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Weekly Update Archives

Weekly Market Update – July 21, 2017

The Dow finished down on Friday, falling 31 points to close at 21,580. For the week, the Dow fell 0.3% (S&P 500 +0.5%) and year-to-date is now up 9.3% (S&P 500 +10.4%). The yield on the 10-year Treasury fell 2 bps Friday to 2.24%, down 9 bps for the week.

US economic data were positive this week. June housing starts (1.22m annualized pace) and permits (1.25m annualized pace) came in stronger than expected, and May starts were revised higher. Weekly jobless claims came in at 233,000, better than expectations. The Conference Board’s June US Leading Economic Indicators grew 0.6%, above forecasts of +0.3%.

The markets largely ignored president-related headlines this week, as well as the failure of the Senate’s repeal & replace healthcare proposal. Senate Majority Leader McConnell is pushing ahead with a “repeal now, replace later” plan, but focus amongst investors and many politicians is already shifting to tax reform. Top negotiators are reportedly targeting a corporate tax rate in the 20-25% range versus 15-20% previously. House Speaker Ryan thinks a 20% rate funded by closed loopholes and special interest deductions is possible, with no mention of a border adjustment tax. Outside the US, attention remains on when the ECB will discuss tapering scenarios this fall.

The price of crude oil slid 2% this week to just under $46 a barrel – down 15% YTD. US crude stockpiles showed a larger-than-expected draw – of 4.7m barrels – and product inventories of gasoline (-4.5m bls) and diesel (-2.2m bls) declined as well. Oil prices were pressured by reports suggesting OPEC compliance fatigue with the group cut (including a possible exit by Ecuador) as well as group production increases in July. OPEC and non-OPEC countries will hold a joint technical committee meeting on Monday in Russia to discuss compliance with the cut agreement and current views on the oil market rebalance.

Next week’s economic calendar is busy, including June existing home sales on 7/24, July consumer confidence on 7/25, the FOMC rate decision on 7/26, June prelim durable goods orders on 7/27, and the market-moving Q2 advance GDP report on 7/28. Existing home sales are expected to slow sequentially, along with consumer confidence. The Fed is expected to keep the Fed Funds Rate target unchanged at 1.00-1.25%. Then on Friday, Q2 GDP is expected to show growth of 2.5%, a pickup from 1.4% seen in Q1.

*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 – July 14, 2017

The Dow finished up on Friday, rising 84 points to close at 21,637. For the week, the Dow rose 1.0% (S&P 500 +1.4%) and year-to-date is now up 9.5% (S&P 500 +9.8%). The yield on the 10-year Treasury was flat Friday at 2.32%, down 6 bps for the week. Some investors are questioning whether there is a concerted effort by advanced economies’ central banks to tighten global monetary conditions and whether the bar of preconditions for further tightening is being lowered. It does appear so thus far.

Despite the upwards movement in the major stock indices this week, US economic data was incrementally negative. The NFIB Small Business Optimism Index was still strong, but sequentially ticked down below expectations. Inflation data came in a bit weaker, but remains in the 1.5-2.0% range. Retail sales disappointed and declined from last month’s pace. Capacity utilization and consumer sentiment also came in weaker.

Fixed income markets rose slightly this week as the underlying economic data mentioned above was a bit weaker; however, the move was volatile. Bonds declined on Thursday as rates rose when a report by the Wall Street Journal suggested the European Central Bank (ECB) may signal a wind down strategy for its quantitative easing program soon. They speculated this could occur at the Federal Reserve’s Jackson Hole conference in August or at the ECB policy meeting in early September. Then on Friday, bonds rose and rates were down most of the day when a Reuters report called into question this timing and economic data (inflation, retail sales) disappointed.

The price of crude oil rose 5% this week to over $46 a barrel – down 13% YTD. US crude stockpiles showed a larger-than-expected draw – of 10.7m barrels – with product inventory of gasoline down (-1.6m bls) and diesel up (+3.1m bls). Oil prices finished up every day this week as global inventories marked a decline. The IEA also revised up their oil demand growth estimate for 2017 and are projecting strong growth for 2018 as well.

Next week’s economic calendar highlights will include June housing starts on 7/19, weekly jobless claims on 7/20, and June leading economic indicators on 7/20. Housing data is expected to tick up along with leading indicators. Initial jobless claims are expected in the 240,000-250,000 range versus the YTD low of 227,000 (in February) and high of 261,000 (in March). Q2 earnings reports will be released in larger numbers next week, including reports by UnitedHealth, Bank of America, Goldman Sachs, and Citigroup.

*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 – July 7, 2017

The Dow finished Friday rising 94 points to close at 21,414. For the week, the Dow was up 0.3% (S&P 500 +0.1%) and year-to-date is now up 8.4% (S&P 500 +8.3%). It was a quiet holiday week ahead of second-quarter earnings season, though strong payroll and domestic manufacturing data helped bolster equities faced with valuation concerns. The yield on the 10-year Treasury rose 2 basis points on Friday to 2.38%, up 9 bps for the week.

We view the start of Q3 as favorable for fixed income.  The yield on the 10yr.Treasury has fallen from January through June, Q1 GDP is barely above 1% annualized, the schedule for major tax reform is pushed out as is that for an infrastructure initiative, and wage growth and inflation are contained. 

US economic data this week were generally positive.  June employment data, released Friday, showed an impressive 222,000 increase in nonfarm payrolls, 25% better than analysts’ consensus estimate. Gains in the previous two months were also revised upwards by 47,000.  However, the topline outperformance did not translate to wage growth: average hourly earnings rose 0.2%, less than the 0.3% forecast (annualized growth of 2.5% also missed 2.6% estimates). The labor force participation rate ticked up to 62.8%; unemployment rose by the same to 4.4%. In other news, the ISM manufacturing index ticked up to 57.8 in June, 5% better than analysts’ estimates, marking its highest level since August of 2014.  The details of the report showed strong demand, an improving employment picture, and an uptick in new orders.  Fifteen of the eighteen industries included in the index expanded in June, while only three – apparel, textiles, and metals – contracted.  Light vehicle sales declined for a sixth straight month in June, albeit not as badly as feared.  Auto stocks were up on the news.

The minutes of the Federal Reserve’s Open Market Committee, released this week, showed the Fed staying the course on rate hikes and balance-sheet normalization. Depending on the data, we expect one more 25bp raise in Fed Funds this December.  Although the Fed plans to reduce its balance sheet, which will reduce their purchases of government securities, we believe the Fed when it insists this will be done gradually. The start of this effort could be Q4 of this year.  The Fed’s action may be offset by security purchases from others engaged in a “flight to safety” strategy as the conflict between North Korea and the rest of the world heats up. For the rest of the year, we expect interest rates to slowly grind higher. 

The price of crude oil fell 3.6% this week to $44 a barrel – down 17% YTD. An eight-day rally ended abruptly mid-week, followed by a steep 6% drop in prices.  Crude stockpiles showed a much better-than-expected draw of 6.3m barrels (estimates had the draw at 2.1m).  However, domestic production rose sharply. Investors are growing increasingly skeptical about the effectiveness of a deal between OPEC and other major exporters to reduce production. 

Next week’s economic calendar will include the NFIB Small Business Optimism Index on 7/11, June inflation on 7/14, retail sales on 7/14, capacity utilization on 7/14, and consumer sentiment, also on 7/14.

*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 – June 30, 2017

The Dow finished up on Friday, rising 63 points to close at 21,350. For the week, the Dow fell 0.2% (S&P 500 -0.6%) and year-to-date is now up 8.0% (S&P 500 +8.2%). Once again the market lacked direction, with a Thursday morning Technology-led slide giving way to a late week rally following positive headlines in the Financials sector. The yield on the 10-year Treasury rose 7 bps on Friday to 2.30%, up 16 bps for the week. Globally, central bankers spoke of dialing back stimulus support as economies continue to improve, which should support a pickup in inflation.

US economic data was largely positive this week. Housing data for pending homes was slightly disappointing while durable goods orders were weak; however the rest of the data looked good. Both measures of consumer confidence showed sequential improvement. Personal income and spending for May were slightly ahead of expectations, while the third (and final) Q1 GDP estimate revision surprised to the upside. Q1 GDP expanded at a 1.4% rate versus a 1.2% prior estimate and 0.7% initial (first read) estimate. Recent positive revisions were driven by stronger consumer spending (albeit still subdued) and greater exports. In China, data also upwardly surprised as both manufacturing and non-manufacturing PMI’s showed sequential improvement, along with strong new orders.

The Fed released solid results from the Dodd-Frank stress tests (DFAST) last week and this week they kept the positive Financials vibe going by approving the capital plans of all banks participating in the Comprehensive Capital Analysis and Review (CCAR). Some investors were worried that Wells Fargo might fail the qualitative test, which they passed. J.P. Morgan was one of the clear winners with their capital plan, announcing an intent to repurchase $19.4bn of equity and pay $7.6bn in dividends over the next 12 months, for a total of $27bn returned to shareholders. That represents more than a 50% increase versus the 2016 plan and dramatically outpaced analyst estimates. We own equity (and fixed income) positions in both of these companies, and both equities were up over 5% this week.

The price of crude oil rose 7% this week to $46 a barrel – down 14% YTD. Crude stockpiles showed a smaller-than-expected draw – of 1.3m barrels – but product inventory of gasoline (-0.9m bls) and diesel (-0.2m bls) both fell as well. Oil finished off its seventh straight day of gains Friday with global inventories continuing to draw. While investor sentiment has become very bearish, there are a number of cyclical catalysts that could push prices higher and we see geopolitical risks among oil-producing countries rising as well.

Next week’s economic calendar highlights will include June manufacturing indices on 7/3, June automotive retail sales on 7/3, the release of the June FOMC minutes on 7/5, and the June jobs report on 7/7. Manufacturing activity is expected to improve, auto sales should remain flat, and the jobs report is expected to show sequential improvement (+180k jobs added) from the disappointing May report (+138k).

We’d like to point out that this coming Monday we will be closing for the day at 1 p.m. CT and the office will not reopen until 8 a.m. on Wednesday morning. If you’d like to speak with us next week, please take note.

*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