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Weekly Market Update – April 13, 2017

The Dow finished down on Thursday, sliding 138 points to close at 20,453.  For the week, the Dow was down 1.0% (S&P 500 -1.1%) and year-to-date is now up 3.5% (S&P 500 +4.0%).  The yield on the 10-year Treasury fell 1 bp Thursday to 2.23%, ending the week down 14 bps.  

US economic data was mostly positive this week.  The NFIB Small Business Optimism Index remained high in March at 104.7.  The University of Michigan’s Consumer Sentiment Index rose to 98.0 in April, above expectations of 96.9, while the Current Conditions subcomponent rose to its highest level since 2000.  This week’s initial jobless claims fell to 234,000, better than expectations.  However, one of the measures of inflation (PPI) rose only 1.6% y/y in March, below expectations of 1.8%.  The other inflation measure (CPI) will be released tomorrow along with advance retail sales.

Earnings season for the first quarter is now underway, with major banks kicking things off this week.  J.P. Morgan, Citigroup, and PNC all reported positive surprises, while Wells Fargo was neutral to slightly negative.  Recall, we hold significant positions in the major banks.  Tax reform is still in limbo with Gary Cohn, Director of the National Economic Council, suggesting that a bill may not pass before the August legislative recess, contrary to the target of Treasury Secretary Steven Mnuchin.  On the geopolitical front, tensions surrounding North Korea and their nuclear ambitions are of increasing concern to the market.

The price of crude oil climbed 2% this week to $53 a barrel – now down just 1% YTD.  The EIA reported that crude stockpiles decline this week – by 2.8m barrels – following three weekly builds, and also that product inventories of gasoline (-3.0m bls) and diesel (-2.2m bls) continue to fall hard despite US refinery utilization on the rise.  On Monday, the International Energy Agency stated the global oil market is very close to reaching a supply-demand balance despite lowering their forecast for 2017 demand and noting demand growth will slow for the 2nd straight year.  Despite a slowdown from very strong growth in 2015, we’d note demand is still very strong, growing well over 1 million barrels per day y/y and we believe we are in a balanced market today.  Our energy holdings, both in equity and fixed income strategies, should stand to benefit from a potential rise in oil prices towards $60 by year end.  The US rig count rose 8 this week (+11 oil, -3 gas), roughly in-line with YTD averages.

Next week’s economic calendar highlights will include the April Empire Manufacturing Index on Monday (4/17), March housing starts and permitting data on Tuesday (4/18), and the Conference Board’s Leading Economic Indicators for March on Thursday (4/20).  We will see if the market rebounds next week after falling below its 50-day moving average on Wednesday for the first time since the election.

Have a great weekend!

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Weekly Market Update – January 20, 2017

The Dow was up 95 points on Friday as Wall Street assessed the likely direction of policy under the new Trump administration. For the week the Dow was down 0.3%. Year-to-date the Dow is up 0.33%.

The consumer price index (a measure of inflation) rose 0.3% in December, a rate that slightly outpaced November’s 0.2%. Housing and gasoline costs drove the spike. CPI was up 2.1% from the previous December, its fastest rate of increase since July 2014. Industrial production rose 0.8% in December – analysts expected a 0.6% increase – thanks to outperformance in utilities. Initial jobless claims came in at 234,000, better than the 254,000 consensus estimate. This marks their lowest level since November of 1973. December new-housing starts also outperformed, rising 11.3% to a 1.226m seasonally-adjusted rate. Wall Street expected only 1.187m.

Commentary from the Federal Reserve was muted this week. In a speech Wednesday, Fed chairwoman Janet Yellen said that the economy was approaching the Fed’s twin objectives of full employment and price stability. Yellen noted that it takes some time for interest rate hikes to work their way through the economy. If the Fed were to delay rate hikes for too long, she said, it would risk a “nasty surprise.” Our preferreds continue to outperform the Barclay’s Aggregate Bond Index, and continue to do well in the new year.

The price of crude oil was flat on the week, closing Friday at $55.45 a barrel. Oil fell during the first half of the week over concerns about a resurgence in US shale production. Prices then regained ground Thursday and Friday amid a weakening US dollar as well as signs that OPEC nations were serious about implementing production cuts.

Highlights on next week’s economic calendar include initial jobless claims (Jan. 26), existing home sales (Jan. 24), new home sales (Jan. 26), quarterly GDP numbers (Jan. 27), and durable goods orders (Jan. 27).  Fourth quarter corporate earnings releases will continue.

Have a great weekend.

Weekly Market Update – January 13, 2017

The Dow was flat Friday. Solid fourth quarter earnings reports from big banks offset falling oil prices and soft holiday sales numbers in retail. For the week, the index was up 0.4%; year-to-date it’s up 0.6%. Our preferreds continue to outperform the Barclay’s Aggregate Bond Index, and are off to a good start in 2017.

It was a quiet week for domestic economic headlines. The NFIB small business optimism index saw its largest monthly gain on record, rising to 105.8 last month from 98.4 in November. The sharp increase was linked to the outcome of the election. Heightened expectations drove the surge. 50% of small business owners expected the economy to do better, and 31% expected sales to increase. Elsewhere, December retail sales rose 0.6% from the previous month, slightly disappointing analysts who had expected a 0.7% increase. The National Retail Sales Federation announced that holiday sales rose 4.3%. This outpaced the expected 3.6% increase. Online sales, which increased 12.6%, were particularly strong. The producer price index (PPI) rose 0.3% in December after an increase of 0.4% in November. PPI’s annualized 1.6% surge in December is the fastest in three months, and underscores the likelihood that higher inflation could be on the horizon.

Several of the nation’s largest banks reported fourth-quarter results Friday, marking the unofficial start to earnings season. Results were generally positive. J.P. Morgan outperformed. It posted earnings of $1.71 a share, about 20% better than Wall Street had forecast. Bank of America also beat expectations, as lower expenses offset a slight decline in revenue. Wells Fargo offered a mixed bag. While revenue missed estimates, its net interest margin – the income earned from its deposits – outperformed, making investors optimistic given rising interest rates. Shares had climbed 1.5% by the end of the day.

The price of crude oil (Brent) closed at $55.61 a barrel on Friday, down 2.6% on the week. This marked the largest weekly drop since early November. Prices have risen steadily since major oil exporters signed on to a production cut agreement in December. Investors, however, remain wary that exporters won’t comply with the deal’s caps on production. Higher-than-expected buildup of U.S. oil and fuel inventories also weighed on prices.

Highlights on next week’s economic calendar include the consumer price index (Jan. 18), initial jobless claims (Jan. 19), housing starts (Jan. 19) and the Philadelphia Fed’s manufacturing index (Jan. 19). Fourth-quarter corporate earnings releases will continue next week.

 

Ulland Investment Advisors

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