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Market Commentary Archives

Weekly Market Update for November 9, 2018

by JM Hanley

The Dow was down on Friday, falling 202 points to close at 25,989. For the week, the Dow was up 2.8% (S&P 500 +2.1%) and year-to-date is now up 5.1% (S&P 500 +4.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points, closing at 3.19%.

Midterm voters delivered control of the House of Representatives to Democrats, but Republicans kept charge of the Senate.  Divided government is set to return. Investors had expected this outcome, but indexes still rallied midweek in relief. Further fiscal stimulus in the form of additional tax cuts, increased government spending, an infrastructure package, or other major legislation now looks unlikely given the divides separating the two parties. That means the Fed (probably) won’t have to raise interest rates aggressively to offset additional government spending and keep inflation under control. Treasury yields fell as a result. Drug price reform, for which the White House and Congressional Democrats may share similar goals, could prove the lone area of cooperation.

The price of crude oil fell 5% this week to $60 a barrel – flat YTD. US crude stockpiles showed a greater-than-expected build – of 5.8m barrels – while product inventories of gasoline rose (+1.8m bls) and diesel fell (-3.4m bls). Prices declined steadily (again) throughout the week despite re-imposed Iranian sanctions, which have led to collapsing exports from that country. The price weakness was likely driven by rising US production and inventories. Share prices of domestic oil producers bucked the commodity move (again), however, rising 1% this week, possibly due to surprising strength in natural gas as well as a failed ballot measure (i.e. regulation) in Colorado. Favorable earnings reports by two equity portfolio names, Callon Petroleum and Devon Energy, demonstrated upside to cash flow expectations.

Corporate earnings outdid political headlines for excitement this week. Axon Enterprises (the maker of Taser) did better than anticipated on the top and bottom lines, but didn’t increase its estimate of full-year profits. Its executives said they were just being cautious. A planned transition in their contract with the New York Police Department could bring higher expenses. Trucker Daseke also failed to raise its full-year earnings estimate despite a good quarter.

News was better at CVS, which out did analysts’ forecasts and said its purchase of Aetna will be completed by Thanksgiving. Its share price rebounded on the news. Subscriptions for software from Hortonworks were a bit low, and its senior management didn’t provide an update on the merger with competitor Cloudera.  Playa Resorts also had a good quarter financially, though its room occupancy ticked down.  Shares of Air Lease rose after it reported higher profit margins and a growing fleet of aircraft. Shares of Granite Construction also rose after California voters chose not to repeal a gas tax hike, which will fund road and bridge construction.

*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).

 

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