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Weekly Market Update for May 10, 2019

by JM Hanley

The Dow was up on Friday, rising 114 points to close at 25,942. For the week, the Dow was down 2.1% (SP500 -2.2%) and year-to-date is now up 11.2% (SP500 +14.9%). The yield on the 10-year Treasury (an important interest-rate indicator) fell six basis points, closing at 2.47%.

After five months of calm, the trade war flared again this week. News Sunday evening that the US would proceed with higher tariffs this Friday precipitated a week of market volatility that ended without an agreement. China now presumably will reciprocate with higher tariffs of their own.  Today was only a “soft” deadline. Since cargo ships bound from China take two weeks to cross the Pacific, Washington and Beijing have some time before duties are collected. No further official talks are scheduled, and the Administration has made conflicting statements, but discussions of some variety presumably will continue.

JP Morgan sees the possibility that a running conflict over trade, hot or cold, may become a fixture of the geopolitical landscape for another year or two. Confronting China has political appeal; the economic turmoil that ensues does not. Washington may oscillate between bouts of saber-rattling and periods of conciliation. Markets probably could learn to live with that.

Much-anticipated April inflation data was lower than expected. The contents of the report were better. Rent growth, which has been slow, accelerated, as did healthcare. These were offset by seasonally depressed used car sales as well as apparel. It’s probably not enough to persuade the Fed to cut rates for “insurance.” Members seem supportive of Chairman Powell’s wait-and-see approach.

The price of crude oil stayed around $62 a barrel this week – up 36% YTD. US crude stockpiles showed a surprise draw – of 4.0m barrels – driven by a sharp fall in imports from the Middle East and South America. Oil prices seemed to move in line with the sways of the market this week, guided by China trade sentiment. On Monday, Occidental announced a revised offer for Anadarko, with a greater cash component (80%) that bypasses a vote by Occidental shareholders. Chevron then had four days to respond, and on Thursday Chevron bowed out. We have begun strategically shifting funds out of Anadarko into other names, depending on individual client circumstances.

Axon, the maker of Taser, reported better-than expected sales and increased its outlook for 2019 results. Its gross profit margin was lower than anticipated. Playa Resorts recorded better-than-expected revenues and profitability. Its shares gained on the news. Air Lease did the same, though its CEO cautioned that delays at AirBus and scandal-addled Boeing could temporarily delay some revenues. This was not unexpected.  Alibaba and Tencent, 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.

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