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Weekly Market Update – May 26, 2017

The Dow finished down on Friday, falling 2 points to close at 21,080. For the week, the Dow rose 1.3% (S&P 500 +1.4%) and year-to-date is now up 6.7% (S&P 500 +7.9%). The yield on the 10-year Treasury was off 1 bp on Friday at 2.25%, but ended the week up 2 bps. Through Thursday, May 25, our trust preferred portfolios were up over 2.7% YTD, substantially more than the Barclays Aggregate Bond Index, which was up 2.1%.

Most US economic data came in soft this week, absent a positive GDP revision. New and existing home sales were below expectations and fell sequentially. Preliminary US PMI and consumer sentiment were a bit shy of forecasts. But the Q1 GDP revision was a positive surprise – showing +1.2% annualized q/q growth in Q1 vs. the 0.9% initial estimate released a month ago. This revision showed stronger non-residential fixed investment and larger personal consumption expenditures.

Most investors were surprised this week with the speed of the market snapback following last week’s political noise. Despite policy expectations that have been either pushed out or severely dialed back, investors returned to a “buy the dip” attitude – particularly for stocks outside the US. While US funds continue to move out of equities into investment-grade bonds, investors have been bidding up stocks of large-cap technology companies like Facebook and Google (both +4% this week), where we hold material positions.

The price of crude oil fell 2% this week to slightly under $50 a barrel – now down 7% YTD. The EIA reported that crude stockpiles declined this week – by 4.8m barrels – and also that product inventories of gasoline (-0.8m bls) and diesel (-0.5m bls) declined as well. A third consecutive “dual confirmation” of draws (i.e crude & gasoline), along with an announced nine-month extension of the OPEC production cut at the organization’s meeting this week, failed to push crude oil prices higher. The small fall in prices doesn’t signal any change in supply and demand fundamentals but instead is a result of repositioning among short-term traders following the OPEC meeting.

Next week’s economic calendar highlights will include April personal income and spending (5/30), May consumer confidence (5/30), May ISM manufacturing index and automotive retail sales (6/1), and the May employment report (6/2). Personal income and spending are expected to show a small sequential uptick in growth; ISM and automotive sales are expected to be similar to last month; and the employment report is expected to show a slight downtick in new job growth.

Have a great weekend!

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Ulland Investment Advisors

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