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Weekly Market Update for September 18, 2020

by Jim Ulland

This week, the market was assuming that there will be no additional stimulus package until after the election, which dampened a lot of buyer enthusiasm. At mid-week, the Fed repeated its intention of keeping interest rates low until 2023, a little longer than the last pronouncement, but stocks were looking for something more and sold off as a result. Fixed income in general, and our preferred stock strategy welcomed this statement. Continued low interest rates favor preferred stock. Politics and election advertising dominated both the news and the advertising around the news. There will be six more weeks of charge and countercharge. The substantially different policy implications of the two Presidential candidates will keep the market on edge making it unlikely that stocks will go higher.  The worst case for the market would be a contested election. In 2000, the Bush vs. Gore election took until mid-December to resolve and that was with only one state in doubt.

Covid-19 news was more encouraging. Hospitalizations declined again in the hot spots of CA, TX, AZ, NV, FL. In total 62% of the states showed a decline. The only region where most of the states showed an increase was in the Northeast. These states had dropped to very low levels of hospitalization, so an uptick is not meaningful yet. The news often reports the number of new Covid cases. This metric is not very informative since an increase in testing brings more cases and a decrease in testing brings less cases. In MN, for instance, headlines told of the increase in new cases whereas the number of hospitalizations fell rather sharply. We feel hospitalization numbers are the best indicator to understand the Covid impact. Pfizer announced progress on a treatment for Covid and expanded its trial. One of the five leading vaccine developers, Moderna, said early vaccine trial results may be announced in October although November is more likely.

There was no big economic news during the week; however, unemployment filings stayed below one million again and showed a 30,000 decrease. Those who continue to be on unemployment insurance decreased by 900,000. Housing starts were down, but there have been shortages of some building materials, so that may not be a surprise. Manufacturing showed strength. Several of the NFL teams demonstrated that they could have fans in the stands again, although with distancing. This encouraged the Big Ten to reverse course and announce they will have a football season. There was a lot of money at stake which probably influenced the decision. The country continues to become more open, but still the necessary ingredient is a vaccine to get individual comfort levels higher.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, managed modest gains for the week. Concerns that the equity markets are fully valued, and the uncertainty of the election have investors reallocating money from stocks to fixed income.

For the week, the Nasdaq was down -0.56%. The SP 500 was down -0.64%. Volatility moderated: Monday the SP 500 was +1.27%, Tuesday +0.52%, Wednesday -0.46%, Thursday -0.84%, Friday -0.64%.

We expect volatility to increase as the political races become more frantic. The Presidential debate will be a news maker about ten days from now.

*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 September 11, 2020

by Jim Ulland

Many read Waiting for Godot while in college.  There are some similarities with waiting for the next stimulus package.  It too might never come.  Politics has emerged as a market force and little is expected from Congress until after the election. It was predictable that, as the election approached, market uncertainty would increase and so it has.  The uncertainty was aggravated by the fact that many of the market indices hit new highs ten days ago with the S&P positive for the year and the Nasdaq still up more than 20% as this week ends. (The indices for mid-sized and small companies remain negative for the year). This remarkable recovery from the March lows is built on the expectation of both a vaccine and a treatment for Covid-19 being developed by year end.  Also, there is an expectation that the economy will be reopened and that workers will return to their downtown offices from their home offices and students will go back to in-person classrooms. Finally, it is assumed that the election will not totally disrupt the current economic and tax structure.  The market may be realizing that it was a bit hasty in making the totality of these assumptions.

Covid news was good. Hospitalizations declined again in all regions including the hot spots of CA, TX, AZ, NV, FL.  Some, primarily small states with low hospitalizations, had a modest increase like WV, MT, SD, IN, and KY.  The trend is our friend. Schools, restaurants, bars, airlines, lodging, and smaller retail stores are trying to find procedures that work for customers and allow more normal business conditions to return.

The big economic news during the week was JP Morgan’s estimate for Q3 GDP: 29% annualized growth.  Remember that before Covid, the economy was growing around 3%, which was thought to be strong growth.  The recovery is happening. Unemployment filings stayed below one million, better than expected.  Twenty states are including an additional weekly $300 in unemployment checks.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, maintained its strong performance by defending the large gains in August while common stocks dropped. Interest rates on the 10 Yr Treasury dropped modestly. Low interest rates translate into low mortgage rates.  The housing market stayed remarkably robust as people moved from troubled downtowns to suburbs and exurbs.  Home building is a strong sector of the economy pushing lumber prices higher.

Equity markets didn’t set any records this week.  The NASDAQ is down 10% from its high. For the week, the Nasdaq was down -4.06%.  The S&P 500 was down -2.5%, back to August 12 levels. Volatility spiked as reflected in the daily S&P returns:  Monday (Labor Day), Tuesday -2.8%, Wednesday 2.0%, Thursday -1.8%, Friday +0.1%. Economist Jim Paulsen encouraged investors to stay invested since he expects the high rate of Q3 GDP growth to provide a floor under stock prices.  That said, a lot of money flowed out of stocks and into fixed income during the week as many felt stock prices were high and in an uncertain environment.

We expect volatility to continue and for common stocks to have trouble moving higher.  Money should continue to flow to fixed income – especially where investors can find performance.

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.

Weekly Market Update for September 4, 2020

by Jim Ulland

We are still waiting for the next stimulus package from a deadlocked Congress, but in the meantime, life has gone on. During August, 1,370,000 new jobs were created dropping the unemployment rate to 8.4%.  Average hourly earnings also increased giving consumers more spending power.

Covid-19 news continued to get better this week. Hospitalizations declined in all regions including those states that had a mid-summer spike: CA, TX, AZ, NJ, FL.  MN and several small states like WV, MT, SD, and ND showed a modest increase. Many feel that with the frequent hand washing and face masks, the flu season will be more modest than usual and thus take the pressure off hospital beds.

US economic news was mostly good.  The unemployment filings dropped below one million, more than expected.  Those already on unemployment also fell by 1.2 million.  Productivity increased markedly, +10.1%.  One of the few disappointments was exports. This is partially a result of less air travel, a major US export earner.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, successfully defended its #1 performance ranking at month-end against the peer group of publicly traded strategies using preferred stock (data source Morningstar Direct).   Interest rate on the 10 Yr Treasury rose Friday to close the week flat at 0.72%. The slight rise in interest rates helped bank stocks because banks can now earn a little more on their substantial amount of unused cash deposits. The strength in banks helped their preferred stock and IFI performance which was very solid in a week of correction in the equity market.  The strategy is up 7% from January 1 through August 31!

Equity markets set another series of records early in the week and then ended, at least for now, their remarkable rise since the end of March. Steep increases in equities in a short amount of time often are slowed by a correction.  This is what happened Thursday and Friday. The NASDAQ was down -3.3% for the week, but this only returned performance to the August 24th level. The S&P 500 was down only -1.82% this week. Volatility spiked as reflected in the daily S&P returns:  Monday -0.22%, Tuesday +0.75%, Wednesday +1.54%, Thursday -3.51%, Friday -0.81%. The conditions that drove the market’s rise still exist. Inflation is subdued, low cost money is available, and the digital economy stocks keep reporting exceptional earnings.  Our stock strategies continue to out-perform.

Next week expect reports on small business optimism, job openings, and the Consumer Price Index.  You may quickly tire of political ads.  A flood of them is coming, since Labor Day officially marks the start of campaign ads.  Ads are stressful because they invariably stretch the truth. Eat healthy foods and get your exercise.  This will be over in two months unless we are plagued by unclear results.  Let’s hope not.

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.

Weekly Market Update for August 28, 2020

by Jim Ulland

Congress has yet to agree on the next stimulus package, which most economists think is needed to get the economy back to health. Agreement might happen in September although everything is more difficult in an election year. The Fed met during the week and committed once again to doing what is needed to fashion a recovery. One of the members, Loretta Mester, said, “I think accommodative monetary policy is going to be very important throughout this recovery…which is going to be a slow one.” In English, this means interest rates will be low for the foreseeable future. Low interest rates provide a good environment for stocks and our fixed income strategy IFI.

Covid-19 news was encouraging this week. Hospitalizations continued to decline in all regions including the hot spots in SE states and in the West, primarily Texas, California, and Nevada. Abbott Labs had a rapid test approved for Covid that only costs $5. Additional positive news came from Moderna on early results from their vaccine candidate. Vaccine test results from the four leading developers are now targeted for October or November.

US economic news was mostly good. The four week rolling average of unemployment filings dropped again as did those already on unemployment. Mortgage demand and new home sales were very strong as were orders for durable goods. The revised GDP for Q2 came in better than expected, which means a little less terrible than the first reading. The only disappointment was an unexpected decline in consumer confidence.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, is set to defend its #1 performance ranking at month-end against the peer group of publicly traded strategies using preferred stock (*data source Morningstar Direct). IFI performance continued to increase during the week even as the interest rate on the 10-Yr Treasury rose to 0.72%. One of the reasons for the increase in Treasury rates was the Fed’s comments that it would not slow down the economy if inflation exceeded its 2% target. We expect continued solid gains in our preferred stock strategy as money flows to preferreds from less desirable options including cash, government securities, and municipal bonds.

Equity markets persisted in their remarkable rise as all major indices hit records for the year. The NASDAQ was up 3.39% and the S&P 500 was up 3.17% this week. Gains were solid all week: Monday +1.00%, Tuesday +0.36%, Wednesday +1.02%, Thursday +0.17%, Friday +0.59%. With inflation subdued and a lot of money available to investors at low interest rates, money is flowing into stocks and fixed income. Our stock strategies continue to out-perform. We expect more upward trending prices until the uncertainty of the election puts investors on hold.

Next week expect August auto sales reports, which should be good, as should be manufacturing growth. The most important news will be on Friday with the August jobs report. Expectations are for 1.4 million new jobs.

*Source: Morningstar Direct

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