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Weekly Market Update for August 10, 2018

The Dow finished down on Friday, falling 196 points to close at 25,313. Energy was the only positive sector on the day. For the week, the Dow fell 0.6% and year-to-date is now up 2.4%, while the S&P 500 posted its first weekly decline (-0.2%) in six weeks (+6.0% YTD). The yield on the 10-year Treasury (an important interest-rate indicator) dropped six basis points on Friday to 2.87%, and was down eight basis points for the week, further flattening the yield curve.

It was relatively quiet on the US economic data front this week other than some inflation readings. On Friday, July core CPI inflation rose 0.2% month over month, in line with estimates; however, the annualized gain of 2.4% was the largest reported since 2008. Despite this metric supporting the Fed’s plan for two more rate hikes this year, we saw a fall in the 10-year yield. The yield was likely pressured by a flight to safety in the midst of shakiness in emerging market currencies and announced US sanctions on Russia.

The price of crude oil fell 1% this week, crossing through $68 a barrel – up 12% YTD. US crude stockpiles showed a smaller-than-expected draw – of 1.4m barrels – while product inventories of gasoline (+2.9m bls) and diesel (+1.2m bls) both rose. Oil prices were holding up well before a sharp $3 move lower on Wednesday driven by China demand concerns. China crude oil imports have slowed dramatically since May while fear of a potential Chinese-proposed tariff on US gasoline and diesel stoked geopolitical demand risk. The inventory report added fuel to the fire.

In our busiest week of second-quarter earnings, we saw strong reports out of Hortonworks, CVS, NuStar, and Daseke.  Hortonworks, a relative new equity name in our portfolios, jumped over 25% following their big, beat & raise report driven by accelerated revenue growth and expanded partnerships with major cloud players. Axon Enterprise had a rougher week despite a very solid report as sentiment had gotten a bit ahead of the stock fundamentals in recent months. Next week, we will see quarterly results from a pair of our Chinese companies, Tencent and Alibaba. With the large majority of company earnings reports now in the books and few economic data points in the coming weeks, the balance of summer may feel quite slow.

 

*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 3, 2018

by JM Hanley

The Dow was up on Friday, rising one hundred thirty-six points to close at 25,463. For the week, the Dow rose 0.1% (SP500 +0.8%) and year-to-date is now up 3.0% (SP500 +6.2%).

Threats continued to fly in America’s trade skirmish with China. Washington is mulling an increase in its duty on Chinese goods from 10% to 25%. However, cooler heads may temporarily prevail. Both sides have struck a conciliatory tone in recent communiques. Additionally, China announced it wouldn’t devalue its currency to offset the tariffs.

The economy added 157,000 jobs last month. While that was fewer than analysts expected, more jobs were added in May and June than originally thought. Unemployment remains at 3.9%. Earnings are still growing. Partially as a result, consumer confidence reached a new high. Consumers have, however, grown more pessimistic about the near future. Their caution may be warranted. Surveys of managers reflect a business environment that is still favorable. But the cost of rapidly-growing wages is being passed to business customers in the form of higher prices. Fresh uncertainty about international trade hasn’t helped.

The yield on the 10-year Treasury (an important interest-rate indicator) was up one basis point, closing at 2.95%. The 10 Year yield briefly crossed 3% again in the middle of the week, after the Bank of Japan raised its interest rates. Yields subsequently retreated. Today’s uninspiring jobs data helped push them back up.

The price of crude oil was flat this week at $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise build, of 3.8m barrels, while product inventories of gasoline fell (-2.5m bls) and diesel rose (+3.0m bls). Despite very high refinery utilization (96%), a sizable drop in exports (driven by a narrower Brent-WTI spread) drove the inventory build, particularly along the Gulf Coast. Oil prices rose strongly on Monday as a draft plan to weaken Obama-era fuel efficiency standards was released, which, if enacted, could theoretically increase gasoline demand. The commodity later reversed course following the unfavorable inventory report and a move higher in the US dollar. Oil then received a late-week bump when Iran began a major naval exercise near the Strait of Hormuz.

Traders rewarded Anadarko Petroleum after the oil driller pumped out more and kept expenses under control. The same couldn’t be said for Devon Energy, which reduced its revenue outlook for the year.

The market witnessed a major milestone Thursday when Apple became the first company to exceed a million dollars in market capitalization. The firm reported strong sales of the iPhone X and rapid growth in its Services business, and raised its profit outlook for the year. Hortonworks, Ebix, Callon Petroleum, Playa Resorts, and CVS, 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 July 27, 2018

by JM Hanley

The Dow was down on Friday, falling seventy-six points to close at 25,451. For the week, the Dow rose 1.6% (SP500 +0.6%) and year-to-date is now up 3.0% (SP500 +5.4%). The yield on the 10-year Treasury (an important interest-rate indicator) was up six basis points, closing at 2.96%.

Once again, this week brought a litany of rumors, threats, and retractions as Washington renegotiates the nation’s trading relationship with Europe and China. Jean-Claude Juncker, president of the European Union, agreed to work towards eliminating tariffs on most industrial imports from the US. He also said the EU would purchase more American soybeans and natural gas. The agreement was light on details. In response, the Administration shifted plans for 25% tariffs on auto imports to the back burner.

America’s economy grew 4.1% in the second quarter. Consumers are spending more, and businesses are investing. Sales of existing homes proved the only weak spot.

The price of crude oil rose 1% this week at $68 a barrel – up 14% YTD. US crude stockpiles showed a larger-than-expected draw, of 6.1m barrels, and product inventories of gasoline (-2.3m bls) and diesel (-0.1m bls) also fell. Oil prices dropped on Monday as the US dollar gained versus global currencies, but the commodity later rebounded on the favorable inventory report and a turn lower in the dollar. Tensions remain inflamed between the US and Iran, as the latter reiterates threats to close the Strait of Hormuz while the former looks to snap back additional economic sanctions ten days hence.

This week’s earnings calendar brought a few surprises. Shares of Facebook suffered a substantial decline after it reported second-quarter earnings Wednesday evening. Fewer users are logging in on a daily basis. Advertising revenues have suffered. Even worse, the firm said the growth of revenues would slow in the second half of the year, even as expenses rise. New privacy regulations have taken a toll. But Facebook’s capacity to target advertising is still unmatched. Shares of the rapidly-growing social media behemoth remain attractively valued by the standards of big tech.

News from Amazon was better. The company’s most profitable divisions – cloud computing, advertising, and subscriptions – have bolstered profits across the firm. In the financial sector, Visa reported healthy growth. That apparently sufficed to justify the outsize gains in its share price this year. The acquisition of Visa Europe (a recent acquisition) is ahead of schedule. Anadarko Petroleum, Devon Energy, and Chimera, 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 July 20, 2018

by JM Hanley

The Dow was down on Friday, falling six points to close at 25,058. For the week, the Dow rose 0.2% (SP500 flat) and year-to-date is now up 1.4% (SP500 +4.8%). The yield on the 10-year Treasury (an important interest-rate indicator) was up seven basis points, closing at 2.90%.

Testifying before Congress, Federal Reserve Chairman Jerome Powell predicted that the labor market would remain strong for the next few years. This could keep inflation around 2%. Powell added that the uncertain climate for international trade could discourage companies from raising their workers’ wages and investing in their businesses.

Powell’s comments followed the release of the Fed’s semi-quarterly report. The “Beige Book” noted that manufacturers across the country are worried that tariffs will disrupt their supply chains. Otherwise, they said, higher supply and labor expenses have compressed their profit margins, but the costs largely were not being passed to consumers.

Consumer spending accelerated in the second quarter. But after accounting for the higher price of fuel, retail sales increased only modestly. Clothing and department stores are still losing the battle with Amazon. In other news, it’s still a seller’s housing market. Homebuilders aren’t really building more to meet demand. Construction materials have gotten expensive and qualified workers are hard to come by in today’s tight labor market.

The price of crude oil fell 4% this week to $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise build, of 5.8m barrels, while product inventories of gasoline (-3.2m bls) and diesel (-0.4m bls) both fell. The week’s entire $3 drop in oil occurred on Monday as the WSJ broke news that the White House and Western officials were “actively accessing whether to dip” into the country’s Strategic Petroleum Reserve (SPR) to “ensure oil markets remain well supplied amid a host of production disruptions” globally.

The Journal also suggested that US sanctions on Iran may not ultimately knock these barrels off the market. Instead, China may “vacuum up” barrels that others won’t buy, soothing the impact on prices. Despite the 4% decline in the commodity, the stock prices of domestic oil producers held firmer, dropping only 2% this week.

United Health Group expanded profit margins and increased its forecast earnings this year. It wasn’t quite enough to satisfy high expectations for the nation’s largest health insurer. General Electric continues to struggle. While the company has had success in getting expenses down, reorganizing its Power business has presented more of a challenge. Facebook, Amazon, Visa, and Granite Construction, 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.

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Ulland Investment Advisors

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