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Archive for May, 2019

Weekly Market Update for May 17, 2019

by JM Hanley

The Dow was down on Friday, falling 99 points to close at 25,764. For the week, the Dow was down 0.7% (SP500 -0.8%) and year-to-date is now up 10.4% (SP500 +14.1%). The yield on the 10-year Treasury (an important interest-rate indicator) fell eight basis points, closing at 2.39%.

Trade news, which came fast and furious again this week, was good on all fronts but the Chinese one. On the positive side of the ledger, tariffs on metal imports from Canada and Mexico were suspended. Markets were also cheered after the Administration opted to postpone tariffs on European and Japanese cars for six months (less positive were media reports that Washington’s demands of Tokyo and Brussels will be relatively inflexible). But these were more than offset by the Commerce Department’s decision to ban exports to Chinese telecom conglomerate Huawei.

Negotiations with China theoretically still could resume by the end of this month, with a deal of some variety signed at the end of the G20 summit six weeks from now. But an agreement looks increasingly unlikely. Some hold out the hope that Washington will spare a further $300 billion of Chinese goods from duties and permit exports to Huawei. Others see a new negative tone in negotiations with any agreement far off.

The price of crude oil rose 2% this week to nearly $63 a barrel – up 38% YTD. US crude stockpiles showed a greater-than-expected build – of 5.4m barrels – driven by a rebound in imports from the Middle East. Oil prices benefitted from heightened US-Iran tensions as well as sabotage attacks on Saudi Arabian ships. Energy equities didn’t follow the upward drift in oil prices, with domestic producers falling 1% and service providers declining 4%.

Major Chinese internet firms were the highlight of earnings reports this week. Tencent reported okay results, and Alibaba’s were good. The ecommerce firm’s highly profitable advertising business is as strong as ever. Both suffered in Friday trading after a slew of bad macroeconomic updates from China and a weak report by search engine giant Baidu.

*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 10, 2019

by JM Hanley

The Dow was up on Friday, rising 114 points to close at 25,942. For the week, the Dow was down 2.1% (SP500 -2.2%) and year-to-date is now up 11.2% (SP500 +14.9%). The yield on the 10-year Treasury (an important interest-rate indicator) fell six basis points, closing at 2.47%.

After five months of calm, the trade war flared again this week. News Sunday evening that the US would proceed with higher tariffs this Friday precipitated a week of market volatility that ended without an agreement. China now presumably will reciprocate with higher tariffs of their own.  Today was only a “soft” deadline. Since cargo ships bound from China take two weeks to cross the Pacific, Washington and Beijing have some time before duties are collected. No further official talks are scheduled, and the Administration has made conflicting statements, but discussions of some variety presumably will continue.

JP Morgan sees the possibility that a running conflict over trade, hot or cold, may become a fixture of the geopolitical landscape for another year or two. Confronting China has political appeal; the economic turmoil that ensues does not. Washington may oscillate between bouts of saber-rattling and periods of conciliation. Markets probably could learn to live with that.

Much-anticipated April inflation data was lower than expected. The contents of the report were better. Rent growth, which has been slow, accelerated, as did healthcare. These were offset by seasonally depressed used car sales as well as apparel. It’s probably not enough to persuade the Fed to cut rates for “insurance.” Members seem supportive of Chairman Powell’s wait-and-see approach.

The price of crude oil stayed around $62 a barrel this week – up 36% YTD. US crude stockpiles showed a surprise draw – of 4.0m barrels – driven by a sharp fall in imports from the Middle East and South America. Oil prices seemed to move in line with the sways of the market this week, guided by China trade sentiment. On Monday, Occidental announced a revised offer for Anadarko, with a greater cash component (80%) that bypasses a vote by Occidental shareholders. Chevron then had four days to respond, and on Thursday Chevron bowed out. We have begun strategically shifting funds out of Anadarko into other names, depending on individual client circumstances.

Axon, the maker of Taser, reported better-than expected sales and increased its outlook for 2019 results. Its gross profit margin was lower than anticipated. Playa Resorts recorded better-than-expected revenues and profitability. Its shares gained on the news. Air Lease did the same, though its CEO cautioned that delays at AirBus and scandal-addled Boeing could temporarily delay some revenues. This was not unexpected.  Alibaba and Tencent, 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 3, 2019

by JM Hanley

The Dow was up on Friday, rising 197 points to close at 26,505. For the week, the Dow was down 0.1% (SP500 +1.0) and year-to-date is now up 13.6% (SP500 +17.5%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points, closing at 2.53%.

The Fed didn’t raise interest rates at their Wednesday meeting, but it was newsworthy nonetheless. Reality caught up with some optimists who’d been banking on an interest rate cut. Chairman Jerome Powell described the economy as healthy, said inflation was almost on target, and opined that some factors behind slow inflation would prove temporary. Thus, no rate cut is in the near future.

Today’s jobs report was good, though lower labor force participation somewhat offset lower unemployment. Wages, a main contributor to inflation, grew more slowly than anticipated. So did two important indexes of business activity. It looks less likely that rapid growth will force a rate hike. The market now cares most about March inflation data, out next week. Low interest rates and low inflation are ideal for equity markets. Stable rates are also favorable for our fixed income strategy.

The price of crude oil fell 2% this week to $62 a barrel – up 36% YTD. US crude stockpiles showed a greater-than-expected build – of 10.0m barrels – while product inventories of gasoline rose (+0.9m bls) and diesel fell (-1.3m bls). Oil showed early strength but reversed course later in the week on the bearish inventory build and weak “vehicle miles traveled” data for February. On Tuesday, Occidental disclosed they received financial backing from Warren Buffett to pursue the Anadarko deal, and Anadarko is actively considering the alternative bid.

A steady stream of earnings reports kept traders busy. The preferred shares of General Electric rallied after the firm reported much more cash income than expected. While it’s a positive development, the firm’s management attributed some of their success to the timing of big sales. Google reported lower revenues than expected. The search giant’s advertising business has grown so large that it’s run out of room to expand as fast as before.

In healthcare, CVS finally saw its acquisition of Aetna start to pay off. The insurer bolstered CVS’s earnings in an otherwise tough quarter in the pharmacy business. Peer insurer WellCare also did well. But holders of that Medicare and Medicaid specialist are awaiting government approval of Centene’s proposed buyout as much as anything. International ATM and remittance servicer Euronet endured stiff headwinds on account of the strong dollar. However, the Kansas City firm looks to make out better than expected under Visa’s new rules for surcharging on foreign withdrawals.

Colony Capital, Daseke, Playa, and Callon Petroleum, 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.

 

Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464