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Weekly Market Update for May 31, 2019

by Jared Plotz

The Dow was down on Friday, falling 355 points to close at 24,815. For the week, the Dow was down 3.0% (S&P 500 -2.6%) and year-to-date is now up 6.4% (S&P 500 +9.8%). The yield on the 10-year Treasury (an important interest-rate indicator) fell 25 basis points, closing at 2.14%.

All eyes remain on the Federal Reserve following the continued deterioration in trade negotiations with China. Calls for a rate cut grew louder this week amidst the volatile markets and a further inversion of the interest rate curve. The curve is inverted when short-term rates yield a premium to longer-term rates, which disincentives banks from lending and slows the economy. High-yield corporate bonds are not signaling the same economic concerns as the treasury curve, however, as their yield premium over treasuries has been holding fairly steady.

Next week the Fed will hold a conference to review the tools, communications, and overall strategy it employs to manage monetary policy and accomplish its dual mandate (of price stability and maximum sustainable employment). This could hold implications for the real economy as well as markets. Topics to be considered may include price level, average inflation, and nominal income targeting.

The price of crude oil fell 9% this week to under $54 a barrel – up 18% YTD. US crude stockpiles showed a smaller-than-expected draw – of 0.3m barrels – while product inventories of gasoline rose (+2.2m bls) and diesel fell (-1.6m bls).  Oil prices were dragged lower with the general market, then dropped on Friday due to potential tariffs on Mexican crude.  Energy equities held in a little better than the commodity, with domestic producers falling 6% and service providers declining 4%.

Our equity holding in Nutanix faced a setback this week after posting weaker-than-expected quarterly results. Revenues are trending softer as the company works through shifts in the sales strategy. On the bright side, the “pipeline” for new sales rose substantially. This could be a sign that the tough quarters have been digested and that better results may be on the horizon.

The market continues to be negatively influenced by the break down in trade talks with China. This is not expected to improve 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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