Receive Weekly Market Updates via Email

shadow

Weekly Update Archives

Weekly Market Update for May 22, 2020

by Jim Ulland

Missed in all of the Covid 19 news this year has been an important change in the Required Minimum Distribution (RMD) from retirement accounts. Because of the Covid financial stress, you are not required to take a distribution from your retirement account. After this year’s pause in the RMD, another legislative change allowed those who have not reached 70.5 years by 12/31/19 to wait until they are 72 years old. In other words, the new required age for an RMD is 72.These distributions are taxable, so unless you need that RMD income, we advise against taking the distribution in 2020. 

This week also restored some of your Covid-depressed portfolio values. The SP 500, which represents large companies, was up 3.2% for the week. The NASDAQ was even more robust, gaining 6% this week and turning green for the year. Small and mid-sized companies did better than large, making up some of their lost ground. Small companies are down about -18% whereas the SP 500 is down -9% since January 1st. Preferred stock, which is the dominant security in our fixed income strategy, was up about 1% for the week, a big move in the fixed income world. 

The economic news was very bad, although somewhat better than expected. Unemployment claims rose by 4.6 million to a total of 22 million, less of an increase than last week. In April, total net jobs lost were 20.5 million creating a 14.7% unemployment rate. Neiman Marcus did the expected and filed for bankruptcy. Labor costs per unit rose as employers kept paying some workers, with help from the federal government, even though they are not working.

So, why did the market go up in the face of some of the worst economic news since the Depression? Historically, the market looks six months ahead to determine what to pay for stocks and fixed income today. What the market sees is Apple reopening its stores, Disney reopening in China, Starbucks now has 85% of its stores open, 16 states are reducing “stay-at-home” restrictions and allowing more businesses to reopen next week, more people are driving, and Uber has more passengers. Although the Covid 19 problem will be with us, there is progress on a vaccine as Moderna gets approval for Phase 2 trials on its leading candidate. No vaccine will be generally available until next year at the earliest, but mass trials will give indications of efficacy this year. Looking six months ahead, investors do not want to miss the market recovery which they feel is coming. Thus, cash is flowing into the market.

The week’s trading continued the trend of declining volatility, which was down 11% on Friday and 30% for the week. Low volatility brings idle cash back into both fixed income and stocks. The SP 500 reflected the decline in volatility as it moved in a relatively narrow upward range of +0.4% on Monday, +0.9% on Tuesday, -0.7% on Wednesday, +1.2% on Thursday, and +1.7% on Friday. 

Our fixed income strategy using preferred stock had a week of further gains. The returns on 10 Year Treasuries ended the week at 0.68% and increase from 0.62%. This rate is exceedingly low compared to the 5.5-6% annual yield on preferreds. Cash is headed to these higher preferred yields. 

Next week will mark the end of most of the Q1 earnings reports. The news focus will be increasingly on business reopenings and less on Covid 19 hospitalizations and deaths. Even the weather will help in that most viruses do poorly as the summer heat returns. 

Both our equity and fixed income portfolios had a great April followed by this impressive start to May. We send all the best this Memorial Day weekend.

*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 May 15, 2020

by Jim Ulland

Sometimes it is more helpful to think of the “stock market” as a “market of stocks.”  This is important when there is wide divergence between sectors of the market or markedly different performance between stocks. Such was the market this week, the worst since early April. For instance the small pharmaceutical company Sorrento announced it had a cure for Covid 19 and the stock went up 170% on Friday. Human trials have not been conducted. The Healthcare ETF (XLV) was up 1% for the week and is flat so far this year. On the other hand, Wells Fargo was down 8.5% this week, about the same as the bank ETF (KBR). So far this year Wells Fargo is down 56% and the bank index is down 38%.  This is a market where you have to be in the right sector and the right stocks in the sector.  

The SP 500 was down 2.3% for the week and 11.3% for the year. The NASDAQ (QQQ) continued its out-performance and was down 1%, staying green for the year at +5%.  Small companies were down 6.5% for the week and 24% so far this year.    

The economic news continued to be dismal.  Unemployment claims rose by 3 million to a total of 25 million, less of an increase than last week. Retails sales in April fell 16% with the worst areas being clothing, gasoline, and bar/restaurants. Groceries was the only category showing an increase. JC Penny filed for bankruptcy.  Increased trade tensions with China also dampened market enthusiasm.

Yet, the news was not all gloomy.  States continued to allow workers to return to work and you can now have your elective surgery.  Consumer confidence was up. Crude oil got back close to $30/bl which will prevent some energy company bankruptcies. Covid 19 tests are more available and employers are incorporating health checks on workers returning.

The week’s trading continued the trend of declining volatility. The SP 500 had two bad days, one of which was Tuesday when Fed Chair Powell raised concerns about the economy, while insisting the Fed would do what is needed: +0.02% on Monday, -2.05% on Tuesday, -1.75% on Wednesday, +1.15% on Thursday, and +0.46% on Friday. 

Our fixed income strategy performance was about a -2%. Bank common stocks were very weak and since banks issue most of the preferreds, this negative sentiment dragged down the preferreds as well.  The returns on 10 Year Treasuries ended the week at 0.64% an increase from 0.62%.  Low rates are expected to continue although the Fed Chairman said negative rates, like in Europe, are unlikely.

Next week the news will focus on business re-openings and any up-tick in Covid 19 spread.

*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 May 8, 2020

by Jim Ulland

The big news this week was the remarkable contrast between the stock and fixed income markets, which were up sharply, while the economic news was terrible. The S&P 500, which represents large companies, was up 3.5% for the week. The NASDAQ was even more robust with a 6% weekly gain and turning green for the year. Small and mid-sized companies did better than large, making up some of their lost ground. Small companies are down about -18% whereas the S&P 500 is down -9% since January 1st. Preferred stock, which is the dominant security in our fixed income strategy, was up about 1% for the week, a big move in the fixed income world.

The economic news was very bad, although somewhat better than expected. Unemployment claims rose by 4.6 million to a total of 22 million, less of an increase than last week. In April, total net jobs lost were 20.5 million creating a 14.7% unemployment rate. Neiman Marcus did the expected and filed for bankruptcy. Labor costs per unit rose as employers kept paying some workers, with help from the federal government, even though they are not working.

So, why did the market go up on the face of some of the worst economic since the Depression? Historically, the market looks six months ahead to determine what to pay for stocks and fixed income today. What the market sees is Apple reopening its stores, Disney reopening in China, Starbucks now has 85% of its stores open, 16 states are reducing “stay-at-home” restrictions and allowing more businesses to reopen next week, more people are driving, and Uber has more passengers. Although the Covid 19 problem with be with us, there is progress on a vaccine as Moderna gets approval for Phase 2 trials on its leading candidate. No vaccine will be generally available until next year at the earliest, but mass trials will give indications of efficacy this year. Looking six months ahead, investors do not want to miss the market recovery which they feel is coming. Thus, cash is flowing into the market.

The week’s trading continued the trend of declining volatility, which was down 11% on Friday and 30% for the week. Low volatility brings idle cash back into both fixed income and stocks. The S&P 500 reflected the decline in volatility as it moved in a relatively narrow upward range of +0.4% on Monday, +0.9% on Tuesday, -0.7% on Wednesday, +1.2% on Thursday, and +1.7% on Friday.

Our fixed income strategy using preferred stock had a week of further gains. The returns on 10 Year Treasuries ended the week at 0.68% and increase from 0.62%. This rate is exceedingly low compared to the 5.56% annual yield on preferreds. Cash is headed to these higher preferred yields.

Next week will mark the end of most of the Q1 earnings reports. The news focus will be increasingly on business reopenings and less on Covid 19 hospitalizations and deaths. Even the weather will help in that most viruses do poorly as the summer heat returns.

Both our equity and fixed income portfolios had a great April followed by this impressive start to May. We send all the best this Mothers’ Day weekend.

*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 May 1, 2020

by Jim Ulland

There was big news on the Covid-19 front as the market closed Friday. The FDA approved for emergency use Gilead’s Covid treatment drug called Remdesivir. Earlier in the week, the leading vaccine from Moderna started trials with high expectations. Moderna is confident enough of success that it is setting up manufacturing facilities in anticipation of approval.

For the second week in a row, the market closed relatively flat. Tech stocks pushed the market higher mid-week on earnings from Facebook, Microsoft, and Google (Alphabet), which had less damage from the business slowdown than what was expected. Friday, the good feelings of the first four days of the week evaporated as Amazon reported impressive revenue and earnings growth only to announce that most of next quarter’s earnings would be spent on Covid related challenges in the work force and on expanding delivery capacity. For instance, home grocery delivery was up 50 times what it had been.

The economic news was bad and in some cases worse than the dismal numbers expected. Unemployment filings were over three million. Manufacturing was at an eleven year low. Gap, Macy’s, and Neiman Marcus were expected to file for bankruptcy. The sons of Minnesota’s former Governor, Mark Dayton, announced they were permanently closing their popular and highly acclaimed restaurant The Bachelor Farmer. Minnesota Governor Walz continued his “stay-at-home” order for another two weeks as the tension between the health of the economy and the health of the citizens continues.

The week’s trading showed declining volatility although volatility was higher on Friday. Low volatility generally means there is less fear in the market and more rational pricing. Large investment firms have reported client cash in accounts on average over 20%. This cash will return to the market as volatility continues to decline. The S&P 500 moved in a relatively narrow range of +1.5% on Monday, -0.5% on Tuesday, +2.7% on Wednesday, -0.9% on Thursday, and -2.8% on Friday. Small company stocks performed better than large, playing “catching-up”. This year, small company stocks are down -22% vs. large 12%.

Our fixed income strategy using preferred stock had a week of further stabilization. The returns on 10 Year Treasuries ended the week at 0.62% whereas the 5.56% annual yield on preferreds is nine to ten times higher and continues to be compelling. Cash will head to these higher preferred yields during the rest of the year.

Next week the big news will be Friday’s jobs report for April. This will follow another terrible report on the filings for unemployment on Thursday. Covid news will continue to have an impact followed by more governors opening parts of their states.

We are delighted to report that Hanna and Nat had a baby boy named Joseph. All are doing well.

*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