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Weekly Market Update – May 13, 2016

The Dow finished 185 points lower on Friday as strong economic data failed to offset the recent risk aversion sentiment. For the week the Dow was down 1.2% and year-to-date the index is virtually flat.

The retail data from the Commerce Department showed the best monthly gain since March 2015 as retail sales improved 1.3% from the prior month, led by autos, gas stations, and non-store retailers such as Amazon.com. The May index of US consumer sentiment recorded the highest reading since June 2015 and well ahead of consensus. In response to the stronger consumer spending growth trend, the Atlanta Fed raised it Q2 GDP forecast to 2.8% compared to 2.2% previously. On the other hand, initial jobless claims rose to 294,000, ahead of the 270,000 consensus, suggesting slowing market momentum.

Three Fed officials gave positive rate hike comments this Thursday, citing the gap between the market’s pessimism and the Fed’s view on the fundamental strength of US economy. Inflation expectations have firmed up due to a weakening US dollar, rising US wages and reforms in China against excess capacity. The US Preferred stock index PFF was largely unchanged, rising by less than 1% for the week.

Crude oil rallied by 4% for the week to $46 per barrel. On Friday OPEC noted that the reduction in US output and investments will reduce the global oil glut over the course of this year. Oil companies world-wide will cut their exploration budgets to half of the past three-year average. As another boon to oil prices, earlier this week, the Saudi Aramco CEO cited increased demand in regions including the US and India.

Next week’s economic calendar highlights include CPI (May 17th), Crude Inventory and Fed Minutes (May 18th), Initial Jobless Claims (May 19th), and Existing Home Sales (May 20th). Don’t be surprised if the market stays choppy and trendless. Current economic news seems unlikely to move the market either substantially higher or lower.

Have a good weekend,

Natalie Do

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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