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Archive for October, 2019

Weekly Market Update for October 18, 2019

by JM Hanley

The Dow was down on Friday, falling 256 points to close at 26,770. For the week, the Dow was down 0.2% (SP500 +0.5%) and year-to-date is now up 14.8% (SP500 +19.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose two basis points, closing at 1.75%.  The price of crude oil fell 2% this week to $54 a barrel – up 20% YTD.

Last Friday, the Administration agreed to suspend tariffs on Chinese goods scheduled to come into effect this week in exchange for China’s purchasing more US agricultural goods. That seemed to signal that negotiations were going well, but plenty of specifics remain to be ironed out. Rumblings about a Congressional resolution supporting Hong Kong’s protestors have apparently upset Beijing. Elsewhere, British and European negotiators settled on a new Brexit deal, though its passage tomorrow in Parliament looks far from assured. Settling this long-running drama would ease some uncertainty across the Atlantic, and could provide a badly-needed fillip to the Continent’s moldering growth prospects.

Economic data this week painted a muddled, but slightly negative, picture of the US economy. Manufacturing data, like industrial production and business inventories, came in slightly worse than expected. Uncertainty due to the trade war seemed mostly to blame. Consumers may share the sentiment, as retail sales didn’t increase as expected last month. More positively, lower interest rates continue to catalyze more home-buying activity, and builders have picked up the pace of new construction as a result. Data on China’s economy is similarly mixed. The economy grew more slowly than expected in the third quarter, but industrial production and retail sales picked up in September.

The first week of third quarter earnings reports went better than feared. Results at JP Morgan were among the highlights. Investment banking and foreign exchange trading were particularly impressive, though lower interest rates have hurt profits from lending. At Goldman Sachs, success on the trading desk was offset by poor performance of the firm’s equity holdings and less lucrative investment banking.  Shares of United Health rose after better-than-expected profits proved the value of the insurer’s diversified business model. Investors had been concerned the cost of healthcare would spike next year, but the management said growth would continue apace.

The pace of earnings will accelerate next week. Centene, Euronet, Amazon, Visa, and 3M are all 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 October 11, 2019

by JM Hanley

The Dow was up on Friday, rising 320 points to close at 26,817. For the week, the Dow was up 0.9% (SP500 +0.6%) and year-to-date is now up 15.0% (SP500 +18.5%). The yield on the 10-year Treasury (an important interest-rate indicator) rose twenty basis points, closing at 1.73%.  The price of crude oil rose 4% this week to $55 a barrel – up 21% YTD.

News related to the trade dispute with China remains the most significant source of day-to-day volatility for US equities. The week seemed to begin with the usual regimen of saber-rattling.  But about mid-week, news broke that China would be satisfied with a “partial” deal if the US would forswear further tariff increases. The Administration reciprocated with licenses permitting US firms to supply Chinese telecom giant Huawei. Today the two sides apparently agreed to negotiate a deal in phases; the first will address intellectual property theft and Chinese agricultural purchases. The next round of tariffs, scheduled to come into effect next Tuesday, has been postponed.

Another positive political development came across the Atlantic. London and the European Union seem to have made substantial progress over the last few days on a Brexit deal. At the outset of the week, another postponement, and months more of uncertainty, seemed most likely. Brexit has never posed much fundamental risk to US equities, but the disruption caused by a volatile departure would likely be felt.

Economic data was less positive.  Inflation, excluding food and energy, was close to zero last month, which was less than expected. Too little inflation can restrain economic growth. The core goods category (which encompasses many expensive household items) pushed inflation up over the summer but down in September. Used vehicle prices showed a big drop. The less volatile cost of services, like rent and housing, increased at a steady clip.

Still-sluggish inflation makes it easier for the Fed to follow through on a plan to cut interest rates at the end of this month. Material improvements in the trade dispute (a major concern of the Fed’s members) could offset this. Some Fed members appear to be getting nervous about cutting rates in the midst of an economic expansion, judging by the most recent meeting minutes. Chairman Powell is apparently not among them. Powell announced that the Fed would resume purchasing short-term Treasury bills to resolve problems that have arisen in overnight bank lending markets. This policy bears a striking resemblance to quantitative easing, one of the “extraordinary measures” the Fed undertook in the aftermath of the recession to stimulate growth. Its reappearance in the midst of a mature recovery underscores the uncertainty currently hanging over monetary policy.

Third quarter earnings reports will come in force next week. Most notable will be those of the big banks at the end of the week. Earnings will be market moving.

*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 October 4, 2019

by JM Hanley

The Dow was up on Friday, rising 373 points to close at 26,574. For the week, the Dow was down 0.9% (SP500 -0.3%) and year-to-date is now up 13.9% (SP500 +17.8%). The yield on the 10-year Treasury (an important interest-rate indicator) fell sixteen basis points, closing at 1.53%.  The price of crude oil fell 5% this week to $53 a barrel – up 16% YTD.

There was little news from the trade front this week. The Administration dismissed talk it would bar Chinese firms from listing on US exchanges. Investor are awaiting the resumption of high-level negotiations next Thursday in Washington. A more proximate source of political risk to equity prices has come closer to home. The stocks of health insurers have suffered as more liberal candidates have gained ground in the Democratic primary. Some “Medicare for All” plans propose to eliminate private health insurance. The plans face resistance from many Democrats in Congress as well as Republicans.  The financial outlook for health insurers remains otherwise healthy.

Domestic economic data pushed the market down early in the week and then reversed most of those losses later on. On Tuesday, an important tracker of manufacturing, which had been expected to rebound after a poor reading last month, declined instead. The report showed that employment, orders for new exports, and total production all went down. Two days later, the service sector equivalent was also worse than expected, and similarly showed feeble capital investment and hiring. Respondents cited concerns about tariffs, economic growth, and a lack of available labor.

Counterintuitively, this second draught of bad news had a positive impact on equity prices.  A deteriorating economic prognosis increases the odds that the Fed will cut interest rates , and could encourage trade negotiators to strike a deal with China. Today’s jobs report bolstered that line of reasoning. There were fewer new hires than expected, though payroll estimates for August were revised upwards and unemployment touched a fifty-year low of 3.5%. Wages were sluggish: hourly pay didn’t increase at all from last month, but has risen three percent since last year. The report offered reassuring news about the health of the economy but weak wage growth could placate the Fed’s concerns about inflation. The odds that the Fed will cut interest rates by a quarter point at the end of the month have risen to 78%, from 49% last week.

Monday marked the last day of the third quarter. The S&P 500 inched up 1.7% for the quarter in the face of uncertainty related to trade policy. Earnings for the index grew about 5% through the first half of the year, which was better than expected. Analysts currently expect third-quarter earnings will drop below the third quarter of last year. Earnings season will begin in earnest with the big banks the week after next.

*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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