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Weekly Market Update for November 8th, 2019

by JM Hanley

The Dow was up on Friday, rising 6 points to close at 27,681. For the week, the Dow was up 1.2% (SP500 +0.9%) and year-to-date is now up 18.7% (SP500 +23.4%). The yield on the 10-year Treasury (an important interest-rate indicator) rose twenty-four basis points, closing at 1.95%. The price of crude oil rose two percent this week to $57 a barrel – up 26% YTD.

The week brought renewed optimism on the trade deal. The spokesman for China’s Ministry of Commerce said Thursday that the US and China had agreed to eliminate tariffs currently in place after sufficient progress on a trade deal. This optimistic prospect was later tempered by reports of strong resistance to such a move by some in the Administration.

The domestic economic outlook continues to be firmer than expected. Factory orders declined last month. But an important service-sector index rebounded by more than expected, driven by strength in business activity and employment. Consumer sentiment also improved. Confident consumers have been an important contributor to the economy’s resilience. News from Europe has also gotten better. German factory orders and retail sales throughout the Eurozone came in strong this week.

It was another busy week for third quarter earnings reports. Axon, which makes Taser, saw its share price surge today after reporting very positive results. Supply chain problems for the new Taser have been resolved, and shipments are good. Its new body camera, which gives senior personnel a live view, has also proven popular with police chiefs. CVS also did better than expected, and raised its forecast for full-year profits. Management was able to resolve problems that had arisen in its health insurance division (formerly Aetna) last quarter more quickly than anticipated. Trends have also been better than feared at its retail pharmacies.

Fidelity Information Services also put up better than expected numbers, and reported that early signs from recent acquisition WorldPay are encouraging. Merging both firms’ back office functions can save more than originally anticipated, and the management team sees robust opportunities to sell WorldPay’s products to Fidelity’s international customers. Fidelity provides internal software to banks and WorldPay helps process credit card transactions. One-time Fidelity subsidiary Black Knight, which sells software for servicing mortgages, was not so lucky. One of its larger clients opted to depart the platform. Such departures are rare and growth is expected to return to normal the year after next. Finally, Air Lease (which leases passenger jets to airlines) continues to navigate the grounding of the 737 Max well.

Next week is considerably lighter. Tencent is scheduled to report on Friday. So far, 80% of companies in the SP500 have reported. Earnings have been unchanged from last year, which is actually 5% better than expected. This, along with good economic data and the improved trade situation, has accounted for the market’s rise over the last few weeks.

*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 November 1, 2019

by JM Hanley

The Dow was up on Friday, rising 301 points to close at 27,347. For the week, the Dow was up 1.4% (SP500 +1.5%) and year-to-date is now up 17.2% (SP500 +22.3%). The yield on the 10-year Treasury (an important interest-rate indicator) fell nine basis points, closing at 1.71%. The price of crude oil fell less than a percent this week to $56 a barrel – up 24% YTD.

Market reaction to the Fed’s Wednesday meeting was relatively muted.  The Fed cut rates by a quarter point, as expected, marking the third such cut this year. Chairman Powell’s press conference implied it may be the last this year.  Powell noted that consumer spending has remained robust, and that the situation vis a vis Brexit and the US-China trade war had improved.  He suggested it would probably take an abrupt slowing of economic growth, or a dramatic escalation of the trade conflict, for him to change his mind.

Domestic economic data was mostly positive this week. Third quarter GDP grew 1.9%. While this marks a slowdown, it was actually better than expected, though it came more as a result of firms stockpiling inventory than investing in new capabilities.  Today’s payrolls report showed that job creation in October was much better than expected. Moreover, revisions to prior months suggested that an apparent slowdown in the labor market had in fact been illusory. Housing news was mixed: while prices declined (in August), pending home sales rose last month. A national survey of manufacturing poked back into positive territory, albeit by less than expected.

Third quarter earnings reports continued this week. Business is booming at the Chinese ecommerce giant Alibaba, which has proven resilient to the slowdown in China’s economy. The firm’s concerted effort to reach customers outside the largest metro areas, along with improvements to the algorithm that targets ads at shoppers, has paid dividends. Selling ads is also as lucrative as ever stateside, as this week’s results from Google testify. A major upgrade to Google search was one reason why. Facebook also did well, its political travails notwithstanding. Subsidiaries like Instagram are seen as the future growth driver, but this time it was “normal” Facebook that did better than expected.

Electronic Arts, the well-known video game designer, had success with existing franchises but delayed the debut of a new World War II-themed title. Shares of WellCare had been in something like purgatory of late as the private Medicaid administrator waited for a buyout by larger competitor Centene to close. But the firm reported strong earnings as a result of improvements on an old Medicaid contract in Illinois, which boosted its own shares and those of Centene alike.

Fidelity Information Services, CVS, Playa Resorts, Axon, and most of our energy companies 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 October 25, 2019

by JM Hanley

The Dow was up on Friday, rising 153 points to close at 26,958. For the week, the Dow was up 0.7% (SP500 +1.2%) and year-to-date is now up 15.6% (SP500 +20.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose five basis points, closing at 1.8%. The price of crude oil rose 5% this week to $57 a barrel – up 25% YTD.

News from the trade front was limited again this week. Rhetoric from both sides is by turns aggressive and conciliatory, but it’s reported that China will ask the US to suspend the tariffs scheduled to come into effect in December in exchange for additional purchases of US agricultural products. Economic data was a mixed bag. Existing home sales were lower than forecast, while building permits new home sales were about as expected.  Consumer confidence declined slightly. The Fed was quiet, but investors will take a break from earnings and tune in to the Fed’s meeting in the middle of next week.  It’s widely anticipated rates will be cut by another quarter of a point – but it’s uncertain what comes after that.

The week brought a heavy docket of third-quarter earnings reports.  Upgrading Prime members from two-day standard shipping to one day will take a toll on Amazon’s profits during the holiday season.  To develop the capacity for the move, the ecommerce behemoth needs to switch from using third party carriers to delivering most packages itself.  Ambitious bets have a history of paying off in Seattle, so Wall Street took the news better than it normally would have.

Results at Visa were better than expected, as was the firm’s outlook for growth over the next year. Visa’s ubiquity in worldwide spending makes it a useful barometer for the global economy as a whole. The fact that the payments network has seen no weakening over the past few months thus augurs well. According to management, China is one of the few regions facing headwinds, which would be consistent with other recent indicators.

Euronet Worldwide’s otherwise adequate results from managing ATMs were beset by a strong dollar and slowing remittances in the UK caused by the uncertainty surrounding Brexit. Granite Construction gave up much of the ground it had recently gained after a poor report. Three of the firm’s four businesses are doing passably well.  The fourth, which builds roads and other public works, lost money on an array of projects bid several years ago.  The firm has struggled to move beyond this expensive mistake.

Of the one-fourth of S&P 500 companies that have reported, about 80% have done better than expected. Shareholder profits, which had been expected to decline, have instead grown from last year. Next week will be equally busy. Facebook, Google, EA, Solaris, Apple, Alibaba, and Fidelity Information Services are all scheduled to report.

*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 October 18, 2019

by JM Hanley

The Dow was down on Friday, falling 256 points to close at 26,770. For the week, the Dow was down 0.2% (SP500 +0.5%) and year-to-date is now up 14.8% (SP500 +19.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose two basis points, closing at 1.75%.  The price of crude oil fell 2% this week to $54 a barrel – up 20% YTD.

Last Friday, the Administration agreed to suspend tariffs on Chinese goods scheduled to come into effect this week in exchange for China’s purchasing more US agricultural goods. That seemed to signal that negotiations were going well, but plenty of specifics remain to be ironed out. Rumblings about a Congressional resolution supporting Hong Kong’s protestors have apparently upset Beijing. Elsewhere, British and European negotiators settled on a new Brexit deal, though its passage tomorrow in Parliament looks far from assured. Settling this long-running drama would ease some uncertainty across the Atlantic, and could provide a badly-needed fillip to the Continent’s moldering growth prospects.

Economic data this week painted a muddled, but slightly negative, picture of the US economy. Manufacturing data, like industrial production and business inventories, came in slightly worse than expected. Uncertainty due to the trade war seemed mostly to blame. Consumers may share the sentiment, as retail sales didn’t increase as expected last month. More positively, lower interest rates continue to catalyze more home-buying activity, and builders have picked up the pace of new construction as a result. Data on China’s economy is similarly mixed. The economy grew more slowly than expected in the third quarter, but industrial production and retail sales picked up in September.

The first week of third quarter earnings reports went better than feared. Results at JP Morgan were among the highlights. Investment banking and foreign exchange trading were particularly impressive, though lower interest rates have hurt profits from lending. At Goldman Sachs, success on the trading desk was offset by poor performance of the firm’s equity holdings and less lucrative investment banking.  Shares of United Health rose after better-than-expected profits proved the value of the insurer’s diversified business model. Investors had been concerned the cost of healthcare would spike next year, but the management said growth would continue apace.

The pace of earnings will accelerate next week. Centene, Euronet, Amazon, Visa, and 3M are all scheduled to report.

*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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