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Archive for August, 2019

Weekly Market Update for August 30, 2019

by JM Hanley

The Dow was up on Friday, rising 367 points to close at 26,403. For the week, the Dow was up 3.0% (SP500 +2.8%) and year-to-date is now up 13.2% (SP500 +16.7%). The price of crude oil rose 2% this week to $54 a barrel – up 21% YTD.

Trade remains the most important topic on investors’ horizon. After back-and-forth reached a fever pitch last week, rhetoric cooled. China announced it hoped for a “calm” end to the trade war and wouldn’t retaliate for Washington’s escalation last Friday. The Administration reciprocated with constructive comments of its own. But little progress seems to have been made in negotiations; in fact, no substantive negotiations seem to be taking place.

Beijing may sense that things are shifting in its favor, and feel little pressure to compromise. Its unelected leaders have full control of fiscal and monetary policy and its economy has proven more resilient than thought. American officials enjoy no such ease of action. A breakthrough in the short term could thus prove elusive. As a result, the slate of tariffs scheduled for the first of September will very likely come into effect. The tranches scheduled for the first of October and for mid-December are less certain, and investors will watch closely.

Meanwhile, the trade policy outlook elsewhere has improved. Tariffs on imported European cars seem less likely, if US rhetoric after the G7 is anything to go by. And Japan and the US have purportedly reached a trade deal “in principle.”

The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points, and near a fresh low at 1.49%. The move anticipates a month of central bank interest-rate cuts. Chief among these will be the European Central Bank. Signals from Frankfurt, already dovish, have grown more pronounced as the German economy has continued to weaken. Investors expect the ECB to announce it will purchase about fifty billion euros’ worth of sovereign bonds. Additionally, political developments in debt-laden Italy means the country will likely avoid elections that could have brought a budget-busting populist party to power. The resulting rally in Italian bonds was felt throughout the market.

For its part, the Fed will probably cut rates a quarter point in mid-September. Whether or not the latest round of interest rate easing will have the intended effect of catalyzing growth is unclear. Rates were already low, and the inversion of the yield curve has lately been a headwind for stocks.

*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 August 23, 2019

by JM Hanley

The Dow was down on Friday, falling 623 points to close at 25,629. For the week, the Dow was down 1.0% (SP500 -1.4%) and year-to-date is now up 9.9% (SP500 +13.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell one basis point, closing at 1.53%.

With earnings season all but over, macroeconomic considerations took precedence.  The outlook continues to darken. Surveys of corporate management from Europe were about as expected – which is to say, they confirmed that growth on the continent is touch-and-go. More concerning was news from the US. The equivalent manufacturing survey showed production has fallen below levels consistent with a growing economy.

The deteriorating global outlook attached even more significance to Jerome Powell’s remarks at the Fed’s summer retreat in Jackson Hole.  The Fed chair acknowledged the bad news and scrapped an earlier reference to rate cuts as a “mid-cycle adjustment.” Markets now anticipate a quarter-point rate cut in September, and at least another quarter point later in the year. Monetary policy has grown extraordinarily accommodative in the US and around the world of late. But its efficacy faces the law of diminishing returns. Credit is already so cheap that lower rates won’t catalyze much more economic activity. Meanwhile, periodic inversions of the yield curve are making everybody nervous.

The most substantial burden on the global economy is America’s trade dispute with China. News from that front started the week passably and got worse. The US agreed to let tech companies supply Huawei for another three months, but not indefinitely. Then, on Friday morning, China confirmed a slate of retaliatory tariffs would go into effect on the first of September.  After the market closed, the White House announced that its own retaliatory tariffs would take effect – and that the rate of tariffs new and existing would be raised.

The trade war has disrupted global supply chains and induced caution in corporate planning. But consumer confidence has so far proven resilient. If the latest escalation rattles consumers, macroeconomic storm clouds could multiply.

The price of crude oil fell 1% this week to $54 a barrel – up 19% YTD. The oil inventory report did little to support the sector and investors’ heavy selling of cyclical industries, including commodities, was evident this week. Energy equities trailed the commodity, with domestic producers down 3% and service providers declining 4%.

*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 August 16, 2019

by Jared Plotz

The Dow was up on Friday, rising 306 points to close at 25,886. For the week, the Dow was down 1.5% (SP500 -1.0%) and year-to-date is now up 11.0% (SP500 +15.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell 20 basis points, closing at 1.54%.  The 30-year Treasury bond dipped below 2% for the first time ever.

The decline in long-term interest rates – while beneficial for excellent-credit consumers and businesses taking out loans – hurts most banks, and sends a strong chill through investors when the “curve” inverts. As a refresh for our readers, the curve is inverted when short-term rates (e.g. 2-yr Treasury) yield a premium to longer-term rates (e.g. 10-yr Treasury), which disincentives banks from lending and slows the economy. The curve inverted briefly intra-day on Wednesday and Thursday morning this week before reversing later in the week. While very few other economic indicators are flashing warning signs, a sustained inverted yield curve has most often been followed by a recession within 12-24 months. So it is a key barometer of investors.

US economic data was largely positive this week amidst the brewing geopolitical issues in a number of regions, with the protests in Hong Kong being the most visible. Inflation indicators were a tad better than expected this week, while retail sales for July strongly outperformed forecasts. Business confidence and manufacturing were also stronger while consumer confidence came in softer.

The price of crude oil rose 1% this week to $55 a barrel – up 21% YTD. Oil prices were pressured by a soft inventory report, but reacted positively to US efforts to put the kibosh on an oil tanker swap between the UK and Iran.  Energy equities trailed the commodity, with domestic producers down 4% and service providers declining 5%.

The market continues to be negatively influenced by the seesawing in trade talks with China. We expect volatility, which spiked this week, to continue to remain elevated in coming weeks even if markets were to move sideways.

*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 August 9, 2019

by JM Hanley

The Dow was down on Friday, falling 91 points to close at 26,287. For the week, the Dow was down 0.8% (SP500 -0.5%) and year-to-date is now up 12.7% (SP500 +16.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell nine basis points to close at 1.74%.

The broad narrative undergirding the market surged back and forth this week. China’s decision to let its currency depreciate as a trade war tactic, and the dramatic rise in the prices of “safe haven” sovereign bonds, spooked investors early in the week. Poor manufacturing data from Germany amplified fears of a global macroeconomic slowdown. Beijing’s subsequent retraction and better news from Germany helped stocks rally mid-week. Signs that the US would take a tough line with Chinese telecom giant Huawei – and news that Europe’s indebted problem child, Italy, is headed for destabilizing elections – ignited fresh uncertainty today.

The price of crude oil fell 2% this week to $54 a barrel – up 20% YTD. US crude stockpiles showed a surprise build – of 2.4m barrels – while product inventories of gasoline (+4.5m bls) and diesel (+1.6m bls) both rose. The negative surprise was driven by a jump in imports along with a decline in exports. The narrowing spread between US and global benchmark prices encouraged Gulf refineries to prefer less US crude. Oil prices fell most of the week on the unfavorable inventories, China’s depreciating currency, and cuts to oil demand forecasts by the IEA. Prices rebounded on Friday as reports suggested that Saudi Arabia was rallying its partner producers within OPEC to explore deeper cuts to export sales. Energy equities trailed the commodity this week, with domestic producers falling by 4% and service providers by 9%.

The week was packed with second quarter earnings reports. The grounding of Boeing’s 737 Max had an impact on Air Lease. The firm, which rents planes to regional airlines, has played it well by swapping some planned Max purchases for a model that’s currently airworthy. But purchases of new aircraft to lease will nonetheless be lower this year. Similarly, the media’s fixation on the Dominican Republic has not helped Playa Resorts, which owns a few properties there. But the stock performed well after the CEO asserted his confidence in long-term growth prospects.

Trucker Daseke disappointed Wall Street’s expectations and lowered its forecast of full-year profitability. A weak market for flatbed trucking was compounded by mismanagement. Axon, which manufactures Taser, had to slow production of the device after a battery supplier encountered unexpected problems. The firm also cut pricing on some new products to encourage clients to give them a try.

CVS, which now includes major health insurer Aetna, performed well this week after it reported a better-than-expected second quarter and increased its forecast of full year profitability. The firm attributed some of its success to a new smartphone app that encourages Aetna clients to take their medications on schedule. That improves patients’ health as well as CVS’s bottom line. Finally, Fidelity Information Services (FIS) also reported a better than expected quarter. The firm has already had success selling WorldPay’s credit card processing services to its banking clients. The acquisition of WorldPay by FIS closed at the end of last 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.

 

Ulland Investment Advisors

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