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Archive for July, 2019

Weekly Market Update for July 19, 2019

by JM Hanley

The Dow was down on Friday, falling 69 points to close at 27,154. For the week, the Dow was down 0.7% (SP500 down 1.2%) and year-to-date is now up 16.4% (SP500 +18.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell six basis points to close at 2.06%.

Monetary policy continues to influence markets more than anything else. Future earnings estimates are flat, but lower interest rates can justify higher price-to-earnings multiples. Lower rates also make most existing fixed-income look more attractive by comparison. Investors are certain that the Fed will cut rates at the end of this month, though some were disappointed when a member hinted it would cut rates by just a quarter point (not half a point). Economic data this week confirmed that manufacturing has rebounded, and inflation is moving toward the Fed’s target. That has some investors questioning whether the Fed’s action is needed.

The price of crude oil dropped 7% this week to $56 a barrel – up 23% YTD. US crude stockpiles showed a smaller-than-expected draw – of 3.1m barrels – while product inventories of gasoline (+3.6m bls) and diesel (+5.7m bls) both rose. Oil prices declined fairly steadily throughout the week as Gulf of Mexico oil platforms came back online and demand estimates from the IEA softened. The IEA cited the US-China trade war and slowing global economic growth, particularly out of China, as reasons behind the estimate trim. Hotter rhetoric between the US and Iran also affected supply expectations. Energy equities followed the commodity, with domestic producers falling by 7% and service providers by a similar amount. Iran captured two British oil tankers, which could force oil prices higher next week.

Fourth quarter earnings began in earnest this week with the big banks. Goldman Sachs did good business with initial public offerings, though expenses were a touch high. Wells Fargo, which remains in regulators’ purgatory, had a passable second quarter. Its outlook for the rest of the year was uninspiring. CitiBank was somewhere between the two. Profits from lending didn’t change much with interest rate flat. And the lack of volatility in the stock and bond market means customers didn’t trade securities as much. That hurt the bank’s capital markets (trading) division. All in all, if Wall Street’s earnings were anything to go by, second quarter earnings could turn out better than feared. But it may not suffice to make investors more optimistic about future profits growth.

United Health’s results looked good, but this was largely because claims from the prior quarter turned out less expensive than anticipated. Management seemed unperturbed and increased its forecast for full-year profits. Next week, reports from Big Tech – Amazon, Google, and Facebook – are all on the docket. Euronet, Visa, and 3M are also scheduled to report.

*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 12, 2019

by JM Hanley

The Dow was up on Friday, rising 244 points to close at 27,332. For the week, the Dow was up 1.5% (SP500 +0.8%) and year-to-date is now up 17.2% (SP500 +20.2%). The yield on the 10-year Treasury (an important interest-rate indicator) rose eight basis points to close at 2.12%.

Federal Reserve Chairman Jerome Powell’s appearance before Congress Wednesday went about as expected. Powell’s testimony, along with the minutes of the Fed’s last meeting, has Wall Street all but certain that rates will be cut by a quarter point at the end of the month. Powell emphasized that the outlook for US growth was good, but said that stubbornly slow inflation and uncertain international growth could justify lower rates. In the meeting minutes, other Fed members expressed concern about business’s lower investment in equipment, presumably out of caution due to the trade dispute.

The next day, in an odd juxtaposition, June inflation came in higher than expected, and accelerated on an annualized basis. Rent, health costs, and prices for used cars and clothing all grew quickly. Tariffs contributed only somewhat, which suggests most of their impact will show up in this month’s numbers. If the economy can sustain faster inflation, the Fed may only cut rates once more this year (assuming they do so in two weeks). Elsewhere in the world, export data from China was about as expected. Some signs of deflation in the Chinese economy have emerged, however. European industrial production in May was good; welcome news after weeks of data suggesting the opposite.

The price of crude oil steadily climbed 5% this week to $60 a barrel – up 32% YTD. US crude stockpiles showed a greater-than-expected draw – of 9.5m barrels – while product inventories of gasoline fell (-1.4m bls) and diesel rose (+3.7m bls). Oil prices got a big boost from the strong inventory report on Wednesday along with Tropical Storm Barry shutting down deepwater oil platforms as it barreled through the Gulf of Mexico. Then prices plateaued late in the week as the storm approached landfall and coastal refineries began deactivating facilities. Energy stocks trailed the commodity, with domestic producers rising 1% and service providers by 2%.

Second quarter earnings season begins in full next week with the big banks. Goldman Sachs, Wells Fargo, Bank of America, and JP Morgan are all scheduled to report. Earnings reports thus far have been largely worse than expected, though these mostly have been from a small number of industrial companies. Early reporters in the IT and consumer discretionary sectors have given more reason for optimism.

*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 5, 2019

by JM Hanley

The Dow was down on Friday, falling 44 points to close at 26,922. For the week, the Dow was up 1.2% (SP500 +1.7%) and year-to-date is now up 15.4% (SP500 +19.3%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points to close at 2.04%.

Events in Europe this week accelerated the ongoing decline in global bond yields. First, European leaders nominated Christine Lagarde, well-known to be an advocate of lower interest rates, to head the European Central Bank. Brussels also agreed not to punish Italy for running a deficit after the latter agreed to trim spending. This reduces the odds of a volatility-inducing standoff between the EU and its (heavily-indebted) third-largest economy. Finally, underwhelming German factory orders heightened the chances that the ECB might follow through on its pledge to cut rates further to support growth.

Today’s jobs report was much better than expected. The economy added 224,000 jobs last month; only 160,000 had been expected. Unemployment actually climbed since labor force participation (the percent of the population looking for work) went up. Wage growth remains sluggish. The report suggests May’s weak jobs number was an outlier. Wall Street was disappointed. Investors have pinned their hopes on a steady regimen of rate cuts from the Fed in response to a slowing economy. A quarter-point cut at the end of this month is still likely. But signs that the labor market is holding up better than expected means that the odds have dimmed on a half-point trim, as well as further reductions in the fall.

By contrast, last Saturday’s meeting between US and Chinese leaders on trade went about as expected. The US agreed to suspend new tariffs for the time being, and China agreed to resume purchases of US agricultural products. There were also suggestions that US firms might be able to resume exports to Huawei, although few details were provided. The two sides will resume negotiations soon, though considerable distance between them remains.

The price of crude oil finished the week unchanged at $58 a barrel – up 29% year-to-date. US crude stockpiles showed a lower-than-expected drop of 1.1 million barrels.  OPEC agreed to extend production cuts for ten months, more than the six the market had expected. This news, which typically would have buoyed prices, was offset by the strong production from the US. Investors also doubt Russia will cooperate with OPEC as much as it claims.

Fed Chair Jerome Powell’s appearances before Congress will probably take top billing on Wall Street next week. A release of Chinese economic data (on Wednesday and Friday), the resumption of negotiations with China (next Monday), US inflation data (on Thursday), and the formal beginning of second quarter earnings will also be important.

*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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