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Weekly Market Update for March 22, 2019

by JM Hanley

The Dow was down on Friday, falling 460 points to close at 25,502. For the week, the Dow was down 1.3% (SP500 -0.8%) and year-to-date is now up 9.3% (SP500 +11.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell fifteen basis points, closing at 2.44%. This decline may have been triggered by rumors that the Mueller report would be released after the market closed, which it was.

The March meeting of the Federal Reserve ended with few surprises. Members of the Fed unsurprisingly expect to raise interest rates less than over the next three years than they did in December. In accordance with this view, Chairman Powell sounded sanguine about the prospects for economic growth – but expressed concern about inflation remaining too low. And as expected, the Fed said it would slow the pace of (deflationary) sales of assets on its balance sheet. The Fed’s reevaluation of its target inflation rate went largely unmentioned.

Now that markets have fully digested the Fed’s news, economic growth in China has become the most important factor. Europe’s economy relies on the export of luxury goods and advanced industrial products; China is their second-largest customer. Faster growth in China means faster growth in Europe. In turn, that would weaken the exchange rate of the dollar to the euro. An “expensive” dollar hurts US firms with earnings in foreign currencies.

The price of crude oil rose 1% this week to $59 a barrel – up 30% YTD. US crude stockpiles showed a surprise draw – of 9.6m barrels – while product inventories of gasoline (-4.6m bls) and diesel (-4.2m bls) likewise fell. This “triple draw” sent oil prices higher through Thursday, but market woes on Friday erased oil’s gains on the week. Shares of US domestic producers were modestly positive on the week, rising 2%.

After a false start, the UK’s Parliament reportedly will vote for a third time next week on the Prime Minister’s proposal for exiting the European Union. Developments in London and Brussels prompted Goldman Sachs to slightly raise the odds of a disruptive “no deal” departure. Its analysts still consider it more likely than not that Parliament will approve the Prime Minister’s deal. Any eventuality would have limited repercussions for US firms’ earnings. However, the uncertainty accompanying a no-deal exit could temporarily spook investors, and volatility in European sovereign bond markets is often felt in Treasury yields.

Important data releases next week include a revision to fourth quarter GDP, an important indicator of German business confidence, and Eurozone inflation. America’s Treasury Secretary and its Trade Representative will visit Beijing as progress continues on a trade deal. And a lengthy schedule of on-the-record events for members of the Fed and the chair of the ECB promises to keep trading action lively. Of course, any part of the Mueller report that is released will be market moving.

*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 March 15, 2019

by JM Hanley

The Dow was up on Friday, rising 139 points to close at 25,849. For the week, the Dow was up 1.6% (SP500 +2.9%) and year-to-date is now up 10.8% (SP500 +12.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell four basis points, closing at 2.59%.

American manufacturing data released today was weak. New orders and shipments were particularly disappointing. These suggest a more muted pace of business investment this quarter. But employment in manufacturing remains strong, and consumers in the US are upbeat (particularly since the shutdown ended). The timing of the Chinese New Year distorted economic data in China. Adjusted, industrial production looked better than expected, but consumer lending was weak.

The narrative about an imminent trade deal with China – one of three main contributors to the market’s impressive rally this year – hasn’t changed much. The economic costs of the trade war, and their political ramifications, have grown steep. With China’s economy wilting, Beijing wants to protect its huge export sector. But negotiations are slow going. A deal-signing ceremony currently scheduled for the end of this month may be pushed to April.

The price of crude oil rose 4% this week to $58 a barrel – up 29% YTD. US crude stockpiles showed a surprise draw – of 3.8m barrels – while product inventories of gasoline fell (-4.6m bls) and diesel rose slightly (+0.4m bls). The energy sector benefitted from comments by Saudi Arabia suggesting they may extend production cuts for longer. Favorable market reports from OPEC and the IEA contributed as well. Shares of US domestic producers were lifted along with the commodity, rising 6%.

Cloud computing firm Cloudera reported passable quarterly results Wednesday. The firm’s sales forecast for 2019 disappointed Wall Street. General Electric didn’t break much new ground at its annual presentation to investors. The profit outlook for 2019 was lower than expected growth will accelerate in 2020 and 2021.The news was generally better for holders of debt. Improving profits in coming years should ease worries that the firm won’t be able to meet its obligations; moreover, management intends to make paying down debt a top priority.

Next week, the interminable Brexit saga will continue with another vote on the Prime Minister’s deal scheduled in Parliament. Most assume the country will avoid a deeply disruptive no-deal departure, but any eventuality would have limited repercussions for US firms’ earnings. The Fed’s meeting next Wednesday is the more important event. Investors are keen to learn about the Fed’s plans to sell its holdings of Treasury bonds. The start of this policy last fall slowed the economy and contributed to the steep decline in equity prices.

*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 March 8, 2019

by JM Hanley

The Dow was down on Friday, falling 23 points to close at 25,450. For the week, the Dow was down 2.2% (SP500 -2.2%) and year-to-date is now up 9.1% (SP500 +9.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell thirteen basis points, closing at 2.63%.

After a red-hot start to the year, the major indexes turned cool in these first days of March. Upward progress had stalled anyway, since investors already have assumed an optimal outcome from trade negotiations and the Fed’s interest-rate rethink. Additionally, trade data released Friday exacerbated fears about slowing economic growth in China. Chinese exports fell 21% in February, and imports also dropped.  Even after accounting for the Chinese New Year, trade has slowed significantly since 2018. Chinese Premier Li announced substantial tax cuts intended to stimulate the economy on Tuesday. This may not do the trick. The government still has plans to cut spending, and households have gotten more frugal over the past two years. A rash of municipal infrastructure projects coming later this year is expected to provide growth.

The Eurozone faces similar troubles, but has fewer tools at hand. Industrial production has followed the rest of the continent’s economic indicators downwards. Data for January, released this week, actually showed modest improvement in the typically troublesome trio of France, Spain, and Italy. The good news was more than negated by weakness in Germany, the engine of the European economy. Orders from outside the EU were particularly weak. China’s ailment may be catching.

Yesterday, the European Central Bank announced its first slate of policies to address the slowdown but managed to disappoint almost everyone. Frankfurt now thinks Europe will grow just over a percent this year, with inflation about the same. Both are much lower than earlier estimates, though the problems are mostly in the near term. To spur growth and inflation, the ECB plans to lend cheap money to banks so they can provide inexpensive consumer credit. Investors found this limited course small consolation for the major cut to growth estimates.

Back in the States, the pace of job creation fell sharply last month. Vicious winter weather took a toll in industries like construction, leisure and retail. But even accounting for that, job growth has slowed. Unemployment and underemployment still went down, and wages improved more than forecast. All are signs the US could be approaching full employment at last. The weak report helpfully restrained appreciation of the dollar’s exchange rate with the Euro after the ECB’s bad economic news Thursday. An “expensive” dollar hurts the earnings of firms that do business in foreign currencies.

News from GE was also a source of concern. CEO Larry Culp said he expects the industrial conglomerate’s cash earnings to be negative this year. The power and renewable energy generation businesses are to blame. Cash profits should be back in black by next year. Culp and other executives will provide more information next Thursday at their annual presentation to investors.

The price of crude oil was unchanged this week at $56 a barrel – up 23% YTD. US crude stockpiles showed a greater-than-expected build – of 7.1m barrels – while product inventories of gasoline (-4.2m bls) and diesel (-2.4m bls) both fell. Demand fears driven by softer global economic data points, along with robust supply growth outlined by large integrated oil companies, were headwinds to oil prices. On the other hand, imports continue to track below trend. Shares of US domestic producers were pressured on Friday following news that Norway’s sovereign wealth fund would be selling its public energy holdings.

Next week, the UK Parliament is scheduled to vote on the Prime Minister’s proposal to exit the European Union. US inflation for February will be released.  So will data on consumer credit in China.

*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 March 1, 2019

by JM Hanley

The Dow was up on Friday, rising 110 points to close at 26,026. For the week, the Dow was flat (S&P 500 +0.4%) and year-to-date is now up 11.6% (S&P 500 +11.8%). The yield on the 10-year Treasury (an important interest-rate indicator) rose ten basis points, closing at 2.76%.

The week didn’t turn out as busy as forecast last Friday. Parliament’s vote on Brexit was postponed. So was the deadline for a trade deal with China. Jerome Powell made it to Capitol Hill to give his semi-annual testimony, but didn’t make much news. The market now takes his strategic patience for granted. And when asked about investors’ most pressing unanswered questions – when the Fed would stop selling its holdings of Treasury bonds, and whether or not it should reconsider its target of 2% inflation – Powell fudged his answer.

Other macroeconomic news was mixed. America’s economy grew 2.6% in the last three months of the year, which was better than expected. Manufacturing data from Chicago (which is typically representative of the nation as a whole) also looked healthy. This was partially contradicted by a weak February report from another industrial survey by the Institute for Supply Management. However, the University of Michigan’s survey of consumers showed they have unexpectedly grown a bit more pessimistic.  And data from China showed the tariffs taking a toll on small and medium-sized manufacturers.  Most investors are still confident that Beijing can spend and lend to keep the economy growing.

Corporate headlines, on the other hand, came fast and furious. CEO Larry Culp sold GE’s biopharmaceutical business to his old firm, Danaher. The deal was good news for holders of its bonds and preferred shares; the $21B proceeds substantially ease concerns GE wouldn’t be able to pay its debts.

News was worse at Nutanix. The software firm’s sales force has lost its focus because of the large number of new products. Growth will slow this quarter as they train on the company’s offerings. Axon, which makes Taser, made plenty of money last quarter, but also predicted they’d grow more slowly than analysts had hoped. Finally, health insurers and drug benefit managers like CVS had a rough week. Pending regulations have hurt the latter, while chatter about single-payer healthcare had investors selling the former.

The price of crude oil fell 2% this week to $56 a barrel – up 23% YTD. US crude stockpiles showed a greater-than-expected draw – of 8.7m barrels – while product inventories of gasoline (-1.9m bls) and diesel (-0.3m bls) declined as well. Driving the big “triple draw” was an impressive fall off in imports, particularly from Saudi Arabia and Venezuela. The weekly import number was, in fact, the lowest level since 1996. Exports were steady but saw China take its first cargo of US oil in months. A strong dollar and weak manufacturing data from China and the US forced crude lower in Friday trading.

*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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