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Archive for January, 2020

Weekly Market Update for January 31, 2020

by JM Hanley

The Dow was down on Friday, falling 603 points to close at 28,256. For the week, the Dow was down 2.5% (SP500 -2.1%) and year-to-date is now down 1.0% (SP500 -0.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell eighteen basis points, closing at 1.51%. The price of crude oil was down 5% this week to $51 a barrel – down 16% YTD.

After markets enjoyed months of almost uninterrupted upward progress, the outbreak of Coronavirus in China has given investors pause.  Thus far, the outbreak has mostly been confined to China, though investors are just as unsure of its ultimate reach as everyone else. If the situation remains as it is, Beijing’s aggressive efforts at containment and curtailed international travel could shave up to two percent off the Chinese economy’s growth in the first quarter. Afterwards, the Chinese government will probably lower interest rates and spend money to re-stimulate the economy through the rest of the year. That should blunt the impact. Obviously the economic impacts will be worse if the virus spreads more widely.

At least one source of geopolitical volatility is foreseeable. If a moderate Democrat prevails in next Monday’s Iowa caucuses, stocks of banks and healthcare firms will probably rise. If a more liberal candidate comes out on top, the reaction will probably be the opposite. Market reaction to such headlines often turns out be exaggerated in any event.

Most of the largest technology firms reported earnings this week. Strong sales of the new iPhone model helped Apple report better-than-expected results, but analysts were also encouraged by strong growth in new products like the firm’s signature watch and headphones.  Services, which includes television streaming, cloud computing, and technology support, also did well. This steady business is viewed as important for the firm’s future growth.  Amazon had an excellent Christmas season as well. More outside merchants using the firm’s marketplace are paying Amazon to ship their goods, now that many orders can be delivered to Prime merchants in just one day.  Wall Street was also happy to see that a slowdown abated at the cloud computing business, where the firm generates nearly two-thirds of its profits.

The market was less enamored with Visa. Volatility in the world’s major currencies has declined significantly.  Visa earns money by “hedging” its overseas transactions when currencies are volatile. In the absence of volatility, growth in earnings may be lower than originally thought. Card transactions are still growing fast and the business remains otherwise healthy. Facebook was also a slight disappointment. The cost of legal settlements has begun to add up, just as new privacy rules from Europe, Apple (which controls iPhones), and from Facebook itself make it more difficult to target ads.

About 20% of SP500 companies have now reported quarterly results. Earnings were expected to be unchanged from last year, but instead have grown about five percent. Revenues have grown about a percent better than expected.  Google, Centene, and Euronet Worldwide, among other portfolio companies, will report earnings next week.

*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 24, 2020

by JM Hanley

The Dow was down on Friday, falling 170 points to close at 28,990. For the week, the Dow was down 1.2% (SP500 -1.0%) and year-to-date is now up 1.6% (SP500 +2.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell fourteen basis points, closing at 1.69%. The price of crude oil was down 8% this week to $54 a barrel – down 11% YTD.

Just as the ink has dried on Phase One of the trade agreement, investors have found themselves confronting another China concern: an outbreak of coronavirus in the central Chinese city of Wuhan. A great deal about the situation remains uncertain, and market reaction tends to be speculative. Medical technology has improved since the 2003 outbreak of SARS (the obvious comparison), and government communication with the public has thus far been better as well. But mass transport within China has been expanded significantly in the past seventeen years – in fact, Wuhan is a major hub for high-speed rail – which could make it more difficult to contain the outbreak. Airlines, cruise lines, hotels, casinos, luxury retail and other sectors exposed to China suffered this week as a result.

Economic data was light in this holiday-shortened week. Existing home sales rose last month, considerably more than anticipated. A reading on US manufacturing was weaker than expected. That contrasts with Europe, where the industrial economy regained its footing and a measure of German economic conditions evinced further signs of improvement.

A little over eleven percent of S&P 500 companies have reported earnings so far, according to Yardeni Research. Earnings, expected to be flat from last year, have done about four percent better than that. Revenues have grown about three and a half percent, modestly better than expected.

No portfolio companies reported earnings this week. Visa, Facebook, Amazon, Alibaba, and EA, among others, will report earnings next week. Otherwise, investor attention will be focused on the Federal Reserve’s mid-week meeting. No action on interest rates is expected but members’ commentary could 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 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.

 

Ulland Investment Advisors

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