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Archive for December, 2018

Weekly Market Update for December 28, 2018

by JM Hanley

The Dow was down on Friday, falling 76 points to close at 23,062. For the week, the Dow was up 2.7% (SP500 +2.9%) and year-to-date is now down 6.7% (SP500 -7.0%). The yield on the 10-year Treasury fell seven basis points, closing at 2.72%.

Bargain hunters lifted the major indexes into positive territory after they lurched downwards last week. Wild swings masked a sleepy Christmas market. Trading was slow, so institutions selling to establish a tax loss and pension fund managers getting portfolio allocation in order swung the market back and forth.

The market’s difficulties seem to be weighing upon the formerly buoyant confidence of the US consumer, which has reached a five-month low. Encouragingly, however, respondents have gotten more optimistic about the job market. The housing market is mixed. Pending home sales fell last month, though prices are still on the rise. The Richmond Fed’s survey of manufacturers was unexpectedly ugly; shipments and new orders both fell. Its survey of the service industry was more positive.

The price of crude oil remained roughly flat this week as US crude stockpiles showed a smaller-than-expected draw – of 0.1m barrels – while product inventories of gasoline rose (+3.0m bls) and diesel was unchanged.

Monday (when the market will close at noon) will mark the final day of the fourth quarter. The first partial week of the New Year will bring a new home sales report on 1/2, the December readout for the ISM manufacturing index (1/3), and the December jobs report (1/4). The market, and our office, will be closed Tuesday in observance of New Year’s 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 December 21, 2018

by JM Hanley

The Dow was down on Friday, falling 414 points to close at 22,445. For the week, the Dow was down 6.9% (SP500 -7.1%) and year-to-date is now down 9.2% (SP500 -9.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell eleven basis points, closing at 2.79%.

The second-to-last week of the year was another awful one for equity markets. The SP500 has fallen 17% in the fourth quarter. American politics didn’t help matters this week. During a partial government shutdown, essential services continue and the government can honor its debts. Investors thus typically treat them as a non-event. But markets are now more fragile than they have been in some time. This dispute, and policy changes and staff turnover in the executive branch, have underscored the possibility of more unsettled conditions. These could encompass weightier issues like raising the federal debt ceiling in May.

Unelected policymakers didn’t do much better. The tone of the Fed’s Open Market Committee’s quarterly meeting was “dovish,” or suggestive of more neutral interest rates. The FOMC did raise rates by a quarter of a percentage point. But now they forecast they will raise rates just once or twice next year, lower than before. Investors expected as much. They anticipate one hike or none at all. However, the Fed demurred at more dramatic action. Suggesting there’d be no hike in March could have put some strength into stocks.

The price of crude oil fell under $50 a barrel this week – down 24% YTD. US crude stockpiles showed a smaller-than-expected draw – of 0.5m barrels – while product inventories of gasoline rose (+1.8m bls) and diesel fell (-4.2m bls). Despite rising strain within OPEC and a number of US producers cutting production growth plans, prices fell steadily throughout the week. The decline in crude oil paralleled the decline in equity markets, largely reflecting concerns of decelerating global growth and its impact on crude oil demand.

“Sentiment,” or the market’s mood, is particularly gloomy. The current level of the SP500 implies that its component firms would see zero growth, on average, in business next year. That’s hard to reconcile with the reality of a growing economy and confident consumers. Making matters worse, trading volumes have been light in these weeks before Christmas, and there’s been little news of consequence. Plenty of investors are selling positions to establish tax losses on their 2018 return. Would-be bulls are waiting for the New Year, and a fresh slate for fund performance. Strong data on the economy’s December performance, reassurance from firms’ management about 2019 growth, and progress on a trade deal with China could buoy stocks in the first weeks of the New Year.

*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 December 14, 2018

by JM Hanley

The Dow was down on Friday, falling 497 points to close at 24,101. For the week, the Dow was down 2.0% (S&P 500 -1.9%) and year-to-date is now down 2.5% (S&P 500 -2.8%). The yield on the 10-year Treasury (an important interest-rate indicator) rose four basis points, closing at 2.9%.

Politics provided no shortage of headlines this week. How much they mattered for the market is another question. Britain’s attempt to exit the European Union gets messier by the minute, but whatever the outcome, it won’t affect American firms much. The same could be said of Washington’s difficulties in funding the federal government. Italy’s deficit follies are another matter given its huge outstanding debts, but Rome and EU bureaucrats have apparently reached an agreement. And a week after the US delayed plans for a higher tariff rate on Chinese goods, Beijing reciprocated. China also resumed its purchases of American soybeans.

Investors were instead troubled by the prospect of slower growth worldwide. The bad news today was from China, where November retail sales and industrial production were particularly poor. A drop in exports was partially, though not entirely, to blame. Preliminary December data from Europe also looked weak, and disruptive protests in France didn’t help.

Slower global growth could add insult to injury for equity markets. Up to this point, stocks have dropped because the price-to-earnings ratio investors were willing to pay has fallen at the prospect of higher interest rates and a trade war. But the forecasts for earnings themselves held steady. If the economy’s growth now slows, so will earnings.

With investors facing a glum Christmas market, all eyes now turn to Jerome Powell. The Fed Chairman will speak after the Fed meets to raise interest rates next Wednesday. The hope is that he’ll offer reassurance about a strong American economy – but hint that there won’t be rate hikes (which normally accompany a strong economy) until the second half of next year. It will be a difficult needle to thread.

The price of crude oil fell 3% this week to ~$51 a barrel – down 15% YTD. US crude stockpiles showed a smaller-than-expected draw – of 1.2m barrels – while product inventories of gasoline rose (+2.0m bls) and diesel fell (-1.5m bls). Prices were volatile throughout the week as incoming global economic data points swung around demand forecasts, and systematic traders dramatically reduced long positions in the commodity following last week’s OPEC meeting. Benefitting domestic hub pricing, reports suggest Saudi Arabia may slash oil shipments to the US starting in January to help draw down inventories. Also, Libya is having trouble keeping production stable as local militias have seized various oil fields. Meanwhile, Russia has said that their contribution to the “OPEC+” production cut would come more gradually than expected, pressuring pricing.

*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 December 7, 2018

by JM Hanley

The Dow was down on Friday, falling 559 points to close at 24,389. For the week, the Dow was down 4.5% (S&P 500 -4.6%) and year-to-date is now down 1.3% (S&P 500 -1.5%). The yield on the 10-year Treasury (an important interest-rate indicator) fell thirteen basis points, closing at 2.86%.

After the President met with Chinese president Xi last Saturday, the Administration agreed to delay a planned increase in the tariff rate for three months. Markets initially celebrated this as a sign that Washington and Beijing were ready to reconcile their differences. As has so often been the case in the trade war, however, this breakthrough was overtaken by later events. America’s arrest of the CFO of Chinese telecom giant Huawei cast a new pall of uncertainty over these signs of progress. The market also refocused on the possibility of slower growth.

The economy added somewhat fewer jobs than expected last month, and the totals for prior months were revised down a bit. Wages grew more slowly as a result. What new jobs there were came in just a few fields: total employment was up in less than 60% of industries. The report more or less hit the market’s sweet spot (though it didn’t provide much support to a determinedly pessimistic trend). If the jobs number had been much lower, it would have exacerbated fears that the economy was slowing. Had it been much higher, the Fed would have had a pretext to continue raising interest rates aggressively.  Investors wouldn’t like that either. Tighter financial conditions may now pressure the Fed to dial back its plans for raising rates in 2019.

The most prominent headache this week instead appeared in the form of an inverted yield curve. The curve inverts when shorter-dated Treasury bonds trade at a lower price than those that mature in the more distant future. This occurrence has historically borne some correlation with a future recession. This week’s pessimism may be overdoing it, though. The time between an inversion and a recession varies considerably.  A decade ago, the yield curve inverted in 2005, but a downturn only came in late 2008. Market economists only put the odds of a recession next year at 14%, a small fraction of where they’ve been before prior downturns. And beyond twelve months their predictions haven’t been very accurate.

The price of crude oil rose 4% this week to ~$53 a barrel – down 13% YTD. US crude stockpiles showed a greater-than-expected draw – of 7.3m barrels – while product inventories of gasoline (+1.7m bls) and diesel (+3.8m bls), both rose. Prices were flat early in the weak before jumping around Thursday and Friday as OPEC members convened in Vienna. On Friday, the group reached an agreement to cut 1.2 million barrels per day, with non-member Russia onboard, and oil prices rose.  Share prices of domestic producers, however, diverged from the commodity this week, falling 3%.

*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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