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Weekly Market Update for January 25, 2019

by JM Hanley

The Dow was up on Friday, rising 184 points to close at 24,737. For the week, the Dow was up 0.1% (SP500 -0.2%) and year-to-date is now up 6.0% (SP500 +6.3%). The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points, closing at 2.76%.

After a surge of optimism in the first three weeks of the year, markets entered something of a lull. With the government shut down and Commerce department bureaucrats furloughed, little economic data was released stateside. Fourth quarter growth in China was the slowest since the financial crisis – about what the markets had expected. And after some warning signs arose in the fourth quarter, the IMF slightly reduced its forecast for global economic growth this year, to 3.5%.

Trade talks with China won’t resume until next week.  The Fed was also quiet ahead of its meeting at the end of the month, though a news report held out the tantalizing possibility that the central bank could slow its sales of Treasury holdings.

Focus is instead on earnings. Comcast and IBM both surprised investors with good numbers.  Comcast’s sales of online content improved, a sign that consumers remain happy. The airlines, many of whom reported this week, also had good results. There’s no sign of fewer travelers, an indicator of consumer and business confidence.

Next week will be a different story. There are trade talks with China and the Fed meeting. Fourth quarter GDP will be released, along with end-of-month indicators like the December jobs report. So will all the data held up by the shutdown. And the earnings docket is a doozy: Caterpillar, 3M, Verizon, Apple, Alibaba, Facebook, Microsoft, Visa, GE, Amazon, and plenty more are scheduled to report. JP Morgan says it will be the biggest week of the quarter.

The price of crude oil fell 1% this week to $53 a barrel – up 18% YTD. US crude stockpiles showed a greater-than-expected build– of 7.9m barrels – while product inventories of gasoline rose (+4.0m bls) and diesel fell (-0.6m bls). Oil prices floundered most of the week, with no help from the inventory report or Davos (mixed views on energy), before catching a bid late-week on rising action in Venezuela. The US (& allies) formally recognized the opposition leader there as the legitimate president, a call on Nicolas Maduro to step down, which of course he refuses. We would not be surprised to see the US slap energy sanctions on Venezuela soon, with obvious global supply impacts. Venezuela could very well be on the precipice of a regime change. A drop in global waterborne crude inventories also helped improve supply-demand dynamics.

*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 18, 2019

by Jared Plotz

The Dow was up on Friday, rising 336 points to close at 24,706. For the week, the Dow was up 3.0% (SP500 +2.9%) and year-to-date is now up 5.9% (SP500 +6.5%). The yield on the 10-year Treasury (an important interest-rate indicator) rose eight basis points, closing at 2.78%.

After a challenging fourth quarter of 2018 across most all asset classes, our fixed income and equity accounts have bounced back nicely in January, outpacing their respective benchmarks. Our very own Nat Beebe was recently featured (again) in Barron’s, highlighting the attractive setup for preferred stocks and our popular Intelligent Fixed Income strategy. We’ve noticed an uptick in prospective client inquiries, suggesting that cash on the sidelines may soon be put to work again. Now may be a good time to consider deploying any idle cash you may have.

Although earnings reports are coming into the spotlight, Fed policy, trade negotiations, and global growth continue to be the biggest drivers of sentiment and markets. Most investors now assume the Fed is on “rate hike pause” until at least June, that some kind of compromise with China will be reached, and that China will continue stimulating their economy to offset the slowing global growth we’ve seen in recent months.

This week saw the first full docket of fourth-quarter earnings reports. United Health Group put up another good quarter, beating analyst estimates and reaffirming 2019 guidance. The major banks also reported favorable results, showing strong investment banking revenues, steady consumer activity, and controlled costs. Those tailwinds offset a continued industry-wide decline in trading activity; though a decline that was no worse than anticipated. Credit quality remains steady and comments on macro commentary from management teams were more positive than the fourth-quarter market volatility implied to investors.

The price of crude oil rose 5% this week to $54 a barrel – up 19% YTD, with domestic producers’ stocks following in footstep. Oil prices continued marching higher after OPEC published a list of individual output cut quotas of its members and other major producers. The lack of such list pressured prices in December as traders questioned members’ commitments to the coordinated cut and thus overall group compliance. Additionally, the White House floated the possibility that they may reduce the number of waivers granted to buyers of Iranian oil in May. Recall the waivers, given to eight countries that rely heavily on Iran oil, are set to expire at April-end, and three of these countries have already ceased such imports.

As a reminder, our office (and the market) is closed Monday in observation of Martin Luther King Jr. day. Upcoming earnings next week include Johnson & Johnson on Tuesday, Comcast and IBM on Wednesday, and a number of airlines/railroads on Thursday. We will also get more China economic data and central bank decisions by the BOJ and ECB.

*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 11, 2019

by JM Hanley

The Dow was down on Friday, falling six points to close at 23,996. For the week, the Dow was up 2.4% (SP500 +2.5%) and year-to-date is now up 2.9% (SP500 +3.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points, closing at 2.70%.

Jerome Powell is a newly popular man on Wall Street. The Fed chair reiterated his willingness to suspend the rate-hike regimen if financial markets remain unsettled. More pointed comments from one of his subordinates suggested there’d be no more hikes until June. Modest inflation (due to low labor force participation and crude prices) gives the Fed time to be patient. Fewer rate hikes are good news for preferreds, which are up considerably so far this year.

The January thaw has been supported by an emerging consensus that in their sharp selloff before Christmas, the indexes may have disconnected from fundamentals. Job growth is strong, the Fed is patient, and emerging market economies may rebound. Trade envoys for the US and China are making progress. Private sector debt and inflation, which have played a prominent role in prior recessions, are about normal. But the yield curve and credit markets imply the market is still anxious.

Against this positive though unsettled backdrop, we await fourth quarter earnings announcements. Investors will be listening to the management teams from banks, credit card firms, computer chip companies, and industrial manufacturers for hints about the health of the economy. The big banks – Wells Fargo, JP Morgan, Goldman Sachs, and Bank of America – will report earnings next week. So will United Health Group.

The price of crude oil rose 8% this week to $51 a barrel – up 14% YTD. US crude stockpiles showed a draw in line with expectations – of 1.7m barrels – while product inventories of gasoline (+8.1m bls) and diesel (+10.6m bls) continued their significant builds. Oil prices extended their move higher on growing optimism regarding the global economy and the effects of OPEC production cuts.  Saudi Arabia, after releasing favorable (reduced) export data last week, suggested more cuts could be coming at the next group meeting (April).

*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 4, 2019

by JM Hanley

The Dow was up on Friday, rising 747 points to close at 23,433. For the week, the Dow was up 1.6% (SP500 +1.9%) and year-to-date is now up 0.5% (SP500 +1.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell five basis points, closing at 2.67%.

Domestic economic data presented a mixed picture. The outlook seemed bleak Thursday after the ISM’s survey of manufacturers reported its biggest decline in ten years last month. The report is still consistent with growth in the sector, but new orders were particularly weak. The news exacerbated fears that the economy is slowing. But the mood turned quickly after the release of the December jobs report Friday. The economy added 70% more jobs than Wall Street had expected, in part due to the mild winter. Wage gains were also impressive. The unemployment rate actually went up, because abundant openings and better pay have coaxed some Americans to start looking for work.

Investors’ sense of relief may have been overdone. Of the two surveys, ISM’s is probably more important. The jobs market usually deteriorates only after other economic indicators are flashing red.  Additionally, rising wage expense could hurt profitability in the manufacturing sector.

Storm clouds are also gathering across the Pacific. The trade war, combined with macroeconomic problems, have begun to weigh upon China’s own manufacturing industries (though the service sector remains strong). In response, the Chinese central bank said it would permit financial institutions to lend more money to stimulate economic growth. Investors had anticipated the move, though it was still reassuring. Negotiations on the tariff dispute resume next week.

Fed chair Jerome Powell partially redeemed himself Friday after a few rocky months. He reiterated his confidence in the economy’s growth. But he added that quiescent inflation means that the Fed can afford a patient approach to raising rates – and that they can reverse course swiftly if warranted. Powell even suggested that the Fed could slow the pace at which it’s selling the Treasury bonds it holds. Compared to his December remarks, the shift was more rhetorical than substantive, but soothing nonetheless.

The price of crude oil rose 6% this week to $48 a barrel – down 21% in the last twelve months. US crude stockpiles were roughly flat this week, while product inventories of gasoline (+6.9m bls) and diesel (+9.5m bls) both rose. Oil prices rose on hopes of US-China trade progress along with reduced exports out of Saudi Arabia and OPEC.  Libya, plagued by civil unrest, has also been temporarily closing production fields and suspending crude exports.

In a surprise announcement Thursday, Apple said that its fourth quarter revenues would suffer from China’s deteriorating economy. This rattled an already anxious market, but some preemptive blame-shifting may be underway. Chinese consumers aren’t as loyal to the Apple brand as the rest of the world.  Recent hikes in iPhone prices of nearly 20% may have driven them to other products.

Fourth quarter earnings reports will start the week after next. Investors will be watching closely for executives’ commentary about the economy.

*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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