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Weekly Market Update for April 20, 2018

by JM Hanley

The Dow was down on Friday, falling 202 points to close at 24,463. For the week, the Dow rose 0.4% (SP500 +0.5%) and year-to-date is now off 1.0% (SP500 -0.1%). The yield on the 10-year Treasury, an important interest-rate indicator, rose thirteen basis points, closing at 2.96%

Retail sales rose a little last month after falling for the first three months of the year. On the other hand, the housing market slowed. Tariffs, including one on lumber from Canada, have raised the cost of building supplies. Home prices have increased as a result. But American factories are humming along. Over the last two quarters, output has grown at its fastest pace in six years.

The International Monetary Fund released its world economic outlook on Tuesday. The world economy is expected to grow around four percent this year and the next. Tax cuts and higher federal spending will fuel America’s economy. The party is expected to continue until around 2020, when the “bills” for deficit spending will start to come due. It’s anticipated that growth will slow further in 2023, when tax incentives for business spending end.

The Federal Reserve remains sanguine. The San Francisco Fed President argued that concerns over the national debt would eventually increase the cost of longer-dated bonds. More broadly, the Fed reiterated that wage growth and inflation remain slow despite America’s strong labor market. Such conditions justify a more measured approach to interest-rate hikes.

The price of crude oil rose 2% this week to $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise draw this week – of 1.1m barrels – while product inventories of gasoline (-3.0m bls) and diesel (-3.1m bls) also fell more than expected. Stocks of energy companies outpaced the jump in oil this week, rising 4%, but are still trailing the commodity YTD, up 5%.

In addition to the bullish inventory report, oil benefitted from a number of positive news items that more than offset weak (flat y/y) vehicle miles traveled and criticism from the President towards OPEC. Multiple sources suggest the Saudis are targeting $80/barrel crude prices. And crude inventories in the US are now below their 5-year average for the first time since 2014, with global stocks near their average.

Companies continued to report their earnings for the fourth quarter this week. Shares of United Health Group rose after the insurer reported yet another quarter of steady membership growth and lower healthcare costs. And long-suffering General Electric cleared a low bar by reporting better-than expected sales and maintaining its full-year profit outlook. Facebook, Google, Amazon, and Visa, among others, will report earnings next week.

*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 April 13, 2018

by JM Hanley

The Dow was down on Friday, falling 123 points to close at 24,360. For the week, the Dow rose 1.8% (SP500 +1.7%) and year-to-date is now off 1.5% (SP500 -0.7%). The yield on the 10-year Treasury, an important interest-rate indicator, rose five basis points, closing at 2.83%. Energy, technology, and healthcare firms performed particularly well. Banks, utilities, and industrial companies underperformed.

American consumers grew a little more bearish on the economy last month. Higher interest rates and trade disputes have taken a toll. They’re still quite optimistic by historic standards. Inflation also chugged a bit higher in March. Healthcare, housing, and transportation all cost more. With the economy growing at a healthy pace, members of the Federal Reserve cautioned they might need to raise interest rates more forcefully to tame inflation.

The price of crude oil rose 8% this week to $67 a barrel – up 11% YTD. US crude stockpiles showed a surprise build this week – of 3.3m barrels – while product inventories of gasoline rose (+0.5m bls) and diesel fell (-1.0m bls). Despite the negative inventory report, oil showed considerable strength as conflict in the Middle East has surfaced and global oil demand has been robust.

Yemen launched unsuccessful drone strikes on a Saudi Aramco oil refinery in Jazan, while Saudi Arabia intercepted ballistic missiles over Riyadh. An oil tanker and airport were also targeted in the past week. Such attacks raise supply risks at the same time that OPEC production has dipped lower and estimates of demand are being revised higher by most agencies. Energy producers kept pace with the jump in oil this week, rising 8%, but have been lackluster YTD, up 1%.

America’s largest banks reported their first-quarter earnings today, signaling the start of earnings season. Profits in Wells Fargo’s core business disappointed expectations. Moreover, the bank continues to wrangle with sanctions, decrees, and fines new and old imposed by regulators after Wells Fargo violated consumer lending laws. Rising interest rates also cramped the sizable mortgage lending unit.

JP Morgan did much better. Modest loan losses, improved trading revenue (thanks to the volatile stock market), and the corporate tax cut helped it post the largest quarterly profit ever recorded by an American bank. United Health Group, Goldman Sachs, and General Electric, among others, will report earnings next week.

*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 April 6, 2018

by JM Hanley

The Dow was down on Friday, falling 572 points to close at 23,933. For the week, the Dow fell 0.7% (SP500 -1.4%) and year-to-date is now off 3.2% (SP500 -2.6%). The yield on the 10-year Treasury, an important interest-rate indicator, was up slightly, closing at 2.78%. Consumer staples and consumer discretionary stocks did well. Tech, healthcare, industrials, and financials weighed on the market.

As China and America continue to squabble over their trading relationship, Wall Street remains wary. On Tuesday evening, the US Trade Representative released a proposal to levy tariffs on an additional $50 billion in Chinese manufactured goods. China, in turn, proposed its own tariffs on $50 billion worth of imports from America. The Administration responded to China’s gambit with an announcement that it was considering duties on an additional $100 billion of imported goods. Since none of these proposals has been enacted, the received wisdom dismissed these announcements as a negotiating tactic as the world’s two largest economies hammer out a new trading relationship. But the prospect of more such announcements in the following weeks, and accompanying uncertainty, dismayed investors.

For the first time in a long time, today’s jobs report disappointed. 103,000 workers were added to payrolls last month. That marked a slowdown from the torrid pace of job creation in the first two months of the year. The silver lining is that inflation pressure may ease. Average earnings rose only slightly. Labor force participation fell, while unemployment and the length of the average work week were unchanged. In other economic news, March car sales were better than expected, a beneficiary of buoyant consumer spending. Manufacturing managers continue to report that labor shortages and high raw material costs have cramped productivity.

The price of crude oil fell 4% this week to $62 a barrel – up 3% YTD. US crude stockpiles showed a surprise draw this week – of 4.6m barrels – while product inventories of gasoline fell (-1.1m bls) and diesel rose (+0.5m bls). Despite the positive inventory report, oil was weak as tensions between Saudi Arabia and Iran caused energy investors to question the stability of the OPEC agreement. Also pressuring the commodity and equities were soft vehicle miles traveled in January and the announcement of Bahrain’s largest ever oil discovery in the Middle East.

Highlights on next week’s economic calendar include small business optimism on 4/10, CPI inflation data on 4/11, and the University of Michigan’s consumer sentiment tracker on 4/13.

*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 March 29, 2018

by JM Hanley

The Dow was up on Thursday, rising 255 points to close at 24,103. For the week, the Dow rose 2.4% (SP500 +2.0%) and year-to-date is now off 2.6% (SP500 -1.2%). The yield on the 10-year Treasury, an important interest-rate indicator, fell five basis points, closing at 2.78%.  Stock-market volatility may be driving the risk-averse towards the relative safety of US government bonds. That would depress yields.

It was an odd week.  After last week’s sharp downturn, major indexes swung back and forth, yet there was little news of substance. Word that the US and China were negotiating on trade issues soothed fears of a trade war between the world’s largest economies.  However, concern persisted that more regulation is in the cards for big tech companies.  Facebook’s stock actually recovered some of the ground it lost last week.  Instead, it was Amazon who suffered most from bad headlines.  Comments from the White House suggested heightened scrutiny of the ecommerce giant’s taxes and market share.

The jury is still out on whether more cumbersome tech regulations will materialize. Yet the largest tech companies are quite big; alone, they make up 11% of the SP500. Volatility in the sector has an outsized impact on the market.

The economy remains in (apparently) robust health. Economists now estimate that it grew nearly 3% in the fourth quarter.  Personal incomes are up. Consumers report feeling better about the economy than they have since 2004. As a result, they’re spending more – 0.2% more this month, specifically – and inflation is on the rise. The PCE, the Fed’s favorite inflation indicator, has reached a twelve-month high.

The price of crude oil fell 1% this week to $65 a barrel – up 7% YTD. US crude stockpiles showed a smaller-than-feared build this week – of 1.6m barrels – while product inventories of gasoline (-3.5m bls) and diesel (-2.1m bls) saw large draws. Saudi Arabia suggests that the Aramco IPO is once again slated for later in 2018, while OPEC members are looking to keep their output deal in place through year end. A rise in geopolitical risk (i.e. Iran) is also increasingly being priced in to oil lately.

E&P performance was a bit bifurcated this week following announcement of the largest upstream M&A transaction since 2012.  In the Permian, Concho Resources (a larger-cap) proposed to buy RSP Permian (a small/mid-cap) in an all-stock transaction.  This pressured our large-cap positions (APC & DVN) while boosting our small-cap position (CPE) as investors speculated more industry transactions would follow.

The market, and our offices, will be closed tomorrow in observance of Good Friday.

*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.

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Ulland Investment Advisors

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