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Weekly Market Update for May 1, 2020

by Jim Ulland

There was big news on the Covid-19 front as the market closed Friday. The FDA approved for emergency use Gilead’s Covid treatment drug called Remdesivir. Earlier in the week, the leading vaccine from Moderna started trials with high expectations. Moderna is confident enough of success that it is setting up manufacturing facilities in anticipation of approval.

For the second week in a row, the market closed relatively flat. Tech stocks pushed the market higher mid-week on earnings from Facebook, Microsoft, and Google (Alphabet), which had less damage from the business slowdown than what was expected. Friday, the good feelings of the first four days of the week evaporated as Amazon reported impressive revenue and earnings growth only to announce that most of next quarter’s earnings would be spent on Covid related challenges in the work force and on expanding delivery capacity. For instance, home grocery delivery was up 50 times what it had been.

The economic news was bad and in some cases worse than the dismal numbers expected. Unemployment filings were over three million. Manufacturing was at an eleven year low. Gap, Macy’s, and Neiman Marcus were expected to file for bankruptcy. The sons of Minnesota’s former Governor, Mark Dayton, announced they were permanently closing their popular and highly acclaimed restaurant The Bachelor Farmer. Minnesota Governor Walz continued his “stay-at-home” order for another two weeks as the tension between the health of the economy and the health of the citizens continues.

The week’s trading showed declining volatility although volatility was higher on Friday. Low volatility generally means there is less fear in the market and more rational pricing. Large investment firms have reported client cash in accounts on average over 20%. This cash will return to the market as volatility continues to decline. The S&P 500 moved in a relatively narrow range of +1.5% on Monday, -0.5% on Tuesday, +2.7% on Wednesday, -0.9% on Thursday, and -2.8% on Friday. Small company stocks performed better than large, playing “catching-up”. This year, small company stocks are down -22% vs. large 12%.

Our fixed income strategy using preferred stock had a week of further stabilization. The returns on 10 Year Treasuries ended the week at 0.62% whereas the 5.56% annual yield on preferreds is nine to ten times higher and continues to be compelling. Cash will head to these higher preferred yields during the rest of the year.

Next week the big news will be Friday’s jobs report for April. This will follow another terrible report on the filings for unemployment on Thursday. Covid news will continue to have an impact followed by more governors opening parts of their states.

We are delighted to report that Hanna and Nat had a baby boy named Joseph. All are doing well.

*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