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Weekly Market Update for October 27, 2017

by JM Hanley

The Dow was up on Friday, rising 33 points to close at 23,434. For the week, the Dow rose 0.45% (S&P 500 +0.23%) and year-to-date is now up 18.58% (S&P 500 +15.8%). Strong third-quarter earnings reports from large tech companies including Amazon, Google, and Microsoft pushed stocks higher.   Higher-than-expected growth in third quarter GDP also gave equities a boost.

The yield on the 10-year Treasury rose five basis points this week, closing at 2.43%.  Confidence that the Federal Reserve will raise interest rates in December continues to grow. The yield on the 10 Year has climbed nearly four-tenths of a percentage point since early September as a consequence.  A seemingly small move in yields on Treasury bonds can have a sharply negative impact on traditional fixed income, since the securities’ yield will decrease relative to new issues.  In anticipation of rising rates, most of our fixed-income securities are preferred stock with a floating-rate component – thus, mostly protected from this scenario.  Our fixed-income strategies continue to outperform the benchmark Barclays Aggregate Bond Index by a widening margin.

Third-quarter GDP grew 3% from the previous year, according to the first estimate.  This was substantially better than the 2.5% expected by economists.  The outperformance came despite the headwinds from an especially disruptive hurricane season.  Private capital investment and business inventory growth were particularly strong.  Personal consumption, which grew at a slower pace than in the second quarter, proved to be the only weak spot.

The price of crude oil rose 4% this week to nearly $54 a barrel, jumping into positive YTD territory after being down as much as 17% in June. US crude stockpiles, when added to product inventories of gasoline and diesel, both fell dramatically. Refinery utilization popped back above the 3-year average following the prior week’s hurricane curtailments as refiners look to capture favorable product spreads.  Lower-48 oil production has been relatively flat over the past two months which has helped draw down elevated levels of both crude and product inventories in the US.  While oil prices have recovered lost ground this year, oil stocks are still off quite a ways from their highs. We expect that gap to narrow.

Third-quarter earnings reports brought more good news.  In Ulland portfolios, shares of Amazon climbed 13% on Friday after the company reported strong profits expansion.  Google’s stock also rose substantially after it reported accelerating growth in advertising revenues. And Granite Construction reported that its backlog of projects had grown to a year’s worth of revenue, pushing its equity nearly 9% higher.  The good news may continue next week. Alibaba, Facebook, Anadarko Petroleum, and Envision Healthcare, among others, are expected to report.

*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