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Weekly Market Update – May 19, 2017

The Dow finished up on Friday, rising 141 points to close at 20,804. For the week, the Dow fell 0.4% (S&P 500 -0.4%) and year-to-date is now up 5.3% (S&P 500 +6.4%). The yield on the 10-year Treasury was unchanged on Friday at 2.23%, but ended the week down 10 bps.

US economic data were mostly soft this week. April housing starts (1.17m annualized pace) and permits (1.23m annualized pace) came in weaker than expected. The Conference Board’s April US Leading Economic Indicators grew 0.3%, below forecasts of +0.4%. Industrial capacity utilization was the bright spot at 76.7% versus a 76.3% forecast.

The Trump-Comey saga continued this week, culminating Wednesday with a heavy sell-off in the equity markets, the third biggest drop (1.8%) over the past year. Investors have increasingly viewed these headlines as complicating the implementation of policy reform, particularly the pro-growth initiatives.  Congress now has less than forty working days before the August recess. This contributed to the mid-week selling pressure particularly in stocks of cyclical companies. US equities saw their third straight week of outflows, while bonds continue to see inflows in tandem with the decline in interest rates.

What looked like a turnaround in Brazil’s economy this year – after newly-appointed, pro-growth President Temer took the helm – is now looking like a potential mess after corruption allegations surrounding the President took the market 10% lower on Thursday, wiping out the bulk of their YTD gains. At the margin, this pressure could bleed over into major trading partners, China and the US.

The price of crude oil rose 6% this week to over $50 a barrel – now down 6% YTD. The EIA reported that crude stockpiles declined this week – by 2.5m barrels – and also that product inventories of gasoline (-0.4m bls) and diesel (-2.0m bls) declined as well. Another double confirmation of draws (i.e crude & gasoline), along with statements by Saudi Arabia/Russia committing to a 9-month extension of their production cut pushed crude prices higher. The market consensus is that the OPEC’s cut gets extended on May 25, while the option of deepening the cut is likely being considered within the organization.

Next week’s economic calendar highlights will include more housing data with April new home sales (5/23) and existing home sales (5/24), along with a preliminary Markit US PMI (5/23), FOMC minutes from their May 3rd meeting (5/24), and the second reading of US Q1 GDP (5/26). The GDP data is expected to reveal growth of 0.9% on an annualized rate, a potential upward revision to the initially released 0.7% growth rate.

Have a great weekend!


Ulland Investment Advisors

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