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Archive for June, 2019

Weekly Market Update for June 28, 2019

by JM Hanley

The Dow was up on Friday, rising 73 points to close at 26,719. For the week, the Dow was down 0.5% (SP500 -0.3%) and year-to-date is now up 14.0% (SP500 +17.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell five basis points to close at 2.01%.

The last week of the second quarter was an uneventful one. Economic data this week showed an economy remains mostly healthy. Businesses’ spending on equipment, or capital expenditures (an important indicator of economic health), was better than expected. So were imports, existing home sales, and home prices. Personal consumption expenditures, a proxy for inflation, was about as anticipated. A survey of consumer sentiment by the University of Michigan turned out better than expected, and expectations of future inflation ticked back up. Some manufacturing survey data, however, was weak.

The president of the St. Louis Federal Reserve dismissed chatter that the Fed would cut interest rates by half a percent in July, instead of their typical one-quarter increment. Most investors had assumed as much anyway. European Central Bank president Mario Draghi is expected to cut rates and (possibly) resume ECB purchases of members’ sovereign bonds in September.

In their collective pivot back to dovishness, the ECB, the Fed, and the Bank of Japan have shown themselves ready to intervene if the world economy weakens. But now that the news is out, equity markets probably won’t feel much additional momentum from central bank policy. Investors know that the BOJ has limited room for maneuver, the ECB faces political obstacles to resuming its bond-buying on a large scale, and in present circumstances the Fed has little appetite to resume its own.

The price of crude oil finished the week unchanged at $58 a barrel – up 27% YTD. US crude stockpiles showed a surprisingly large drop of 13 million barrels, the largest since 2016. Exports have accelerated. Product inventories of gasoline declined, in part due to the explosion last Friday at a major East Coast refinery.  An easing of tensions with Iran partially offset those factors.

Markets spent much of the week awaiting news of tonight’s meeting between Chinese and American leadership on the sidelines of the G20 summit in Osaka, Japan. Investors are pretty confident the two sides will postpone new tariffs and get trade negotiations back on track – and confident the deal won’t go much beyond that. If this prediction comes to pass market reaction should be muted.

Firms will begin reporting second quarter earnings in two weeks. These could be disappointing, to judge by some companies that have reported early. Barometers of economic health, like Broadcom (semiconductors), Carnival Cruise Lines, and FedEx, sounded cautious about economic conditions. However, Micron (also semiconductors) and Nike were positive.

*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 21, 2019

by JM Hanley

The Dow was up on Friday, falling 34 points to close at 26,719. For the week, the Dow was up 2.4% (SP500 +0.5%) and year-to-date is now up 14.5% (SP500 +17.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points at 2.06%.

Investors spent the first half of the week anxiously gaming out the Federal Reserve’s decision on interest rates and the accompanying press conference. The Fed left rates unchanged but strongly hinted they would cut them at the end of next month. More members than expected (though not a majority) voted to cut rates this year. The Fed also suggested it would conclude its balance sheet reduction at the July meeting, two months earlier than expected. Cutting balance sheet holdings reduces the money supply and thus dampens growth and inflation.

In his press conference, Chairman Powell noted that the generally positive outlook for economic growth and a healthy labor market hadn’t changed much. Slow inflation has gotten more concerning. The performance seemed calculated to placate a jittery market. Equity indexes surged afterwards, even though most had already forecast a July cut. Now Wall Street wants to know if the Fed will cut rates by 25 basis points (the usual increment) or 50.

The day before, Powell’s European counterpart Mario Draghi delivered a similarly dovish message. Draghi expects European rates to stay where they are through the middle of 2020. But he said the ECB stood ready to cut rates and purchase assets if conditions change. Frankfurt’s challenge is more daunting than the Fed’s. Growth and inflation are lower in Europe, and with a benchmark rate already at zero, the ECB has limited room for maneuver.

The price of crude oil rose 11% this week to $58 a barrel – up 27% YTD. US crude stockpiles showed a surprisingly large drop of 3.1 million barrels; product inventories of gasoline and diesel had been expected to grow but fell instead.  The surprising draw, and a fire at a refinery near Philadelphia this morning, helped drive pricing. But the most important contributor was a dramatic escalation in Washington’s standoff with Iran (war in the Middle East would obviously bring significant supply disruption). In fact, given the scale of the escalation, analysts’ consider crude’s reaction to have been relatively muted. The crude market’s apparent conviction that war is unlikely reassured equity markets more broadly.

The next major event on the market’s calendar is a meeting between US and Chinese leadership on the sidelines of the G20 summit next week. A comprehensive deal that ends the trade war is unlikely. Cautious optimists hope that a short-term postponement of an increase in the tariff rate can be agreed upon.

*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 14, 2019

by JM Hanley

The Dow was down on Friday, falling 17 points to close at 26,089. For the week, the Dow was up 0.4% (SP500 +0.5%) and year-to-date is now up 11.8% (SP500 +15.2%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 2.08%.

Economic data this week was mixed. US Industrial production and retail sales, two metrics tied to growth, increased more than than expected last month. These were offset by decelerating inflation. Medical service costs are still increasing quickly, but rent and housing costs declined again. Expectations of future inflation – which can determine how much employers raise wages, for instance – missed forecasts by even more. These signs of slowing growth, accompanied by the downbeat comments from Broadcom, has investors wondering how much the Fed will cut rates. Chairman Powell’s commentary last week, to the effect that the Fed needs to leave itself room for maneuver during the next crisis, suggests investors had best keep their hopes in check.

News was no better across the Pacific. Industrial production, investment, yuan-denominated lending, and (unsurprisingly) imports were all worse than expected. China watchers had thought they were in the clear after economic performance seemed to improve in March and April. The government announced new stimulus measures, but these more or less sustain fiscal and monetary support at the level it’s been.

Trade remains the elephant in the room. Mexico staved off tariffs after reaching a deal with the US last week. But what worries investors about the incident is that tariffs were used to achieve a political objective that wasn’t linked to trade (as has been the case for Europe and China, for example). This presumably expands the realm of situations in which they can be used.  Regarding China, the hope is that the US and China can agree to postpone the new tariff schedule at the G20 summit at the end of this month. But the two sides remain far apart. The outlook for trading relationships with Japan and Europe is slightly better.

The price of crude oil fell 3% this week to $52 a barrel – up 16% YTD. US crude stockpiles showed a surprise build – of 2.2m barrels – while product inventories of gasoline rose (+0.8m bls) and diesel fell (-1.0m bls). Oil prices moved lower to begin the week, driven by yet another weak inventory report leading to further supply-and-demand imbalance concerns. But oil rebounded to end the week following attacks on two transport tankers in the Gulf of Oman. OPEC-member Iran is thought to be the culprit of the attacks, but some question that conclusion given it could also hinder their strategic efforts. Energy equities tracked the commodity, with domestic producers falling 3% and service providers by 5%.

In corporate happenings, semiconductor and infrastructure giant Broadcom noted that the uncertainty surrounding the US-China trade relationship had resulted in gloomy sentiment and sluggish investment. Broadcom’s scale and line of work often make it a barometer of corporate earnings and macroeconomic conditions broadly. This could augur poorly for second quarter earnings reports next month.

*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 7, 2019

by Jared Plotz

The Dow was up on Friday, rising 263 points to close at 25,984. For the week, the Dow was up 4.7% (S&P 500 +4.4%) and year-to-date is now up 11.4% (S&P 500 +14.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell 6 basis points, closing at 2.08%.

The Friday jobs report was relatively weak, which turned out as a short-term positive for the market. Total non-farm payrolls rose 75,000 in May, below the expectation of 175,000. The unemployment rate held flat at 3.6%, with participation unchanged. Wages were soft at +0.2% m/m. On a whole, this adds further fuel to the “rate cut camp.” It now appears more likely the Fed could move to “ease” sometime this summer.

The outcome of the Fed’s conference this week to review its tools, communications, and overall strategies suggests a slowly evolving mindset around inflation and communication. However, with less room to cut rates – in the event of a recession – versus prior cycles, Chairman Powell suggested that it may be time to retire the term “unconventional tools,” as these tools are likely to be utilized more commonly. These tools include forward guidance and expanded open market operations (i.e. trading of non-government bonds).

The price of crude oil rose 1% this week to $54 a barrel – up 19% YTD. US crude stockpiles showed a surprise build – of 6.8m barrels – while product inventories of gasoline (+3.2m bls) and diesel (+4.6m bls) rose as well. Oil prices floundered mid-week, driven by the weak inventory report and continued trade concerns; however, prices turned higher and erased losses later as congress pushed back on Mexican tariffs and OPEC reiterated rational discipline.  Energy equities tracked the commodity, with domestic producers rising 1% and service providers up 3%.

Our equity holding in Cloudera felt significant pressure on the back of its quarterly results. While the reported results were fine, the future outlook was revised lower and the CEO is stepping down. Given the original thesis has not played out and our confidence in future execution has declined, we are reconsidering the reward-to-risk opportunity in the stock.

Keep an eye out this weekend to see whether any progress is made between US-China trade teams at the G20 finance ministers’ meeting. Also, the White House tariffs on Mexico are set to go live Monday if a compromise isn’t made this weekend.

*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