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Archive for July, 2020

Weekly Market Update for July 31, 2020

by Jim Ulland

The dominant headlines this week weren’t Covid-19 or the reopening of the economy, but rather, the Four Horsemen of the Digital Economy: Amazon, Facebook, Apple, and Google. The first three reported blow-out revenues and earnings in the midst of the pandemic. Google substantially beat analyst expectations, but revenues were down slightly from 2019. The change to a digital economy has been steady, but now it is at a gallop. We expect the out-performance of the digital economy stocks to continue. When a vaccine is approved, the rest of the market should rebound sharply, but that may not be until Q4. We may have a sideways market until then.

Our fixed income strategy, Intelligent Fixed Income (IFI), is run by Nat Beebe. Although the dust has not settled for July, IFI had great performance going into the last day of the month. We expect it to be #1 vs. the publicly traded preferred stock peer group (please see the disclaimers below). IFI’s current yield is 5+%, almost ten times that of the 10Yr Treasury. Preferreds had another great week, although this niche security doesn’t make headlines. Investors became more comfortable with national and regional banks, who are the main issuers of preferreds. With the exception of Wells Fargo, banks passed the annual Federal Reserve “Stress Test” and produced better than expected Q2 earnings. They will continue to be bolstered by the next phase of government stimulus, once Congress comes to agreement. More strength in preferred stock is expected.

Covid-19 and the reopening of the economy both shared headlines, but mostly negative ones. Dr. Fauci, who heads the National Institute of Allergy and Infectious Disease, threw a little cold water on the worst of Covid-19 fears when he said school districts “should try the best they can to reopen.” The CDC agreed. Both cautioned that there are Covid hot spots where more caution is warranted and, in all cases, guidelines must be followed. According to a U of MN tracking study, Covid spikes in several southern states and California started to decline in late July when measured by the number of hospitalizations and the number of hospital beds occupied.

Economic headlines anticipated a bad Q2 GDP number and it was terrible. Growth in Q2 was -32.9% annualized. Q3 and Q4 should show a strong snap-back. The increase in the infection rate slowed business reopening as reflected in an increase in Continuing Claims for Unemployment Insurance. Reimposing restrictions on bars and restaurants was a common reaction by governors. However, the Fed said it would maintain its stimulus until the economy has weathered the crisis. Of course, weathering the crisis means a vaccine has been approved. News on that front was positive, but nothing major is expected until October.

Tech stocks returned to market leadership this week increasing 3.69%. The SP 500 was up 1.73%. Monday was +0.74%, Tuesday -0.65%, Wednesday +1.24%, Thursday -0.38%, +0.77% Friday. The 10 Year Treasury yield drifted lower as the pace of reopening slowed. Volatility declined as well.

Next week expect earnings reports from CVS, mortgage software company Black Knight, pipeline company NuStar, police body camera company Axon, and credit card processor FIS. The market-moving economic news will come on Friday when the July new jobs figures are released.

*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 July 24, 2020

by Jim Ulland

Our fixed income strategy Intelligent Fixed Income (IFI), which is run by Nat Beebe, made news again this week. Last week it was #2 vs. publicly traded preferred stock strategies (mutual funds and ETFs). This week it was #1 in performance for this year per Morningstar rankings. Congrats Nat! Preferred stock mostly is issued by large national and regional banks. Banks have been under a cloud of concern from the economic recession. That concern has dissipated some with the passage of the annual Federal Reserve required “Stress Test” and the announcement of better than expected second quarter bank earnings. The discussion of another phase of help to businesses and the unemployed provided more support for banks. So, while common stocks were taking the week off, preferred stocks were rushing higher. More strength in preferreds is expected.

Covid-19 won this week’s battle for the headlines. The number of cases identified increased in three large states: Florida, Texas, and California. Covid-19 is very contagious and this is especially true in bars or other large gatherings. As a result, governors have issued mandates that citizens wear masks in indoor public spaces. Let’s hope there is sufficient compliance for this to bring the infection rate back under control.

The increase in the infection rate showed up in initial unemployment filings, which for the first time in weeks were up by 100,000. Fortunately, the number of workers on unemployment, called Continuing Claims, declined by a million workers. Reopening the economy may go into a pause until the virus news gets better. Many people are very fearful of returning to a more normal life. Progress on a vaccine continues, but the stocks of companies developing the vaccines got hit hard by news on pricing. Vaccine pricing discussions are below what the market had expected and the vaccine stocks tumbled from 5-20%. Results of vaccine trials are expected in the late fall.

The pickup in Covid-19 cases complicated an already complex problem of restarting schools. If Minnesota teachers reflect the nation, half of the teachers want to be back in the classroom and half want to teach remotely. In Minnesota, parents were more favorable towards reopening, often so they could return to work. Naturally, all want the experience to be safe.

Tech stocks took another rest this week and declined 1.33%, about the same decline as the prior week. The SP 500 also paused and was off -0.27%. Monday was +0.84%, Tuesday +0.17%, Wednesday +0.57%, Thursday -1.23%, -0.62% Friday. The 10 Year Treasury yield drifted lower as the pace of reopening slowed. Volatility was flat.

Next week will be overshadowed by second quarter earning releases from big tech names. Comments by CEOs on how they see the rest of the year will drive stock prices.  Other news, with less market-moving impact, will be reports on consumer confidence, mortgage applications, GDP (expected to be terrible), and Initial Filings for Unemployment on Thursday. Keep your eye on Continuing Claims as well. The political front may be quieter than expected with both parties going digital for conventions. The hundreds of millions of dollars in negative ads will not start in earnest until September, so appreciate less stressful TV while you can. Finally, more is to come from China as the clash of titans continues.

*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 July 17, 2020

by Jim Ulland

The week started as microcosm of what investors have been experiencing for the last three months. Monday morning the market raced up more than 1% on expectations that Q2 earnings would be better than expected and that progress was being made on a vaccine for Covid-19. When the Governor of California announced he was closing bars, restaurants, fitness center and the like again due to a spike in Covid cases, the market dropped 2% and closed down 1%. The battle between opening the economy and controlling the virus continued the rest of the week.

On Tuesday and Wednesday, many of the big banks reported earnings and all, with the exception of Wells Fargo, beat expectations and took the market higher. Preferreds stocks were important beneficiaries of this renewed confidence. Wednesday got an extra boost from Moderna, one of the four prominent vaccine developers, when it said that all 45 people in its latest trial developed antibodies after taking Moderna’s vaccine. Moderna starts a 30,000 person trial soon. On Thursday, the lowest home mortgage rates in history were announced as was data from an increasingly strong housing market. Employment improved some as unemployment claims ticked down slightly and continuing claims declined by a half million workers.

The battle between reopening the economy and controlling the virus was very pointed in the debate on whether to reopen schools in September. Distance learning this spring was not very successful and parents had a negative reaction. Some parents view more distance learning this fall as an impediment for them to return to work. Students do have a low infection and spread risk, but there is great hesitancy among the governors to reopen. Unfortunately, the achievement gap is likely to widen between low income students and the rest of the student body if schools do not reopen. Look to announcements from schools as an early indicator of the pace of re-openings in the rest of the economy.

Tech stocks took a rest this week and declined 1.08% after setting new highs the prior week. Bank stocks and healthcare stocks like United Health Group helped power the SP 500 higher by +1.25%. Monday was – 1.59%, Tuesday +1.34%, Wednesday +0.91%, Thursday -0.34%, +0.28% Friday. The 10 Year Treasury yield stayed in a relatively tight band from 0.60% to 0.67%, consistent with the Fed’s goal. Volatility was low as well.

Second quarter earnings releases continue next week but the big tech names will come the following week with Apple, Google, Facebook, and Amazon. Expectations are high for these post-Covid digital economy names. Also, Biden is expected to announce his VP pick in the next two weeks. The qualifications and qualities of this person are more important this time because, if he is elected, Biden’s VP will likely to run to succeed him.

Economic news next week is not of a market moving nature although there will be plenty of housing reports, which are expected to be very positive.

Finally, a special congratulations to Nat Beebe, who runs our Intelligent Fixed Income strategy using preferreds. The strategy’s performance so far this year ranked second among preferred strategies from mutual funds and ETFs.

*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 July 10, 2020

by Jim Ulland

Next week the big news will be second quarter earnings as they start to be release. Large banks will be among the first. Bank stocks have been one of the worst performing sectors this year. What the bank CEOs say about the rest of the year will move the market.  We expect bank earnings to be somewhat better than the low expectations that are in the news. Banks will show good fee growth from the Payroll Protection Plan loans/grants and from helping companies issue more debt. The most uncertain figures will be the amount of loan loss reserves the banks will book. This figure is like prepayment for loans that may go bad. If banks say that they do not expect loan loss reserves to increase significantly in the coming quarters, the market will react positively.

Battling for front page headlines will be Covid-19. The spike in cases may become old news quickly when the case curve turns down. Those infected last week were the young drinking and party set. Think college students and those in their twenties who are bored working at home. These cases are generally mild, although those infected can infect others with more serious results. Most do not think either government or the public is willing to “lock down” again. So managing the virus will be the emerging theme.

The government is trying to expedite the development of both a treatment and a vaccine. Novavax was given $1.6 billion to speed the processing and approval of its vaccine. The company hopes to have 100 million doses ready by late 2020…assuming a successful Phase III trial. Four other companies are at the same stage of development as Novavax. A successful vaccine will give the public confidence to return to a more normal life. Reopening of the economy will accelerate and the stock market will move higher. A lot of investment dollars have flown into the post Covid digital economy stocks. Health care also has seen big inflows of funds.

The SP 500 was up 1.76% for the week. Monday was up + 1.59%, Tuesday -1.08%, Wednesday +0.78%, Thursday -0.56%, +1.05% Friday. The NASDAQ continued its record breaking performance, up 4.01%. Preferred stocks, which are the dominant security in our fixed income strategy, were strong as a more positive tone settled over the banks. The 10 Year Treasury yield stayed in a relatively tight band from 0.60% to 0.67%, consistent with the Fed’s goal of keeping rates low. Preferreds with their 5.5% yield pay eight and a half time more than 10yr Treasuries.

Volatility for the week was relatively flat. But Q2 earning for the next three weeks will introduce plenty of volatility. The election is becoming a bigger part of the news and will increasingly affect the direction of the stock market. Calls to reverse the recently passed corporate and individual tax cuts will be a cloud over the market.

Next week, besides the start of Q2 earnings releases, there will be a modest amount of other economic news. The Small business Optimism Survey, CPI, Retail Sales, Housing Starts, and the U. of Michigan Consumer Sentiment Survey. Any of these could 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

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