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Weekly Market Update for January 19, 2018

by JM Hanley

The Dow was up on Friday, rising 54 points to close at 26,071. For the week, the Dow rose 1.04% (SP500 +0.9%) and year-to-date is now up 5.5% (SP500 +5.1%).  Tech, healthcare, and retail firms performed well. Telecom companies were weaker.

The yield on the 10-year Treasury, an important interest-rate indicator, rose eight basis points, closing at 2.61%. Economic growth, and a quickened pace of inflation, continue to push yields higher.  Commentary from the Federal Reserve hasn’t had as much of an impact.

It remains unclear if Congress will pass a temporary funding bill by the end of the day.  Some departments of the federal government will shut down if it does not.  We expect either result will have a limited long-term impact on financial markets. Unlike a failure to raise the debt ceiling, a shutdown would not lead the US to default on its obligations to Treasury bondholders. Large portions of the federal bureaucracy responsible for essential functions actually remain open during a “shutdown.”  And shutdowns are normally short, since they become a political embarrassment which party leaders have an incentive to resolve.

The price of crude oil fell 1% this week to $63 a barrel – up 5% YTD. US crude stockpiles showed a larger-than-expected draw this week – of 6.4m barrels – while product inventories of gasoline rose (+3.6m bls) and diesel fell (-3.9m bls). Crude inventories in Cushing, OK continue to decline, now filling just 53% of available storage capacity versus 83% at this time a year ago. Lower storage utilization implies a much tighter market, helping to push oil prices higher. We believe a “catch up” trade for exploration and production companies is still in order given these equities have lagged the move higher in oil over the past six months. While oil fundamentals remain constructive, we will be watching to see the magnitude of the production response in the US amidst these much more economical prices for drilling wells.

More companies reported their earnings for the fourth quarter this week.  United Health Group’s consulting business had more sales and higher profits than forecast.  More importantly, its management said it anticipated profits would be 20% higher this year thanks to the corporate tax cut.  Its stock rose on the news. Bank of America’s earnings were good, but other news was not as positive.  The company must pay a one-time assessment of three billion dollars due to technical adjustments in the tax cut bill.  Goldman Sachs also reported.  Strong numbers from its investment banking and lending departments largely made up for weak performance in its fixed-income and stock-trading operations.  Alibaba, General Electric, and 3M, 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 January 12, 2017

by JM Hanley

The Dow was up on Friday, rising 228 points to close at 25,803. For the week, the Dow rose 2.0% (SP500 +1.6%) and year-to-date is now up 4.4% (SP500 +4.21%).  Banks, energy companies, and industrial firms performed well. Tech companies and utilities were weaker.

The yield on the 10-year Treasury, an important interest-rate indicator, rose eight basis points, closing at 2.53%. This marks its highest point in ten months. Foreign policymakers bear some responsibility. A rumor (later discredited) circulated early in the week that the Chinese government would slow its purchases of American government debt. The Bank of Japan and the European Central Bank seemed to suggest that they would ease purchases of their own governments’ bonds. In the U.S., members of the Federal Reserve indicated they still supported the Fed’s plan for raising interest rates despite below-target inflation.

Rising inflation also accounted for some of the increase in yield on Treasuries. The consumer price index, which tracks inflation, climbed 0.1% in November. Exclude food and energy, and the pace was even faster. Higher oil prices, lower exchange rates for the dollar, and the tax cuts recently signed into law (which will give people and businesses more cash to spend) all contributed. Other signs of a strengthening economy abound. Retail sales increased in December, and small-business optimism remains near all-time highs.

The price of crude oil rose 5% this week to over $64 a barrel. US crude stockpiles showed a larger-than-expected draw this week – of 4.9m barrels – while product inventories of gasoline (+4.1m bls) and diesel (+4.3m bls) moved higher. It should be noted again that given tax maneuvering by companies on the Gulf Coast, inventories typically show volatile swings the first two weeks of January. Crude inventories in Cushing, OK – a key hub that investors watch – continue to decline, now filling just 60% of available storage capacity versus 87% at this time a year ago.

Companies began reporting their earnings for the fourth quarter this week. JP Morgan had good numbers, thanks to better-than expected profits on loans it has made. Wells Fargo’s fourth quarter was not as good. The bank’s overhead expenses were higher than anticipated. It also had to write off substantial bad credit-card debt. United Health Group, Goldman Sachs, and Bank of America, among others, will report earnings next week.

The market, and our offices, will be closed Monday in observance of Martin Luther King, Jr. Day.

*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 January 5, 2018

by JM Hanley

The Dow was up on Friday, rising 221 points to close at 25,296. For the week, the Dow rose 2.3%, while the S&P 500 was up 2.6%. The yield on the 10-year Treasury, an important interest-rate indicator, rose four basis points, closing at 2.45%.  It was a quiet week, as firms and investors prepare for the beginning of fourth-quarter earnings season next week.  Utilities and real estate firms were weaker, facing the prospect of higher interest rates. Tech and energy stocks performed best.  Rising oil prices aided the latter. Enthusiasm about global growth, and a resulting preference for momentum stocks, continued to help the former. Analysts have also noted lower corporate taxes and a more measured approach to regulation as reasons for optimism about 2018.

Today’s December jobs report was mixed. After months of rapid payroll growth, the economy added only 148,000 jobs last month. Economists had planned on 189,000.  However, the prior two months’ figures were revised higher.  Unemployment remained at a seventeen-year low. Wages still grew slowly – a trend that has persisted even as the labor market has boomed.  Productivity growth, which typically pushes wages higher, has also been sluggish.  Equity markets shrugged off the weak report.  In other news, domestic manufacturing grew at its fastest pace in eleven months. Exports and new orders both exceeded expectations. Employment in the sector also has climbed rapidly by recent standards. The outlook in the service sector was not quite as rosy, but still good.

The price of crude oil rose 2% this week to over $61 a barrel. US crude stockpiles showed a larger-than-expected draw this week – of 7.1m barrels – while product inventories of gasoline (+4.8m bls) and diesel (+8.9m bls) spiked higher. It should be noted that given tax maneuvering by companies on the Gulf Coast, inventories typically show volatile swings the last week of the year and first week of January. Crude inventories in Cushing, OK – a key hub that investors watch – continue to decline, falling to their lowest level since February of 2015. This is positive for oil prices.

Firms will start reporting their 2017 fourth-quarter earnings next week, beginning with the big banks. Most management teams will discuss their outlook for the upcoming year, and will offer estimates of their firms’ earnings. We expect good news on both fronts. Economies are surging in the US and around the world. The corporate tax cut passed before Christmas could also result in positive surprises to firms’ guidance.

*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 December 29, 2017

The Dow finished down on Friday, falling 118 points to close the year at 24,719. For the week, the Dow fell 0.1% (S&P 500 -0.4%) bringing the year-to-date return to 25.1% (S&P 500 +19.4%, NYSE +15.8%). The nearly-5,000 point gain in 2017 was a record, and percentage-wise the second largest jump in a decade. US economic data were mostly absent this week, as were trading volumes with many investors on holiday break. After showing a swift rally to 2.50% last week, the yield on the 10-year Treasury declined 3 bps on Friday to finish at 2.41%, ending the year 7 bps lower than it began despite three Fed hikes.

On our fixed income side, despite being positioned defensively for rate hikes in the second half of the year, we are very pleased with our performance. While numbers are yet to be finalized, a rough cut suggests our fixed income portfolios were up over 6% this year, above our target of 5% and a solid return for clients dependent on a stable income stream. On the equity side, our portfolios likely outpaced both the S&P 500 and the Russell 3000 indices.

As we look to 2018 there are many reasons to be positive regarding the markets despite the bull cycle coming upon its nine-year mark. Tax reform is likely to boost corporate profits (potentially by 7-10% on average) and may provide a boost to economic growth. Capital availability and credit quality remain strong. Consumer, investor, and business confidence remain near multi-decade highs. Employment numbers and wage growth continue to show improvement. While we are cognizant that “everything looks good, until it doesn’t” and we are always on the lookout for signs of a turn, we don’t see a need to move defensive on the equity side or more defensive on the fixed income side in the near term.

The price of crude oil rose 4% this week to over $60 a barrel. Oil finished the year up over 12% after being down as much as 21% in June. US crude stockpiles showed a larger-than-expected draw this week – of 4.5m barrels – while product inventories of gasoline (+0.6m bls) and diesel (+1.1m bls) both rose. From the peak in inventories in February, the US has worked off (aka drawn down) over 167 million barrels of crude oil and petroleum products (~8% reduction). If we look just at crude, gasoline, and diesel that number is closer to 189 million barrels (~17% reduction).

Clearly the oil markets have been rebalancing after a period of excess supply in 2015-2016. On the equity side, we made a bet earlier in the year that this would be the case leading to a move in oil prices materially higher, and we are now seeing the benefits of our positioning. We think the inflows to the sector of late can continue in 2018.

The market (and our offices) will be closed next Monday in observance of the New Year. We will reopen on Tuesday and would love to answer any questions you have regarding your portfolios and positioning into 2018. Highlights on next week’s economic calendar include December manufacturing indices, automotive sales, and the employment report (Friday), along with FOMC meeting minutes.

Happy Holidays!

*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