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Weekly Market Update for August 3, 2018

by JM Hanley

The Dow was up on Friday, rising one hundred thirty-six points to close at 25,463. For the week, the Dow rose 0.1% (SP500 +0.8%) and year-to-date is now up 3.0% (SP500 +6.2%).

Threats continued to fly in America’s trade skirmish with China. Washington is mulling an increase in its duty on Chinese goods from 10% to 25%. However, cooler heads may temporarily prevail. Both sides have struck a conciliatory tone in recent communiques. Additionally, China announced it wouldn’t devalue its currency to offset the tariffs.

The economy added 157,000 jobs last month. While that was fewer than analysts expected, more jobs were added in May and June than originally thought. Unemployment remains at 3.9%. Earnings are still growing. Partially as a result, consumer confidence reached a new high. Consumers have, however, grown more pessimistic about the near future. Their caution may be warranted. Surveys of managers reflect a business environment that is still favorable. But the cost of rapidly-growing wages is being passed to business customers in the form of higher prices. Fresh uncertainty about international trade hasn’t helped.

The yield on the 10-year Treasury (an important interest-rate indicator) was up one basis point, closing at 2.95%. The 10 Year yield briefly crossed 3% again in the middle of the week, after the Bank of Japan raised its interest rates. Yields subsequently retreated. Today’s uninspiring jobs data helped push them back up.

The price of crude oil was flat this week at $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise build, of 3.8m barrels, while product inventories of gasoline fell (-2.5m bls) and diesel rose (+3.0m bls). Despite very high refinery utilization (96%), a sizable drop in exports (driven by a narrower Brent-WTI spread) drove the inventory build, particularly along the Gulf Coast. Oil prices rose strongly on Monday as a draft plan to weaken Obama-era fuel efficiency standards was released, which, if enacted, could theoretically increase gasoline demand. The commodity later reversed course following the unfavorable inventory report and a move higher in the US dollar. Oil then received a late-week bump when Iran began a major naval exercise near the Strait of Hormuz.

Traders rewarded Anadarko Petroleum after the oil driller pumped out more and kept expenses under control. The same couldn’t be said for Devon Energy, which reduced its revenue outlook for the year.

The market witnessed a major milestone Thursday when Apple became the first company to exceed a million dollars in market capitalization. The firm reported strong sales of the iPhone X and rapid growth in its Services business, and raised its profit outlook for the year. Hortonworks, Ebix, Callon Petroleum, Playa Resorts, and CVS, among others, 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 July 27, 2018

by JM Hanley

The Dow was down on Friday, falling seventy-six points to close at 25,451. For the week, the Dow rose 1.6% (SP500 +0.6%) and year-to-date is now up 3.0% (SP500 +5.4%). The yield on the 10-year Treasury (an important interest-rate indicator) was up six basis points, closing at 2.96%.

Once again, this week brought a litany of rumors, threats, and retractions as Washington renegotiates the nation’s trading relationship with Europe and China. Jean-Claude Juncker, president of the European Union, agreed to work towards eliminating tariffs on most industrial imports from the US. He also said the EU would purchase more American soybeans and natural gas. The agreement was light on details. In response, the Administration shifted plans for 25% tariffs on auto imports to the back burner.

America’s economy grew 4.1% in the second quarter. Consumers are spending more, and businesses are investing. Sales of existing homes proved the only weak spot.

The price of crude oil rose 1% this week at $68 a barrel – up 14% YTD. US crude stockpiles showed a larger-than-expected draw, of 6.1m barrels, and product inventories of gasoline (-2.3m bls) and diesel (-0.1m bls) also fell. Oil prices dropped on Monday as the US dollar gained versus global currencies, but the commodity later rebounded on the favorable inventory report and a turn lower in the dollar. Tensions remain inflamed between the US and Iran, as the latter reiterates threats to close the Strait of Hormuz while the former looks to snap back additional economic sanctions ten days hence.

This week’s earnings calendar brought a few surprises. Shares of Facebook suffered a substantial decline after it reported second-quarter earnings Wednesday evening. Fewer users are logging in on a daily basis. Advertising revenues have suffered. Even worse, the firm said the growth of revenues would slow in the second half of the year, even as expenses rise. New privacy regulations have taken a toll. But Facebook’s capacity to target advertising is still unmatched. Shares of the rapidly-growing social media behemoth remain attractively valued by the standards of big tech.

News from Amazon was better. The company’s most profitable divisions – cloud computing, advertising, and subscriptions – have bolstered profits across the firm. In the financial sector, Visa reported healthy growth. That apparently sufficed to justify the outsize gains in its share price this year. The acquisition of Visa Europe (a recent acquisition) is ahead of schedule. Anadarko Petroleum, Devon Energy, and Chimera, among others, 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.

The Risks of Passive Investing – Trouble Ahead for PFF?

Much has been written about the benefits of investing in passive exchange-traded funds (ETFs), namely market returns with a low management fee. However, investors need to consider the unique risks that arise when an ETF begins to dominate a niche space such as the preferred market.

In this article we will evaluate the largest ETF in the U.S. preferred stock market, the iShares U.S. Preferred Stock ETF (Ticker: PFF), which currently holds nearly $17 billion in assets. As an active preferred stock manager, Ulland Investment Advisors manages just over $225 million in the preferred space. We can offer a unique insight into the hidden risks associated with the PFF ETF, specifically focusing on market size risk, liquidity (or lack thereof) and interest rate risk (duration).

 

Ulland Investment Advisors

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