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Weekly Market Update for July 10, 2020

by Jim Ulland

Next week the big news will be second quarter earnings as they start to be release. Large banks will be among the first. Bank stocks have been one of the worst performing sectors this year. What the bank CEOs say about the rest of the year will move the market.  We expect bank earnings to be somewhat better than the low expectations that are in the news. Banks will show good fee growth from the Payroll Protection Plan loans/grants and from helping companies issue more debt. The most uncertain figures will be the amount of loan loss reserves the banks will book. This figure is like prepayment for loans that may go bad. If banks say that they do not expect loan loss reserves to increase significantly in the coming quarters, the market will react positively.

Battling for front page headlines will be Covid-19. The spike in cases may become old news quickly when the case curve turns down. Those infected last week were the young drinking and party set. Think college students and those in their twenties who are bored working at home. These cases are generally mild, although those infected can infect others with more serious results. Most do not think either government or the public is willing to “lock down” again. So managing the virus will be the emerging theme.

The government is trying to expedite the development of both a treatment and a vaccine. Novavax was given $1.6 billion to speed the processing and approval of its vaccine. The company hopes to have 100 million doses ready by late 2020…assuming a successful Phase III trial. Four other companies are at the same stage of development as Novavax. A successful vaccine will give the public confidence to return to a more normal life. Reopening of the economy will accelerate and the stock market will move higher. A lot of investment dollars have flown into the post Covid digital economy stocks. Health care also has seen big inflows of funds.

The SP 500 was up 1.76% for the week. Monday was up + 1.59%, Tuesday -1.08%, Wednesday +0.78%, Thursday -0.56%, +1.05% Friday. The NASDAQ continued its record breaking performance, up 4.01%. Preferred stocks, which are the dominant security in our fixed income strategy, were strong as a more positive tone settled over the banks. The 10 Year Treasury yield stayed in a relatively tight band from 0.60% to 0.67%, consistent with the Fed’s goal of keeping rates low. Preferreds with their 5.5% yield pay eight and a half time more than 10yr Treasuries.

Volatility for the week was relatively flat. But Q2 earning for the next three weeks will introduce plenty of volatility. The election is becoming a bigger part of the news and will increasingly affect the direction of the stock market. Calls to reverse the recently passed corporate and individual tax cuts will be a cloud over the market.

Next week, besides the start of Q2 earnings releases, there will be a modest amount of other economic news. The Small business Optimism Survey, CPI, Retail Sales, Housing Starts, and the U. of Michigan Consumer Sentiment Survey. Any of these could move the market.

*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 2nd, 2020

by Jim Ulland

The headline battle continued this week and seemed to get more intense.  It was Covid-19 vs. the economic recovery.

The Covid-19 news was particularly negative, with a spike in virus spread.  Daily front page headlines focused on this issue. When Florida, Texas, and California reopened bars, there was little adherence to social distancing.  Testing increased and the numbers of those infected with the virus increased.  Most of the infected were in the younger age groups, so the physical impact of the infections was milder than seen previously.  Fewer new patients have underlying conditions, which are more common in those from assisted care facilities.

On the other hand, the economic news was almost universally positive.  Nonfarm payrolls rebounded by 4.8 million in June on top of an upwardly revised 2.7 million gain in May.  The unemployment rate fell from 13.3% to 11.1%, better than what was expected.  Weekly jobless claims also were less than expected. Pending home sales jumped 44%. Consumer confidence rose.  June manufacturing increased more than anticipated.

Washington had a peaceful and less partisan week.  The small business support program, called the Payroll Protection Program (PPP), was extended by the Senate and the House is expected to do the same after the two-week break.  The Administration is preparing renewals and creation of additional recovery support programs.  This is occurring around the world and the stock markets have noticed

The SP 500 was up 4.6% for the week.  Monday was up + 1.47%, Tuesday +1.54%, Wednesday +0.50%, and Thursday +1.00%. The NASDAQ continued its record breaking performance, also up 4.6%. Preferred stocks, which are the dominant security in our fixed income strategy, were relatively flat as investors digested the successfully completed Stress Tests on bank health. The 10 Year Treasury yield rose from 0.64% to 0.67%, consistent with the Fed’s goal of keeping rates low.

Volatility for the week declined by 23%.  But the nature of this market is to have period of relatively high volatility. The pace of the economic recovery is uncertain, as is the time it will take to get a vaccine or treatment.  Either of these announcements would be critical factors for the recovery.

Next week, economic news is light.  However, second quarter earnings are coming which will provide forward looking views from most corporations.  Second quarter earnings are expected to be bad and generally will be dismissed.  Forward looking statements will move the market.  But that is more than a week away, so enjoy the Fourth and maybe turn off your cell phone.

*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 June 26, 2020

by Jim Ulland

The results of the Federal Reserve’s “stress test” for banks were released Thursday after the market closed. The banks passed the test! The highlights included a cap on common stock dividends at no more than what is currently paid. These payments in the future will be capped as a percent of profits. No bank dividends are likely to be reduced with the exception of Wells Fargo’s. Share repurchases by banks are also prohibited; however, this was already in place by agreement among the banks. Fed Vice Chair for Supervision Quarles noted the “banking system has served as a source of strength, not strain, in the current crisis.”

Other than the news from the banks, Covid-19 had the most influence on this week’s market. By mid-week the virus was spiking in some of the states that had reopened. Although a higher transmission rate was expected than during the lockdowns, the amount of new spreading surprised most, including the market. The biggest market impact was on Wednesday, when the SP fell 2.6%. Investors had hoped reopenings would continue the brisk pace of the prior week, allowing many in the service industry to return to work. Now the pace of reopening is in doubt. The week also did not have any significant news from the vaccine or treatment trials, which always has the ability to move markets higher.

The week produced mixed economic data. Unemployment claims dropped less than expected. Yet worked still on unemployment dropped by about 767,000. Unfortunately, 19.5 million still remain on unemployment. Inflation stayed low at 1%, but existing home sales declined sharply even with low mortgage interest rates. Durable goods and capital goods orders rose more than expected but consumer sentiment declined, suggesting that consumer spending may slow.

The SP 500 was down 2.9% for the week and stocks seemed more fully valued as rapid reopening prospects dimmed. The NASDAQ had better performance, as has been the pattern, down 1.9%. Preferred stocks, which are the dominant security in our fixed income strategy, were soft as the weaker economic news forced some investors back to cash. The 10 Yr Treasury yield declined from 0.69% to 0.64%, making it even less attractive except as a safe haven.

Volatility for the week played less of a role than previously.

Next week will be a big week for economic news. The jobs report for June will be released Thursday morning at 8:30 CDT, a day early since Friday is a holiday. The amount of new jobs definitely will move the market. The ADP Employment Report will come out the day before, often a signal for what the change will be in the Thursday announcement. Weekly unemployment filings and Continuing Claims (those still on unemployment) will be important. Market sentiment will improve if unemployment filings come in closer to one million, down from 1.5 million this week. It would also be positive if those on unemployment dropped by a million to 18.5 million. On 6/30 the Conference Board will publish the Consumer Sentiment Index, an index of expected consumer purchasing behavior. 70% of US economic growth is generated by consumer spending, so this number will be important. Second quarter earnings reports start in two 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 June 19, 2020

by Jim Ulland

The battle continues between the stock market valuation, which is on the high side, and the Federal Reserve, which has vowed to keep interest rates low while continuing to stimulate the economy with the help of Congress.  There is an old phase, “Don’t fight the Fed.”  The thinking goes that the Fed is so big and has so many resources that it can determine the direction of the economy.  Therefore, if this is correct once again, don’t shelter in cash, but stay invested.  We feel the battle between these two forces will swing back and forth with the market going sideways from here until a treatment or vaccine for Covid-19 is announced.  Then it will take another leg up.

The week showed a continuation of reopening announcements along with somewhat higher numbers of Covid cases in the states with the fastest reopening schedules.  The fact is that cities are running low on funds with diminished sales and lodging tax revenues.  Big cities and most states cannot withstand a continuation of the lockdown policy as revenues drop and expenses to fight the virus stay high.  Therefore, reopening is gaining support.

The economy showed signs of life with new and used car sales higher. Mortgage rates hit another record low helping home building and home sales. In addition, retail and manufacturing were higher in May and China agreed to buy more grain. Grain prices went up. Continuing claims for unemployment also improved; however, there are still 20 million on unemployment.

The SP 500 was up +1.6% for the week and the market was much calmer than the week before. The NASDAQ had better performance, as has been the pattern, up +3.7%. Preferred stock, which is the dominant security in our fixed income strategy, had solidly positive results as well.

The trend of declining volatility resurfaced this week as volatility decreased -5.1%.  The S&P 500 was +0.8% Monday, +1.9% on Tuesday, -0.4% on Wednesday, +0.1% on Thursday and, -0.8% on Friday.

Next week will provide a modest amount of economic news that could move the market. The one item we will be watching most closely is the release of the bank Stress Tests, evaluating how healthy the banks are during this challenging time. This release is 6/25 after the market closes.  Existing and new home sales will be released as will the number of mortgage applications.  All are expected to show strength.  The final reading on Q1 GDP will come out, as will personal spending for May.  Of course the weekly Jobless Claims report will be watched for improvement. The following week another critical Jobs Report will be released hopefully showing more returning to work in June.

Happy Fathers’ Day to all those Dads who wish they had some baseball to watch.

*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