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Weekly Market Update – May 12, 2017

The Dow finished down on Friday, falling 23 points to close at 20,896. For the week, the Dow fell 0.5% (S&P 500 -0.4%) and year-to-date is now up 5.7% (S&P 500 +6.8%). The yield on the 10-year Treasury fell 6 bps Friday to 2.33%, ending the week down 2 bps, driven by weaker inflation and retail sales data.

US economic data was fairly neutral this week. The April NFIB Small Business Optimism Index remains high at 104.5, above the 104.0 expected. The preliminary University of Michigan Consumer Sentiment Index for May was better at 97.7 vs. 97.0 expected. April Inflation data was mixed, with PMI coming in better (core +1.9% y/y) and CPI coming in worse (+1.9% y/y) than predicted. Lastly, the advance retail sales numbers for April were weak, as we expected, at +0.4% y/y or +0.3% y/y when excluding automotive and gasoline sales. This week continued a theme we’ve seen recently of strong “soft” data (e.g. sentiment & expectations surveys) and weaker “hard” data (e.g. gov’t reported numbers). On a stronger note, we are closing in on the end of first-quarter company earnings reports, and according to FactSet, companies’ EPS are growing at a blistering rate of nearly 13% y/y – the highest since 2011.

There has been plenty of political talk this week after the head of the FBI was fired, but the markets viewed this as rather immaterial. Progress of policy implementation by the administration does have impact though, and this week the President offered a little more color on his current tax reform strategy. In speaking with The Economist, he suggested he may no longer pursuing a value-added tax (VAT) such as the controversial border adjustment tax (BAT), that he supports a tax repatriation holiday for corporations at a 10% tax rate (he hadn’t previously given a number), and once again suggested linking tax reform with infrastructure stimulus. Investors generally view those updated positions favorably.

The price of crude oil rose 3% this week to slightly a little under $48 a barrel – now down 11% YTD. The EIA reported that crude stockpiles declined this week – by 5.8m barrels – and also that product inventories of gasoline (-0.1m bls) and diesel (-1.6m bls) declined as well. The double confirmation of draws (crude & gasoline) instilled some positivism in the market and led crude prices higher. Additionally, Saudi Arabia reportedly curbed contracted crude shipments to Asia in June, and some Reuters industry sources suggested the OPEC/select non-OPEC coalition may seek to extend their supply cut by nine months to carry through the seasonally-weaker Q1-18 period. OPEC meets on May 25.

Next week’s economic calendar highlights will include April housing data (5/16), April industrial capacity utilization (5/16), weekly jobless claims (5/17), and April leading indicators (5/18). Housing data is expected to continue improving on strength seen in March; capacity utilization is expected to tick up further; while growth in leading indicators are expected to trend in-line with March.

Have a great weekend!


Ulland Investment Advisors

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