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Weekly Market Update for August 16, 2019

by Jared Plotz

The Dow was up on Friday, rising 306 points to close at 25,886. For the week, the Dow was down 1.5% (SP500 -1.0%) and year-to-date is now up 11.0% (SP500 +15.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell 20 basis points, closing at 1.54%.  The 30-year Treasury bond dipped below 2% for the first time ever.

The decline in long-term interest rates – while beneficial for excellent-credit consumers and businesses taking out loans – hurts most banks, and sends a strong chill through investors when the “curve” inverts. As a refresh for our readers, the curve is inverted when short-term rates (e.g. 2-yr Treasury) yield a premium to longer-term rates (e.g. 10-yr Treasury), which disincentives banks from lending and slows the economy. The curve inverted briefly intra-day on Wednesday and Thursday morning this week before reversing later in the week. While very few other economic indicators are flashing warning signs, a sustained inverted yield curve has most often been followed by a recession within 12-24 months. So it is a key barometer of investors.

US economic data was largely positive this week amidst the brewing geopolitical issues in a number of regions, with the protests in Hong Kong being the most visible. Inflation indicators were a tad better than expected this week, while retail sales for July strongly outperformed forecasts. Business confidence and manufacturing were also stronger while consumer confidence came in softer.

The price of crude oil rose 1% this week to $55 a barrel – up 21% YTD. Oil prices were pressured by a soft inventory report, but reacted positively to US efforts to put the kibosh on an oil tanker swap between the UK and Iran.  Energy equities trailed the commodity, with domestic producers down 4% and service providers declining 5%.

The market continues to be negatively influenced by the seesawing in trade talks with China. We expect volatility, which spiked this week, to continue to remain elevated in coming weeks even if markets were to move sideways.

*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 August 9, 2019

by JM Hanley

The Dow was down on Friday, falling 91 points to close at 26,287. For the week, the Dow was down 0.8% (SP500 -0.5%) and year-to-date is now up 12.7% (SP500 +16.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell nine basis points to close at 1.74%.

The broad narrative undergirding the market surged back and forth this week. China’s decision to let its currency depreciate as a trade war tactic, and the dramatic rise in the prices of “safe haven” sovereign bonds, spooked investors early in the week. Poor manufacturing data from Germany amplified fears of a global macroeconomic slowdown. Beijing’s subsequent retraction and better news from Germany helped stocks rally mid-week. Signs that the US would take a tough line with Chinese telecom giant Huawei – and news that Europe’s indebted problem child, Italy, is headed for destabilizing elections – ignited fresh uncertainty today.

The price of crude oil fell 2% this week to $54 a barrel – up 20% YTD. US crude stockpiles showed a surprise build – of 2.4m barrels – while product inventories of gasoline (+4.5m bls) and diesel (+1.6m bls) both rose. The negative surprise was driven by a jump in imports along with a decline in exports. The narrowing spread between US and global benchmark prices encouraged Gulf refineries to prefer less US crude. Oil prices fell most of the week on the unfavorable inventories, China’s depreciating currency, and cuts to oil demand forecasts by the IEA. Prices rebounded on Friday as reports suggested that Saudi Arabia was rallying its partner producers within OPEC to explore deeper cuts to export sales. Energy equities trailed the commodity this week, with domestic producers falling by 4% and service providers by 9%.

The week was packed with second quarter earnings reports. The grounding of Boeing’s 737 Max had an impact on Air Lease. The firm, which rents planes to regional airlines, has played it well by swapping some planned Max purchases for a model that’s currently airworthy. But purchases of new aircraft to lease will nonetheless be lower this year. Similarly, the media’s fixation on the Dominican Republic has not helped Playa Resorts, which owns a few properties there. But the stock performed well after the CEO asserted his confidence in long-term growth prospects.

Trucker Daseke disappointed Wall Street’s expectations and lowered its forecast of full-year profitability. A weak market for flatbed trucking was compounded by mismanagement. Axon, which manufactures Taser, had to slow production of the device after a battery supplier encountered unexpected problems. The firm also cut pricing on some new products to encourage clients to give them a try.

CVS, which now includes major health insurer Aetna, performed well this week after it reported a better-than-expected second quarter and increased its forecast of full year profitability. The firm attributed some of its success to a new smartphone app that encourages Aetna clients to take their medications on schedule. That improves patients’ health as well as CVS’s bottom line. Finally, Fidelity Information Services (FIS) also reported a better than expected quarter. The firm has already had success selling WorldPay’s credit card processing services to its banking clients. The acquisition of WorldPay by FIS closed at the end of last month.

*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 August 2, 2019

by JM Hanley

The Dow was down on Friday, falling 98 points to close at 26,485. For the week, the Dow was down 2.6% (SP500 -3.1%) and year-to-date is now up 13.5% (SP500 +17.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell twenty-three basis points to close at 1.84%.

As expected, the Federal Reserve cut interest rates by a quarter point. The unusual mid-cycle cut, enabled by low inflation, was intended as a plum for financial markets (though some market optimists had held out hope for even more). But Jerome Powell almost squashed hope for more cuts at the subsequent press conference. The Fed Chair suggested a steady regimen of rate cuts wasn’t in the cards, which came as an unwelcome surprise to Wall Street.

But this rate news, and the ensuing volatility on the Treasury yield curve, were swiftly overtaken by the Administration’s decision to impose tariffs on more Chinese imports. Negotiating tactic or not, the duties (mostly on consumer goods) stand a decent chance of coming into effect September 1st. China’s economic prognosis has improved recently, so Beijing may feel less pressure to make concessions. The resulting increase in consumer prices could slow America’s economy. Now investors’ hopes for an aggressive schedule of rate cuts are back on.

Today’s July jobs report was good. The number of jobs was about as expected, but wages increased quickly, and more people are looking for work.

The price of crude oil fell 1% this week, crossing under $56 a barrel – up 23% YTD. US crude stockpiles showed a greater-than-expected draw – of 8.5m barrels – while product inventories of gasoline (-1.8m bls) and diesel (-0.9m bls) both fell. Oil prices were on an upward grind early in the week on favorable inventories and seething tension in the Middle East, then flattened out mid-week after the Fed rate decision. Prices fell hard Thursday after the White House actions on trade stoked fears of a global slowdown and its negative impact on oil demand. Energy equities had a rough week, with domestic producers falling by 4% and service providers by 6%.

Second-quarter earnings continued this week. Granite Construction has seen costs run higher than expected on some major government projects. A judge’s decision to leave Granite with a larger share of expenses on a contested contract didn’t help either. Elsewhere, iPhone sales weren’t as bad as feared, aided in part by China’s improving economy. Success with the Apple Watch and wireless headphones also helped. These boosted as-expected results from Services, which includes music streaming and IT support.

Fintech firm FIS finally completed its acquisition of payment acquirer WorldPay. Shares of WorldPay have been replaced with shares of FIS (and some cash) in equity portfolios.   Finally, cloud computing firm CloudEra outperformed the market considerably today after word that legendary activist investor Carl Icahn had taken a 13% stake in the firm. Icahn has yet to make his intentions for the firm clear.

*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 July 26, 2019

by JM Hanley

The Dow was up on Friday, rising 52 points to close at 27,192. For the week, the Dow was up 0.1% (SP500 +1.71.2%) and year-to-date is now up 16.6% (SP500 +20.7%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis point to close at 2.07%.

Second quarter GDP, out this morning, showed the economy grew a little over 2%. That was better than expected. Consumer spending was the reason why. Business spending was weak, as was inflation. The news heightens the odds that the Fed’s plans for future interest rate cuts will disappoint investors next week. Low inflation has given the Fed leeway for a quarter-point “insurance” cut, but many doubt it’s needed. The strong economy is starting to make anything more look superfluous. But Wall Street seems to think it’s coming.

The price of crude oil rose 1% this week to $56 a barrel – up 24% YTD. US crude stockpiles showed a greater-than-expected draw – of 10.9m barrels – while product inventories of gasoline fell (-0.3m bls) and diesel rose (+0.6m bls). Oil prices bumped along within a narrow band this week. A strong inventory report, the potential expiration of Chevron’s US waivers in Venezuela, and continued tension in the Strait of Hormuz beckoned oil higher. But soft global economic data points and renewed talks between Saudi Arabia and Kuwait regarding a restart of “neutral zone” production capped gains. Energy equities trailed the commodity slightly, with domestic producers falling by 2% and service providers by 1%.

Second quarter earnings season continues to be much better than feared. Most of Big Tech was on the earnings docket this week. Amazon’s bet that delivering items in one day would help it sell more appears to be paying off. But building the capacity to do so is expensive. The cloud computing business, AWS, is facing tough competition from the likes of Microsoft and Google. Management has hired more salespeople to fight the slump, and the heftier payroll is weighing down profit margins. More of the same can be expected next quarter. News was better at Google. YouTube and Google’s own cloud computing product both had good quarters. A temporary break in some expenses meant profits improved significantly. That may not last.

Facebook also had a good quarter by the numbers. Instagram and Facebook Messenger have gotten more popular with users than Facebook itself. The company has also seen growing success selling ads across its entire suite of products. As has recently been typical for Facebook, however, updates on regulatory matters overshadowed the positive print. The Federal Trade Commission is the most recent to tighten the screws. Zuckerberg and co. made it seem as though the worst was behind them. But complying with the rash of regulatory strictures will cost money and dent the firm’s ability to target ads at users.

Strong US consumer spending detailed in today’s GDP report helped Visa’s quarterly earnings. Lower gas prices did not. Uncertainty linked to departing the EU didn’t help business in the UK either.  Euronet Worldwide, operator of ATMs and remittance terminals, similarly felt the pinch from Brexit. New ID requirements for sending a remittance from Walmart also proved to be a headwind.

*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

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