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Weekly Update Archives

Weekly Market Update for September 15, 2017

by JM Hanley

The Dow finished up on Friday, rising 65 points to close at 22,268. For the week, the Dow rose 2.2% (S&P 500 +1.6%) and year-to-date is now up 12.6% (S&P 500 +11.7%). Relief after Hurricane Irma spared Florida the worst helped push the major indices to record highs.  Rising crude oil prices and strengthening bond yields also gave energy and financial stocks a boost.  The yield on the 10-year Treasury rose fifteen basis points this week, closing at 2.20%, on Thursday’s report of higher-than-expected inflation.

Hurricane Irma’s late pivot towards the Gulf Coast of Florida meant that its impact on the densely populated area near Miami was not as bad as feared.  Damage estimates dropped from $172B to $49B after the storm passed.  JP Morgan still projects that Irma will prove to have been one of the five-costliest hurricanes recorded.  Elsewhere, there was little news from Washington this week.  Negotiations continue on tax reform.

Economic data reported this week were mixed.  Retail sales fell 0.2% from July, the worst report in six months.  Economists surveyed had expected an increase.  Weak auto sales weighed on the index.  August industrial production also fell, by 0.9%. Hurricane Harvey bears part of the blame for both.

Markets were most interested in August’s inflation data released Thursday.  Despite plenty of commentary about sluggish inflation, prices increased at a faster overall rate than anticipated. Excluding food and energy costs, the “core” rate was 1.7% – the pace it’s held for the past four months.  Housing and gasoline expenses accounted for most of the increase.  The in-line report increased the chances of a December rate hike by the Federal Reserve, which investors now consider more likely than not.   The Fed has long flagged slow inflation as a development that could force it to postpone its rate-hike schedule.

The price of crude oil rose 5% this week, to nearly $50 a barrel – down 7% YTD. US crude stockpiles showed a smaller-than-expected build – of 4.2m barrels – while product inventories of gasoline (-8.4m bls) and diesel (-3.2m bls) declined significantly. Refinery utilization remained below 80%, which drove the drawdown in refined products and build in crude, but utilization should rebound sharply the next couple weeks.  Also aiding oil prices this week were upward revisions to global demand estimates by the IEA, as well as positive communication out of OPEC regarding potential agreement extensions and compliance monitoring.

Highlights on next week’s economic calendar include housing starts on 09/19, existing home sales on 09/20, and Markit’s US manufacturing and services PMI on 09/22.

 *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 September 8, 2017

by J.M. Hanley

The Dow finished up on Friday, rising 13 points to close at 21,798. For the week, the Dow fell 0.86% (S&P 500 -0.61%) and year-to-date is now up 10.2% (S&P 500 +9.9%). This holiday-shortened week brought little corporate news. The major indices declined moderately on worries about Hurricanes Harvey and Irma and changes to the Federal Reserve policy goals, along with concern about North Korea.  The yield on the 10-year Treasury fell ten basis points on the week to close at 2.05%, its lowest level since mid-November.

It was a comparatively light week for major economic indicators. Factory orders declined by 3.3% in July, the most they’ve dropped since August of 2014.  Weak demand for aircraft was to blame. Excluding transportation, orders actually rose.  Likewise, non-transportation durable goods orders also increased in July, at a faster pace than they did in June. This improving manufacturing demand reflects more optimism by American businesses.  In other news, labor force productivity ticked up 1.5% in the second quarter. This was faster than economists had forecast, and marked an acceleration from the first quarter.  Productivity growth has nevertheless remained tepid by historical standards.  GDP growth has suffered as a result.

The price of crude oil was flat this week, at $47 a barrel – down 12% YTD. US crude stockpiles built this week – by 4.3m barrels – while product inventories of gasoline (-3.2m bls) and diesel (-1.4m bls) declined. The effects of Hurricane Harvey are now flowing through the numbers; however, nearly all Texas refining assets are back up and running and previously shut-in oil/gas production is online as well. Hurricane Irma could potentially string these disruptions out for another couple weeks, with Irma possibly having a more lopsided (negative) impact on supply/demand balances than Harvey.

While Harvey had only a moderate impact on major insurers, Irma will likely prove a different story. Much of the Houston metro did not carry flood insurance, so most property losses will unfortunately be borne by individual homeowners.  But insurers have major exposure to hurricane-prone Miami.  Insurers’ losses from Harvey are estimated to be $25 billion; losses from Irma could be five times worse.

News from Washington was mixed.  Congress raised the limit on what the federal government can borrow. The vote ensures that the Treasury will be able to meet the nation’s current financial obligations.  A separate bill necessary to fund the government also passed.  Markets were reassured. However, both pieces of legislation expire in the middle of December, when they will need to be passed by Congress once again.  December negotiations could complicate efforts at tax reform. 

Elsewhere on the policy front, markets are increasingly skeptical that the Federal Reserve will raise interest rates a third time at its December meeting.  The probability of a rate hike had fallen to 31%.  Comments from regional Fed members suggested a more cautious approach given slow inflation and a labor market with apparently more slack than most realized.  The Fed’s Vice Chair Stanley Fischer announced that he would step down in mid-October.  His replacement will have significant influence on Fed policy.  However, there’s no consensus on who it will be.

Highlights on next week’s economic calendar include small business optimism (9/12), inflation figures (9/14), and retail sales (9/15).

Weekly Market Update for September 1, 2017

The Dow finished up on Friday, rising 39 points to close at 21,988. For the week, the Dow rose 0.8% (S&P 500 +1.4%) and year-to-date is now up 11.3% (S&P 500 +10.6%).  A jobs report that was about as expected, along with good numbers on consumer spending and manufacturing, nudged the indices higher.  There was little news from Washington this week.  The administration made its opening pitch for tax reform, but most details of the plan are still being negotiated. The yield on the 10-year Treasury fell two basis points on the week, closing at 2.15%.

US economic data offered a mixed picture this week. Hurricane Harvey’s long-term economic impact will likely be minimal.  August’s jobs report, released Friday, earned the most attention. Nonfarm payrolls increased by 156,000 during the month. That was about seventeen percent less than what markets had expected.  However, initial estimates for August are typically inaccurate because of issues related to the summertime season.  The number has been revised substantially upwards in years past.  Elsewhere in the jobs report, unemployment rose slightly to 4.4%.  It had been expected to remain at 4.3%. 

Average hourly earnings increased, though not as much as economists had predicted. This unusual combination – healthy labor market growth accompanied by paltry wage gains – prolongs a pattern that has puzzled investors and vexed federal policymakers for the past eighteen months. The probability that the Federal Reserve will raise interest rates at its December meeting fell to thirty-nine percent after the report’s release. Equities climbed as a result.

Despite sluggish earnings growth, monthly numbers released Monday revealed consumer confidence was higher than expected, and had increased since July.  Personal spending increased this month, at a faster clip than in the month before.  And the ISM manufacturing index, which tracks industrial activity, rose to its highest level since June of 2011.  The only bad news came in auto sales. They were down across the board in August. Most analysts blamed Hurricane Harvey, since Houston accounts for a little under two percent of domestic car sales.

The price of crude oil fell 1% this week, to $47 a barrel – down 12% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.3m barrels – and product inventories of gasoline were flat while diesel rose (+0.8m). Hurricane Harvey curtailed a sizeable amount of production in the Eagle Ford play in south central Texas while also curbing imports/exports and shutting down refinery infrastructure.  Those effects likely were not captured in this week’s inventory results, but could materially distort next week’s numbers.

Next week’s economic calendar is comparatively light.  Highlights include July factory orders on 09-5, durable goods orders on 09/05, initial jobless claims on 09/7, and wholesale inventories on 09/08. 

Have a great weekend!

J.M. Hanley

 *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 – August 25, 2017

The Dow finished up on Friday, rising 30 points to close at 21,814. For the week, the Dow rose 0.6% (S&P 500 +0.7%) and year-to-date is now up 10.4% (S&P 500 +9.2%). The indexes’ modest gains follow back-to-back declines, though trading volumes were light in this second-to-last week of August. Somewhat dovish commentary from Fed Chairwoman Janet Yellen, along with incrementally positive economic data, cheered investors. Markets also were buoyed by signs of progress on tax reform. The yield on the 10-year Treasury fell one basis point on the week, closing at 2.18%.

US economic data were mixed this week. New home sales fell by 9% from June to July. Economists had expected the rate to hold steady. Existing home sales, which were expected to increase, declined as well. Durable goods orders dropped 6.8% in July. That was worse than the 6.0% forecast. Lagging aircraft orders weighed on the index. Markit’s manufacturing PMI, which tracks private firms’ economic activity, also came in below estimates. However, the services PMI beat expectations.

Stock and bond markets were pleased with Federal Reserve Chairwoman Janet Yellen’s speech at the Kansas City Fed’s annual Jackson Hole conference. Commentary from other Fed members earlier in the week emphasized ensuring global financial stability after years of low interest rates. Investors were consequently concerned that Yellen would use the speech to hint at a more aggressive approach to raising rates.  However, Yellen didn’t speak about the subject at all. This fits with the Fed’s more measured approach recently, in the face of slower-than-expected inflation. The dollar fell afterwards in currency-exchange trading. 

Elsewhere on the policy front, investors grew more hopeful about the prospects for tax reform.  Headlines this week seemed to indicate that key players have agreed upon the legislation’s main principles. However, concerns persist about Congress increasing the government’s debt ceiling by the end of September.

The price of crude oil fell 1% this week, back below $48 a barrel – down 11% YTD. US crude stockpiles showed an in-line draw of 3.3m barrels. Crude oil showed strength through Wednesday as another week of solid inventory draws brought the cumulative drawdown since March to 85m barrels while Libyan oil fields encountered disruption. However, as Hurricane Harvey moved towards the Texas Gulf Coast, investors became concerned that demand would get dinged more than supply would be curtailed, leading to a price pullback.

Highlights on next week’s economic calendar include the Dallas Fed manufacturing index on 08/28, consumer confidence on 08/29, and revised second-quarter GDP numbers on 08/30. Investors will be most interested in the nonfarm payrolls report, which will be released next Friday 9/1.  Employers are expected to have added 180,000 jobs in August, down slightly from the 209,000 added in July.  Unemployment is expected to stay at 4.3%.

 *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