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Archive for February, 2020

Weekly Market Update for February 21, 2020

by JM Hanley

The Dow was down on Friday, falling 223 points to close at 28,992. For the week, the Dow was down 1.4% (SP500 -1.3%) and year-to-date is now up 1.6% (SP500 +3.3%). The yield on the 10-year Treasury (an important interest-rate indicator) fell twelve basis points, closing at 1.47%. The price of crude oil was up 3% this week to $54 a barrel – down 12% YTD.

The coronavirus has effectively replaced trade as a source of investor concern, and by extension day-to-day volatility. Apple’s warning that the outbreak would substantially impair first -quarter profits – China is where most iPhones are made, and the second-largest country for sales – weighed upon the market early in the week. Commentary from Hong-Kong based HSBC was similarly discouraging. Stocks rallied mid-week as the details of Beijing’s stimulus plan to combat the economic fallout proved more favorable than expected. But equities fell again later in the week as the “case count” of those infected in China climbed dramatically. The numbers of those with the virus outside of China rose as well. Some high frequency data indicate factory activity in major Chinese cities began to reaccelerate mid-week – a possible sign the worst has passed. But disruption to firms’ Chinese supply chains could cast a long shadow.

Economic data was disappointing in the US and good in Europe. A mid-month “temperature check” on economic activity in the US showed manufacturing dipping to levels last seen in August, while the reading for the service sector was the lowest in years. Coronavirus and other temporary factors are mostly to blame, but longer-term concerns about slowing growth and the presidential election are also present. Europe was a different story. An acceleration of German manufacturing output powered the eurozone upwards. Long shipment times mean the data mostly reflects orders before the coronavirus outbreak.  Domestic demand was apparently healthy. But European industry remains export-oriented, and China is their most important market.  Europe could deteriorate again in mid-March.

A number of energy firms reported fourth-quarter earnings this week. Results at Devon Energy were as expected, while the firm’s outlook for this coming year was good. New wells in Wyoming have proven very profitable, which has enabled the firm to increase its dividend.  Results at Parsley were about as expected. Solaris, which provides infrastructure to shale drillers, reported excellent results and a strong earnings forecast for this coming year. The company has been using cash to buy back shares and increase the dividend.

About 81% of SP500 companies have now reported quarterly results. 72% of firms have had better earnings than expected. Earnings have grown about six percent in aggregate since last year; they had been expected to grow just one percent. Lowe’s and Playa Resorts 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 February 14, 2020

by JM Hanley

The Dow was down on Friday, falling 25 points to close at 29,398. For the week, the Dow was up 1.0% (SP500 +1.6%) and year-to-date is now up 3.0% (SP500 +4.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis points, closing at 1.59%. Fixed income was strong. The price of crude oil was up 4% this week to $52 a barrel – down 15% YTD.

Weekly economic data presented a mixed picture. Inflation increased slightly faster than expected, driven by the cost of housing and healthcare. However, US retail sales declined last month when some volatile categories are excluded. A confident US consumer has at times been the sole engine of global growth in recent years. Fortunately, a widely-watched indicator of consumer confidence increased. Elsewhere, industrial production declined last month.

A number of payment firms reported earnings this week. Credit card and bank software provider Fidelity Information Services (FIS) reported slightly better than expected results. The firm’s integration of ecommerce payment processor WorldPay is going better than expected, and the firm’s management foresees abundant opportunity to sell WorldPay’s software to its existing clients. FIS will spend slightly more next year to take advantage of these opportunities.

FIS’s next-door neighbor Black Knight, which sells software to service mortgages, continues to prosper in this era of ultra-low mortgage rates. Interest in the firm’s new software for selling mortgages is apparently robust. Black Knight’s profit outlook for next year was about as expected. Euronet Worldwide, which runs ATMs and remittance terminals, was the unusual disappointment in the payments sector. Winter is the weakest season for the firm’s ATMs, which are targeted at tourists in Europe. Meanwhile, more stringent ID requirements in the US have put a temporary damper on the sending of remittances.

Elsewhere, CVS’s earnings were about as expected, as was its outlook for this year. New business is picking up at the firm’s drug plan management (PBM) business. The company has also remodeled some stores with a focus on health and beauty products, which earn higher profits than the merchandise they have replaced. Results at Chinese ecommerce giant Alibaba were better than expected for the period just before the coronavirus outbreak. Comments from the CFO indicate the outbreak’s impact upon the firm will likely be substantial. But since the outlook for future growth is otherwise healthy, Wall Street seemed inclined to give Alibaba a pass.

Air Lease, which rents aircraft to small airlines, is hoping for similar investor lenience. Asia comprises 40% of the firm’s business, and there travel has dropped precipitously. The firm has had to offer lease repayment deferrals and other accommodations to keep its customers solvent.

About 70% of SP500 companies have now reported quarterly results. About 74% of companies have had better earnings than expected. Earnings have grown about 2% in aggregate since last year; excluding the energy sector, they have grown 5%. Devon Energy, Parsley Energy, and Granite Construction, among others, will report earnings next week.

Our offices will be closed this coming Monday in observance of Presidents’ Day.

*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 February 7, 2020

by JM Hanley

The Dow was down on Friday, falling 277 points to close at 29,103. For the week, the Dow was up 3.0% (SP500 +3.2%) and year-to-date is now up 2.0% (SP500 +3.0%). The yield on the 10-year Treasury (an important interest-rate indicator) rose seven basis points, closing at 1.58%. The price of crude oil was down 2% this week to $50 a barrel – down 17% YTD.

The coronavirus outbreak remained at the forefront of investors’ minds. Encouraging signs about the development of vaccines were tempered by Beijing’s upward revisions to estimates of those sickened and killed by the virus. China’s rapid growth in the past fifteen years means it now accounts for about 14% of the world economy; at the time of the SARS outbreak in 2003 it was a small fraction of that. Economists have all cut their estimates of first-quarter GDP growth in China, but the range varies considerably. Travel and workplace restrictions look severe. On the other hand, the government may increase infrastructure outlays to offset a drop in consumer spending.

Today’s jobs report was almost entirely good news. Payrolls grew more than expected last month, and revisions to last year’s numbers was better than feared. A relatively warm and dry January helped considerably. The percent of the population with a job or looking for one reached its highest level since 2001. Wage growth was the weak spot, continuing a longstanding pattern.  But previous months’ wage growth was revised upward slightly, so annual growth came to about 3%. And from the market’s perspective, slow wage growth contains a silver lining. Inflation is unlikely to accelerate under such conditions, which enables the Fed to keep interest rates low.

Earnings at Google (Alphabet) were somewhat disappointing. The ad business did slightly worse than expected and hardware experienced an acute decline, though the cloud computing division did well. An increase in hiring also put pressure on profit margins. Centene, which manages privatized Medicaid and Medicare plans, also did slightly worse than expected due to a bad flu season. All eyes will now turn to its annual meeting with investors next month, when it will offer its first profit forecast since its purchase of competitor WellCare closed.

About 55% of SP500 companies have now reported quarterly results. About 70% of companies have had better earnings than expected. Across the index, earnings have grown about 5% in aggregate since last year.  Air Lease, Alibaba, CVS, Fidelity Information Services, and Euronet Worldwide 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.

 

Ulland Investment Advisors

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