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Weekly Market Update for August 21, 2020

by JM Hanley

Tech stocks powered the market to a new high this week. The SP 500 finished up a little under a percent. It’s up five percent since the start of the year. Besides technology, consumer discretionary led the way this week. Energy and financial firms were the laggards. The tech-heavy Nasdaq rose nearly 3%.

In the US, coronavirus case counts continued their slow ebb from the peak reached midsummer. The percent of tests returned positive was essentially unchanged from a week ago. Hospitalizations declined modestly once again. Improved treatments for the disease may result in patients being discharged more quickly. Cases have ticked up in some rural states in the Midwest and New England where the virus had previously been under control. However, the populous Sun Belt is more problematic. After falling from their earlier peak, cases have plateaued at a still-high level.

Economic news was similarly mixed. Initial jobless claims – those newly laid off – increased from last week to 1.1 million. Workers who have been furloughed (laid off temporarily) make up over half of those who are on unemployment. The hope is that at least three-quarters of them will ultimately rehired, the foundation of the economic recovery.

Small businesses will play an important role in this, as those that remain closed account for about 20% of the rise in unemployment. Thanks in part to the PPP loan program, they have proven more resilient than initially feared. 25% of small businesses shut down in April; by July, only 6% remained shut down. Most say they can avoid closing for at least another six months. Bankruptcies are rising among larger companies, which will present a headwind to the labor market recovery. Firms who have filed or are considering it tend to be those that were in distress before the pandemic.

In the near term, the market is counting on Congress’s passing an additional round of stimulus. Enhanced unemployment benefits have kept consumer spending strong even with high unemployment, but the program will soon run out of money. Congress needs to pass a bill to fund the federal government by the end of September. Most analysts believe a deal on coronavirus stimulus will be struck simultaneously.

The upcoming US election will also rise in importance in the near term. Stocks perform best under divided government. So while markets will be modestly sensitive to the presidential race, investors may pay more attention to the contest for the Senate.

A few more companies reported third-quarter earnings this week. With coronavirus cases largely contained across China, ecommerce giant Alibaba’s operations have almost returned to normal. Profits were higher than expected, though investors were disappointed that this was largely due to reduced spending on new ventures. Gross profits as a percent of sales actually went down as the firm continues its push into industries like food delivery and brick-and-mortar retail.

Lowe’s also reported excellent results. Home improvement stores have benefitted as the housing market booms and Americans spend more time at home.

Next week is relatively quiet. Highlights on the economic calendar include new home sales, an update for second-quarter GDP, and some inflation data. No portfolio companies are scheduled to report earnings.

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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for August 14, 2020

by Jim Ulland

Last week was spent waiting for Congress to agree on the next recovery package.   This week was spent the same way; deadlock ensued; and, Congress went on summer break without reaching agreement.  The President did issue an Executive Order to continue part of the benefit package, but this is “only” $100 billion whereas the negotiated figures are likely to be $1-1.5 trillion, so 10% of what is eventually expected.  The market was mildly disappointed.

Covid-19 hospitalizations continued to decline in all regions except the SE states and in the West, primarily California and Nevada. Positive news came from a potential treatment for those who have contracted the virus. A longer trial has started with high hopes.  President Putin declared that Russia had discovered a vaccine, an assertion that was quickly dismissed since there had been no extensive trials. High schools in Georgia that had opened for in-class education experienced an increase in transmission.

Tension levels in the Mideast fell as Israel and the UAE reestablished normal relations.  Other Mideast countries are expected to join in this embrace. The dispute with China continues to hang over the market. China is one of our top three trading partners. Fortunately, talks are scheduled to start this weekend which hopefully will reduce tensions there also.  Part of the talks will focus on China’s commitment, in the already signed trade deal, to buy large amounts of US goods, energy, and agricultural products.  For a number of reasons, China has not met the agreed to amount of buying.

US economic news was mostly positive.  Unemployment filings dropped below one million and
those already on unemployment fell by 600,000.  That said, 15.5 million still remain on unemployment. Manufacturing continued to improve although retail sales were weaker than expected.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, received a lot of favorable interest after its #1 ranking against the peer group of publicly traded strategies using preferred stock (data source Morningstar Direct*).  IFI performance continued to increase during the week even as the interest rate on the 10 Yr Treasury rose from 0.57% to 0.71%. One of the reasons for the increase in Treasury rates was the relatively large sale of government bonds designed to lock in low rates to finance the budget deficit.

Equity markets are generally slow at this time in the summer and this week was no exception. Tech stocks were flat. The S&P 500 was up +0.64%.  Monday was +0.27%, Tuesday -0.80%, Wednesday +1.40%, Thursday -0.20%, Friday -0.02%. The S&P 500 flirted with setting a record high, but fell slightly short.  It is historically remarkable that the equity markets have recovered so quickly from the very steep drop in March.  Of course, the averages don’t show that many sectors of the market still are down substantially including transportation, retail, energy, real estate, and banks to name a few.

Next week expect a lot of politics as the Democratic National Convention occurs at the end of the week followed by the Republicans the next week. The public will hear from former VP Biden’s running mate pick Senator Harris, among many others.

*Source: Morningstar Direct

Publicly Traded Peer Group Requirements: Minimum $150 million in ETF/Fund; Excludes low-duration funds; Excludes closed-end funds; Includes share class with largest AUMs; Excludes real estate preferred funds; Minimum 3-year track record

*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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for August 7, 2020

by Jim Ulland

This week was spent waiting for Congress to agree on the next recovery package, which they were unable to do, and for the Friday report on new jobs created in July. Even with the spike of Covid-19, employment increased. The additional 1.8 million people working was ahead of expectations and dropped the unemployment rate from 11.1% to 10.2%. Weekly unemployment filings were the lowest since March, suggesting more good news for August jobs.

Other encouraging reports came from Covid-19 hospitalizations. Hospitalizations are one of the best indicators of the severity of the problem. The highly reported spike in hospitalizations has turned down except in CA and NV and several Southeastern states. Positive news on the virus was not soon enough for many large public school systems, which decided on a lot of remote teaching. Addressing the virus more fully depends on the approval of a vaccine. Data on the vaccine trials is not expected until late fall.

Corporate earnings continued to be reported for Q2 and a high percentage were above expectations.  Company revenues were down, but by less than expected, except in the digital economy stocks and some in healthcare, which showed strong gains. The ongoing dispute with China depressed the stock prices of two of our favorite Chinese stocks: Alibaba and Tencent. Ironically, Facebook was helped by the bad blood when it announced a competitive product to the very popular Chinese app TikTok, which is in a forced sale to Microsoft.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, made some headlines as it produced the top performance vs. publicly traded preferred stock strategies per Morningstar Direct. IFI was #1 for three-year, two-year, one-year, and YTD performance among mutual funds and ETF peers. (See the disclaimer and graph below). IFI was up 4.7% (Gross) YTD through July, remarkable during this difficult market. Preferred stocks continued to have strong performance in August as investors became increasingly comfortable with big banks, who are the primary issuers. Preferreds pay almost ten times more than 10 Yr. Treasuries.

Tech stocks faltered on Friday but ended the week +2.47%. The SP 500 was up +2.45%. Monday was +0.72%, Tuesday +0.36%, Wednesday +0.64%, Thursday +0.64%, Friday +0.06%. The 10 Year Treasury yield fluctuated between 0.6% and 0.5%. Apple, Facebook, and the NASQAQ made new highs.

Next week expect earnings reports from the stragglers. Market-moving economic news will come on Friday with reports on July retail sales, productivity, unit labor costs, industrial production, and consumer sentiment.  GDP forecasts also will start coming out. JP Morgan estimates a huge 20% annualized GDP growth in Q3. Finally, on Tuesday, Minnesota will get to test its system for voting by mail in preparation for a bigger challenge on Election Day in November.

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/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

Weekly Market Update for July 31, 2020

by Jim Ulland

The dominant headlines this week weren’t Covid-19 or the reopening of the economy, but rather, the Four Horsemen of the Digital Economy: Amazon, Facebook, Apple, and Google. The first three reported blow-out revenues and earnings in the midst of the pandemic. Google substantially beat analyst expectations, but revenues were down slightly from 2019. The change to a digital economy has been steady, but now it is at a gallop. We expect the out-performance of the digital economy stocks to continue. When a vaccine is approved, the rest of the market should rebound sharply, but that may not be until Q4. We may have a sideways market until then.

Our fixed income strategy, Intelligent Fixed Income (IFI), is run by Nat Beebe. Although the dust has not settled for July, IFI had great performance going into the last day of the month. We expect it to be #1 vs. the publicly traded preferred stock peer group (please see the disclaimers below). IFI’s current yield is 5+%, almost ten times that of the 10Yr Treasury. Preferreds had another great week, although this niche security doesn’t make headlines. Investors became more comfortable with national and regional banks, who are the main issuers of preferreds. With the exception of Wells Fargo, banks passed the annual Federal Reserve “Stress Test” and produced better than expected Q2 earnings. They will continue to be bolstered by the next phase of government stimulus, once Congress comes to agreement. More strength in preferred stock is expected.

Covid-19 and the reopening of the economy both shared headlines, but mostly negative ones. Dr. Fauci, who heads the National Institute of Allergy and Infectious Disease, threw a little cold water on the worst of Covid-19 fears when he said school districts “should try the best they can to reopen.” The CDC agreed. Both cautioned that there are Covid hot spots where more caution is warranted and, in all cases, guidelines must be followed. According to a U of MN tracking study, Covid spikes in several southern states and California started to decline in late July when measured by the number of hospitalizations and the number of hospital beds occupied.

Economic headlines anticipated a bad Q2 GDP number and it was terrible. Growth in Q2 was -32.9% annualized. Q3 and Q4 should show a strong snap-back. The increase in the infection rate slowed business reopening as reflected in an increase in Continuing Claims for Unemployment Insurance. Reimposing restrictions on bars and restaurants was a common reaction by governors. However, the Fed said it would maintain its stimulus until the economy has weathered the crisis. Of course, weathering the crisis means a vaccine has been approved. News on that front was positive, but nothing major is expected until October.

Tech stocks returned to market leadership this week increasing 3.69%. The SP 500 was up 1.73%. Monday was +0.74%, Tuesday -0.65%, Wednesday +1.24%, Thursday -0.38%, +0.77% Friday. The 10 Year Treasury yield drifted lower as the pace of reopening slowed. Volatility declined as well.

Next week expect earnings reports from CVS, mortgage software company Black Knight, pipeline company NuStar, police body camera company Axon, and credit card processor FIS. The market-moving economic news will come on Friday when the July new jobs figures are released.

*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