Receive Weekly Market Updates via Email

shadow

Weekly Update Archives

Weekly Market Update – May 26, 2017

The Dow finished down on Friday, falling 2 points to close at 21,080. For the week, the Dow rose 1.3% (S&P 500 +1.4%) and year-to-date is now up 6.7% (S&P 500 +7.9%). The yield on the 10-year Treasury was off 1 bp on Friday at 2.25%, but ended the week up 2 bps. Through Thursday, May 25, our trust preferred portfolios were up over 2.7% YTD, substantially more than the Barclays Aggregate Bond Index, which was up 2.1%.

Most US economic data came in soft this week, absent a positive GDP revision. New and existing home sales were below expectations and fell sequentially. Preliminary US PMI and consumer sentiment were a bit shy of forecasts. But the Q1 GDP revision was a positive surprise – showing +1.2% annualized q/q growth in Q1 vs. the 0.9% initial estimate released a month ago. This revision showed stronger non-residential fixed investment and larger personal consumption expenditures.

Most investors were surprised this week with the speed of the market snapback following last week’s political noise. Despite policy expectations that have been either pushed out or severely dialed back, investors returned to a “buy the dip” attitude – particularly for stocks outside the US. While US funds continue to move out of equities into investment-grade bonds, investors have been bidding up stocks of large-cap technology companies like Facebook and Google (both +4% this week), where we hold material positions.

The price of crude oil fell 2% this week to slightly under $50 a barrel – now down 7% YTD. The EIA reported that crude stockpiles declined this week – by 4.8m barrels – and also that product inventories of gasoline (-0.8m bls) and diesel (-0.5m bls) declined as well. A third consecutive “dual confirmation” of draws (i.e crude & gasoline), along with an announced nine-month extension of the OPEC production cut at the organization’s meeting this week, failed to push crude oil prices higher. The small fall in prices doesn’t signal any change in supply and demand fundamentals but instead is a result of repositioning among short-term traders following the OPEC meeting.

Next week’s economic calendar highlights will include April personal income and spending (5/30), May consumer confidence (5/30), May ISM manufacturing index and automotive retail sales (6/1), and the May employment report (6/2). Personal income and spending are expected to show a small sequential uptick in growth; ISM and automotive sales are expected to be similar to last month; and the employment report is expected to show a slight downtick in new job growth.

Have a great weekend!

Weekly Market Update – May 19, 2017

The Dow finished up on Friday, rising 141 points to close at 20,804. For the week, the Dow fell 0.4% (S&P 500 -0.4%) and year-to-date is now up 5.3% (S&P 500 +6.4%). The yield on the 10-year Treasury was unchanged on Friday at 2.23%, but ended the week down 10 bps.

US economic data were mostly soft this week. April housing starts (1.17m annualized pace) and permits (1.23m annualized pace) came in weaker than expected. The Conference Board’s April US Leading Economic Indicators grew 0.3%, below forecasts of +0.4%. Industrial capacity utilization was the bright spot at 76.7% versus a 76.3% forecast.

The Trump-Comey saga continued this week, culminating Wednesday with a heavy sell-off in the equity markets, the third biggest drop (1.8%) over the past year. Investors have increasingly viewed these headlines as complicating the implementation of policy reform, particularly the pro-growth initiatives.  Congress now has less than forty working days before the August recess. This contributed to the mid-week selling pressure particularly in stocks of cyclical companies. US equities saw their third straight week of outflows, while bonds continue to see inflows in tandem with the decline in interest rates.

What looked like a turnaround in Brazil’s economy this year – after newly-appointed, pro-growth President Temer took the helm – is now looking like a potential mess after corruption allegations surrounding the President took the market 10% lower on Thursday, wiping out the bulk of their YTD gains. At the margin, this pressure could bleed over into major trading partners, China and the US.

The price of crude oil rose 6% this week to over $50 a barrel – now down 6% YTD. The EIA reported that crude stockpiles declined this week – by 2.5m barrels – and also that product inventories of gasoline (-0.4m bls) and diesel (-2.0m bls) declined as well. Another double confirmation of draws (i.e crude & gasoline), along with statements by Saudi Arabia/Russia committing to a 9-month extension of their production cut pushed crude prices higher. The market consensus is that the OPEC’s cut gets extended on May 25, while the option of deepening the cut is likely being considered within the organization.

Next week’s economic calendar highlights will include more housing data with April new home sales (5/23) and existing home sales (5/24), along with a preliminary Markit US PMI (5/23), FOMC minutes from their May 3rd meeting (5/24), and the second reading of US Q1 GDP (5/26). The GDP data is expected to reveal growth of 0.9% on an annualized rate, a potential upward revision to the initially released 0.7% growth rate.

Have a great weekend!

Weekly Market Update – May 12, 2017

The Dow finished down on Friday, falling 23 points to close at 20,896. For the week, the Dow fell 0.5% (S&P 500 -0.4%) and year-to-date is now up 5.7% (S&P 500 +6.8%). The yield on the 10-year Treasury fell 6 bps Friday to 2.33%, ending the week down 2 bps, driven by weaker inflation and retail sales data.

US economic data was fairly neutral this week. The April NFIB Small Business Optimism Index remains high at 104.5, above the 104.0 expected. The preliminary University of Michigan Consumer Sentiment Index for May was better at 97.7 vs. 97.0 expected. April Inflation data was mixed, with PMI coming in better (core +1.9% y/y) and CPI coming in worse (+1.9% y/y) than predicted. Lastly, the advance retail sales numbers for April were weak, as we expected, at +0.4% y/y or +0.3% y/y when excluding automotive and gasoline sales. This week continued a theme we’ve seen recently of strong “soft” data (e.g. sentiment & expectations surveys) and weaker “hard” data (e.g. gov’t reported numbers). On a stronger note, we are closing in on the end of first-quarter company earnings reports, and according to FactSet, companies’ EPS are growing at a blistering rate of nearly 13% y/y – the highest since 2011.

There has been plenty of political talk this week after the head of the FBI was fired, but the markets viewed this as rather immaterial. Progress of policy implementation by the administration does have impact though, and this week the President offered a little more color on his current tax reform strategy. In speaking with The Economist, he suggested he may no longer pursuing a value-added tax (VAT) such as the controversial border adjustment tax (BAT), that he supports a tax repatriation holiday for corporations at a 10% tax rate (he hadn’t previously given a number), and once again suggested linking tax reform with infrastructure stimulus. Investors generally view those updated positions favorably.

The price of crude oil rose 3% this week to slightly a little under $48 a barrel – now down 11% YTD. The EIA reported that crude stockpiles declined this week – by 5.8m barrels – and also that product inventories of gasoline (-0.1m bls) and diesel (-1.6m bls) declined as well. The double confirmation of draws (crude & gasoline) instilled some positivism in the market and led crude prices higher. Additionally, Saudi Arabia reportedly curbed contracted crude shipments to Asia in June, and some Reuters industry sources suggested the OPEC/select non-OPEC coalition may seek to extend their supply cut by nine months to carry through the seasonally-weaker Q1-18 period. OPEC meets on May 25.

Next week’s economic calendar highlights will include April housing data (5/16), April industrial capacity utilization (5/16), weekly jobless claims (5/17), and April leading indicators (5/18). Housing data is expected to continue improving on strength seen in March; capacity utilization is expected to tick up further; while growth in leading indicators are expected to trend in-line with March.

Have a great weekend!

Weekly Market Update – May 5, 2017

The Dow finished up on Friday, rising 55 points to close at 21,006. For the week, the Dow rose 0.3% (S&P 500 +0.6%) and year-to-date is now up 6.3% (S&P 500 +7.2%). The yield on the 10-year Treasury was up 3 bps Friday to 2.35%, ending the week up 6 bps. As expected, the Fed’s FOMC left rates unchanged at its meeting this week but is still expected to hike two more times this year.

US economic data began the week negative, but ended on a positive note. The April ISM Manufacturing Index at 54.8 missed expectations for 56.5 and declined from 57.2 in March. Automotive sales posted a 16.8m seasonally-adjusted annual rate, below expectations of 17.1m despite ticking up from 16.5m in March. Preliminary Q1 nonfarm productivity declined 0.6% quarter over quarter, more than expected but similar to last year.  Then on Friday, the April jobs report showed strong improvement, with 211,000 jobs added versus an expectation of 190,000.  Unemployment ticked down to 4.4% from 4.5% in March.  Underemployment ticked down to 8.6% from 8.9% in March.  Wages, however, were a little light rising 2.5% year over year.

After a last minute scramble to bring a vote on an ACA replacement, the US House narrowly passed a replacement bill this week.  The focus now shifts to the US Senate, whom will likely craft their own bill and may have a hard time passing given Senate rules.  Our largest equity exposure to changes in the ACA is UnitedHealth Group, which could be hurt if there were declines in coverage but would be a beneficiary of potential reform on health plan taxes (removal of the health insurer fee).

The price of crude oil fell 6% this week to slightly above $46 a barrel – now down 14% YTD. The EIA reported that crude stockpiles declined this week – by 2.4m barrels – and also that product inventories of gasoline (+0.2m bls) and diesel (-0.5m bls) did not move much. A lack of bigger US inventory draws has called into question whether the OPEC production cut will be sufficient to offset the ramp in output from US shale companies.  Many investors now expect OPEC to extend their cuts an additional six months when they meet on May 25th, but some are arguing that deeper reductions are now needed.  Additionally, China appears to be toughening its regulatory and supervisory standards, particularly regarding credit and wealth management products.  This is encouraging deleveraging, security selling, and also contributing to the wider weakness in commodities.

Next week’s economic calendar highlights will include the April NFIB Small Business Optimism Index (5/9), April inflation data (5/11 & 5/12), April advance retail sales (5/12), and the University of Michigan Consumer Sentiment Index (5/12).  Small business optimism and consumer sentiment is expected to remain high, while inflation data should continue in the 1.5-2.0% range year over year. Retail sales may come in light given slowing growth amongst domestic consumers.

Have a great weekend!

 

Ulland Investment Advisors

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