties, additional fiscal stimulus (in the form of new spending or tax cuts) is unlikely to pass. Markets could face this headwind.

The price of crude oil rose 2% this week to $69 a barrel – up 14% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.3m barrels – while product inventories of gasoline (+1.3m bls) and diesel (+6.2m bls) both rose. Oil prices moved upwards early in the week on global supply concerns, but faded later in the week following the mixed inventory report. In the IEA’s monthly oil report, the organization expressed more concern that we could see a price spike due to restricted exports out of Iran.  Venezuelan and possibly Libyan production is uncertain. They state, “The price range for Brent of $70-80/bbl in place since April could be tested. Things are tightening up.” Shares prices of domestic oil producers slightly outpaced the commodity, rising 3% this week.

The rate of inflation surprisingly declined to 2.7% (annualized) last month. Gasoline and other energy costs pushed the index higher. The costs of medical care, communication, and apparel all went down. Most still expect the Federal Reserve to raise interest rates twice more this year, at the end of September and 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.

Weekly Market Update for September 7, 2018

by JM Hanley

The Dow was down on Friday, falling seventy-nine points to close at 25,917. For the week, the Dow fell 0.2% (SP500 -1.0%) and year-to-date is now up 4.8% (SP500 +7.4%). The yield on the 10-year Treasury (an important interest-rate indicator) rose eight basis points, closing at 2.94%.

Mega-cap tech stocks suffered significant declines this week. The nominal reason was a Senate hearing on election interference that went poorly for Facebook and Twitter. Additionally, the Department of Justice announced an inquiry into political bias on social media platforms. More to the point, Big Tech equities have ridden upwards for years uninterrupted.  Investors have still been willing to pay up to own these businesses, which are growing faster than almost any others. But steep multiples and ambitious growth estimates might have exhausted their optimism.

The week brought no reprieve in tensions across the Pacific. Plans to impose tariffs on an additional $200 billion in Chinese imports will likely come to pass. And today the Administration hinted it might impose duties on $267 billion more. Meanwhile, a deal with America’s northern neighbor remains elusive. Disagreements over dairy exports and intellectual property stand in the way of a NAFTA rewrite with Canada. A text of the agreement is due in Congress by the end of the month.

The labor market continues to surge unabated, political turmoil notwithstanding. Payrolls increased by over 200,000 last month. Wages are up about 3% from August of last year. But labor force participation (the percent of adults who are employed or looking for work) dropped a bit, and unemployment has settled around 4%. Only tariffs marred an otherwise rosy report: jobs in manufacturing and autos went down for the first time in a year. The rising cost of materials also bears some blame.

The price of crude oil fell 3% this week to $67 a barrel – up 12% YTD. US crude stockpiles showed a larger-than-expected draw – of 4.3m barrels – while product inventories of gasoline (+1.8m bls) and diesel (+3.1m bls) both rose. Oil prices briefly spiked Tuesday morning on rig evacuations in the Gulf of Mexico by Anadarko, Chevron, and Exxon in advance of Tropical Depression Gordon. But prices then fell throughout the middle of the week as refining operations on the Gulf Coast were largely unaffected, crude product inventories edged higher, and India suggested they would look to cut oil consumption and promote electric vehicles. Broader trade headlines also didn’t help the crude demand picture.

Highlights on next week’s economic calendar include PPI on 9/12 and CPI on 9/13 (both measures of inflation), retail sales on 9/14, and consumer sentiment on 9/14.

*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