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Archive for January, 2020

Weekly Market Update for January 17, 2019

by JM Hanley

The Dow was up on Friday, rising 50 points to close at 29,348. For the week, the Dow was up 1.8% (SP500 +2.0%) and year-to-date is now up 2.8% (SP500 +3.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis point, closing at 1.83%. The price of crude oil was unchanged this week at $59 a barrel – down 4% YTD.

As promised, American and Chinese representatives signed a “Phase One” trade agreement yesterday.  The deal requires China to purchase $200 billion more in US goods, and (less tangibly) reduce intellectual property theft; other provisions make it more difficult for Beijing to copy technologies from American firms and access sensitive financial information. In exchange, the US will reduce the tariff rate on $100 billion of Chinese goods by half – though full-rate tariffs on hundreds of billions more remain.  The deal looks like a truce and some progress on trade.

Macroeconomic data was mixed.  December inflation was lower than expected, particularly in light of the Fed’s accommodative stance.  Retail sales for last quarter were revised downwards, as were business inventories and industrial production.  One survey showed consumer confidence edging lower in the first weeks of this year.  “Starts” on the construction of new housing, however, touched a fourteen-year high.

Earnings season for the last three months of 2019 got off to a mostly good start. JP Morgan was the best of the big banks. Bond trading did particularly well, but the results also provided good news for the economy as a whole.  Car and home loans were better than expected, credit card spending kept pace with last quarter, and the quality of loans on the bank’ books remained strong. Activity for corporate spending slowed, an indicator which dovetails with macroeconomic indicators that show slower capital outlays.  Goldman Sachs’ quarter was less impressive.  Goldman’s traders also did good business, but that was more than offset by higher compensation and legal fees. Bank of America’s results were similar to the others. Fixed income, currencies, and commodities trading was very lucrative, credit remained strong, and expenses grew a bit more quickly than expected. Wells Fargo was disappointing.

Outside of the banks, United Health Group’s results were better than anticipated.  The health insurer got high medical costs in its Medicaid division under control more quickly than it previously thought.  Add to this the repeal of a tax on health insurers, a government decision to permit patients with advanced kidney disease to enroll in Medicare, and the waning of more far-reaching proposals for healthcare reform and UNH finished the year on a strong note.

Earnings reports will continue next week with Johnson and Johnson, Netflix, and most major airlines.

*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 January 10, 2019

by JM Hanley

The Dow was down on Friday, falling 133 points to close at 28,824. For the week, the Dow was up 0.7% (SP500 +0.9%) and year-to-date is now up 1.0% (SP500 +1.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points, closing at 1.82%. The price of crude oil was down 6% this week to $59 a barrel – down 3% YTD.

Progress on the trade deal continues, as the Administration has affirmed the signing of a Phase 1 deal with China.  Chinese vice premier Liu He is apparently en route to Washington for the ceremony, a more tangible indicator of success. Investor speculation has turned to the deal’s mandate that China increase its purchases of US goods by $200B. Soybeans and commercial aircraft would typically be at the top of Beijing’s list. But these look less attractive in light of a poor soy growing season, a swine epidemic that reduced China’s need for animal feed, and Boeing’s grounding of its newest commercial jet.  Electrical equipment, machinery, and industrial chemicals may take their place.  In any event, the PBOC may need to support the value of the Chinese currency as import purchases ramp up. The mandate is denominated in dollars, so a weaker yuan would end up costing Beijing more.

After a good jobs report for November, today’s release showed the labor market coming back to earth.  Payrolls growth was about 10% lower than expected, despite a major boost from better weather and calendar timing.  Prior months’ data was also revised lower. Perhaps worst of all, average hourly earnings growth fell below 3%. This additional indicator of sluggish wage growth (and thus, inflation) gives the Fed little incentive to revisit its permissive stance on interest rates. That makes the news something of a silver lining for investors. The good, if somewhat paradoxical, news in the report was that unemployment and underemployment edged lower.

A survey of managers in the non-industrial economy showed more optimism than expected, providing a spot of good news. News from the industrial economy was less positive, as factory orders dropped. Two other domestic data points – inventory growth and the trade deficit – were marginally lower than expected.  Overseas, a tracker of Chinese business activity moderated, and inflation was lower than expected.  Germany was a similarly mixed bag: its service sector surged, but factory orders dropped.

Fourth quarter earnings season will begin in earnest next week.  The big banks (JP Morgan, Goldman Sachs, Wells Fargo, Citi, and Bank of America) are at the top of the docket.  Wall Street expects SP 500 earnings in aggregate to drop about a percent from last year.  This is a slight improvement from the third quarter.

*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 January 3, 2020

by JM Hanley

The Dow was down on Friday, falling 234 points to close at 28,635 (SP500 -0.7%). The Dow finished 2019 up 22% and the S&P finished up 31%, assuming the reinvestment of dividends. The yield on the 10-year Treasury (an important interest-rate indicator) was down nine basis points, closing at 1.79%.

The price of crude oil was up 2% this week to $63 a barrel. Prices were actually down before the US killed a top Iranian general in Baghdad yesterday evening. The attack worsens an already strained relationship between the two countries. Investors, like everyone else, are uncertain about what will happen next.  The rise in the price of oil, and the accompanying pullback in the broader equity market, are actually modest in light of the potential regional conflagration. Iranian retaliation could threaten oil production in Iraq and Saudi Arabia, while tightened sanctions could further constrain Iran’s own lackluster production.

The modest market pullback may forecast that little will come of the latest flare-up. Markets reacted more dramatically when an Iranian attack crippled Saudi oil production last fall. But they quickly recovered when it became clear neither side had an appetite for further escalation.

Economic news this week was otherwise limited.  Pending home sales rose last month, but by less than expected.  The same was true of home prices.  The lack of affordable starter homes, a longstanding trend, continues to constrain the housing market’s momentum, even with interest rates low, household formation high, and the employment outlook robust. Additional data points were similarly unencouraging. An important survey of manufacturers touched a post-Recession low; employment, new orders, and total production have all fallen.  Consumer confidence also edged lower after a strong reading in December.  The trade deficit for goods declined last month, but the reasons were murky. It would be good news if consumption of domestic goods has risen instead, bad news if importers have slowed their buildup of inventory (a component of GDP).

Data from China also was mixed.  Two surveys of manufacturers indicated the sector is at, or slightly below expectations. The only exception was rising prices, which indicates the impact of the government’s fiscal stimulus. Yesterday the PBOC (the Chinese central bank) followed through on anticipated monetary stimulus, an interest rate cut of half a percentage point.

Fourth quarter earnings and earning outlooks for 2020 will start to be released in two weeks.  These results and forecasts are likely to move the market.

*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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