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Archive for October, 2020

Weekly Market Update for October 23, 2020

by Jim Ulland

The major market themes were realigned this week. Now, few, if any, expect an additional stimulus package before the election. After the election, it will not be all that easy either. One side or the other in this political battle will be mad, making compromise difficult. A second major market concern, the election itself, stayed at the top of the news. The last Presidential debate is over, but, even before the debate, over a third of the electorate already had voted. The undecided voters did get exposed to sharply contrasting views, which should crystalize opinions. The real market impact will be after Election Night since the policies and positions of the two candidates are markedly different. The third major market-moving variable is the economy as reflected in Q3 corporate earnings announcements. Earnings are exceeding forecasts. Tesla, Netflix, AutoNation (the nation’s largest auto retailer), and Chipotle, for example, showed strong revenue and earnings growth. Snap, the company that owns Snapchat (the fastest way to share a moment), reported robust internet advertising sales boosting the stock prices of Facebook and Google which also rely on advertising sales.

Covid-19 was the fourth major variable driving the market. With the spike in cases, fears grew that businesses would be further restricted from reopening. Bankruptcies are now common. Restaurants soon will lose outdoor dining to winter weather and many will fail. The travel industry, including hotels and airlines, is desperate. Yet, even with all the mask wearing, hand washing, and social distancing, Covid continues to threaten the health of both the economy and the citizens. It is becoming increasingly clear that a vaccine is the only answer.

Farther in the background was the economic news. Housing sales hit a fourteen-year high. (Look for big earnings from Lowes and Home Depot). Initial unemployment claims fell by 55,000 and were the lowest since March. Those on unemployment (continuing claims) fell as well. Even with headlines telling of corporate layoffs, the number of people working is growing. Q3 GDP is set to be released next Thursday and it will show high growth. Interest rates did move up this week, maybe anticipating a lot of new deficit spending next year. Interest in our fixed income strategy, IFI, using preferreds, continued to be very strong because of its 5% return target.

With the uncertainty of both the election and the development of an effective vaccine, the market fell slightly. The Nasdaq was down -1.06% for the week. The SP 500 was down -0.53%. Monday the SP 500 was -1.63%, Tuesday +0.47%, Wednesday -0.22%, Thursday +0.52%, Friday +0.34%.

Next week tech earnings will be the biggest news makers. Big pharmaceutical companies start the week along with 3M, Visa, Microsoft, and on Thursday: Apple, Google, Facebook, and Amazon. Alibaba, the Amazon of China, ends the week on Friday with its earnings.

*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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for October 16, 2020

by Jim Ulland

This week there were four major recurring themes that influenced the market: the election, the stimulus, Covid-19, and the economy. Taking them in order, it was hard to avoid the election. Few voters are undecided. One pollster said the undecided voters were trying to resolve their dislike for Trump’s personality and their fear of Biden’s policy proposals. We will know how they decide soon. Historically, the market has performed better with divided government. Thus, there will be as much focus on the outcome in the U.S. Senate as in the Presidency.

There is a general rule that it is almost impossible to pass anything controversial just before an election. The latest stimulus package is controversial. The issues include cost, targeting, programs that are in, programs that are not in, and who gets credit. Agreement seems unlikely before the election.

Covid-19 demonstrated that it is not to be underestimated. All regions of the country showed increases in hospitalizations except the Southeast. Google the “University of MN Carlson School Covid tracking.” The Carlson School does daily tracking by state for Covid hospitalizations. CA and TX were exceptions to the spike during the last two weeks. Europe too is showing increases and considering more lockdowns. The march to a vaccine continues and perhaps only a successful vaccine will enable the country to reopen and start a path back to normal.

The economy continued its rebound despite all the political and pandemic headwinds. Retail sales were surprisingly strong in September. Manufacturing continued its robust recovery and new orders rose. Unemployment filings were higher than the prior week but those on unemployment already declined more than expected. Banks did not add to their loan loss reserves, a signal that they feel future losses are contained. Bank earnings exceeded expectations. The biggest economic news will come October 29 when Q3 GDP is announced. Historically, an annualized 3% growth in GDP is considered good. Q3 2020 is expected to be almost a 30% annualized growth rate, ten times the historic average.

Banks said that deposits were up substantially. This surplus of cash in banks results in low interest rates. Consumers earn almost nothing on CDs and borrowers pay little for funds. Low interest rates make our fixed income strategy, IFI, even more attractive when compared to other options in fixed income. We are seeing a strong flow of new business and additional funds from current clients. Our target net yield on our Intelligent Fixed Income strategy is 5%, although we have already exceeded that this year.

With the uncertainty provided by the election, the stimulus package, and Covid imperfectly balanced by relatively good economic news, it was not surprising to have a flat market. The Nasdaq was up +0.79%. The SP 500 was up +0.19%. Monday the SP 500 was +1.64%, Tuesday -0.63%, Wednesday -0.66%, Thursday -0.15%, Friday +0.01%. Our equity strategies continued strong YTD performance.

Besides bank earnings this week, United Health Group announced another great quarter from its strong team. Next week there will be more bank earnings and the airlines will announce their dramatic losses. A flood of other announcements will come including market movers Netflix and Chipotle.

*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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for October 9, 2020

by Jim Ulland

The week was dominated by the President’s apparent recovery from Covid-19 and the cat-with-nine-lives economic stimulus negotiations. The market was buoyed by the effectiveness of the treatment the President received. The treatment components are expected to be approved for “compassionate use” or “emergency use”, if needed, this month with production ramping quickly. Also expected soon will be the market-moving news on vaccines.

The drug treatment the President received had several components. The Regeneron treatment was antiviral and supported by only a small trial which had very good results. The Gilead antiviral, Remdesivir, has been in use for many weeks and reduces the length of hospital stays. In addition to these compounds was an anti-inflammatory steroid Dexamethasone, important to keep lungs functioning. A little zinc and vitamin D were added, although neither had been tested extensively for effectiveness against Covid. The market has been waiting for just such an effective “drug cocktail” so people will be less fearful about returning to more normal patterns of interaction, like getting on a plane. Reducing the fear response to Covid is necessary to get the economy back to normal.

The Fed waded into the very political stimulus discussion and said more stimulus is needed. Stimulus proposals on the amount of dollars, targeting only those in need, and the states to benefit are as much about politics as the economy. On Friday, the President raised the amount he was willing to put into a stimulus package to at least $1.8 trillion whereas Speaker Pelosi is asking $2.2T.

What does not make as much news, but is fundamental to the market, is the Federal Reserve’s position on interest rates. “Lower for longer” is the policy but it could be re-phrased as “low for a lot longer.” The Fed wants to keep rates low until 2023. After 2023, rates would depend on employment returning to pre-Covid levels and inflation reaching 2%. The September jobs report showed unemployment at 7.4% down from 14.7% in April, but still much higher than normal. Inflation for the last twelve months was a muted 1.3%. Low interest rates that stay relatively flat create an excellent environment for our fixed income strategy using preferred stock. Our target net yield to clients on our Intelligent Fixed Income strategy is 5%. The strategy is up 7% through 9/30.

With the good news from a Covid treatment, the President’s apparent recovery, hopes for another stimulus package, and continued low interest rates, it should not be a complete surprise that the market went up this week. The Nasdaq was up +4.56%. The S&P 500 was up +3.84%. Monday the S&P 500 was +1.80%, Tuesday -1.40%, Wednesday +1.74%, Thursday +0.80%, Friday +0.88%. Our equity strategies continued to out-perform too.

Corporate Q3 earnings start next week with JNJ, Citi Bank, JP Morgan, Bank of America, United Health, Goldman, Wells Fargo, and US Bank, among others. The major banks’ loan loss reserves will be an economic indicator to watch. Better than expected loan losses will indicate the strength of the economic recovery.

*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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for October 2, 2020

by Jim Ulland

The Presidential election is dominating the news.  The White House announced that the President and First Lady both had contracted Covid-19.  This capped an unsettling week, exactly the environment the market hates.  The Presidential Debate was anything but Presidential.  Let’s hope the next one can focus on the issues and policies of each, that is, if there is a next debate. The additional stimulus package was stalled, and the House adjourned, which dimmed prospects for agreement. The Fed says the economy needs one more shot of stimulus and a renewal of the Payroll Protection Plan to avoid large layoffs from the airlines and others. There was a hint of agreement to do something for the airlines separate from the larger package. New jobs created in September, while good, were fewer than forecast. The economic momentum has slowed but still is somewhat better than expected. The positive impact of the stimulus packages has about run out. States are allowing more businesses to reopen, but barely enough to keep the recovery going. Housing has been a bright spot with historically low mortgage rates.

Fixed income in general, and our preferred stock strategy specifically, benefit from low and flat interest rates.  Nat Beebe, who runs our fixed income strategy Intelligent Fixed Income (IFI), retained the number one performance spot on a 3yr, 2yr, and 1yr basis among publicly traded* (ETFs and mutual funds) fixed income strategies that predominantly use preferreds.  In fact, IFI is the only strategy we can find among the peer group that was positive in September. Year-to-date returns are over 7%.

Our equity strategies too have substantially out-performed the comparative NYSE index.  We continue to focus on technology, communications, health care, and special situations.

Covid-19 news was over-shadowed by the President’s infection. However, the four or five major trials underway keep marching toward a vaccine.  The President’s medical team chose a Regeneron treatment, so that stock may bounce Monday. Hospitalizations declined again, according to the daily tracking from the U of M Carlson School.  In all regions of the country, a substantial majority of the states had declining hospitalizations last week.  The only region where most of the states showed an increase was in the Northeast.  The news seems to focus on the number of new Covid cases.  These are mostly occurring among the young where the impact is often quite manageable.  We think the focus should be hospitalizations to get severity trends.  Very recently, Minnesota has experienced an uptick in daily admissions, a trend we are watching.

Even with the President’s Covid infection, the markets had a good week. (Unfortunately, the President was hospitalized just after the market closed).  The Nasdaq was up 1.48%.  The S&P 500 was up 1.52%. Volatility moderated except on Monday and Friday. Monday the S&P 500 was +1.61%, Tuesday -0.48%, Wednesday +0.83%, Thursday +0.53%, Friday -0.96%.

We expect volatility to stay high.  Besides politics and the President’s health, corporate Q3 earnings will be the next market mover.  Earnings will start to be released in about ten days.  If earnings continue to recover, expect more jobs to follow.

*Publicly Traded Peer Group Requirements: Minimum $150 million in ETF/Fund; Excludes low-duration funds; Excludes closed-end funds; Includes share class with largest AUMs; Excludes real estate preferred funds; Minimum 3-year track record

*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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

 

Ulland Investment Advisors

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