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Weekly Market Update for May 4, 2018

by JM Hanley

The Dow was up on Friday, rising 332 points to close at 24,263. For the week, the Dow fell 0.2% (SP500 -0.2%) and year-to-date is now off 1.9% (SP500 -0.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell one basis point and closed at 2.95%.

Economic data this week were good, if not quite as good as the market anticipated. One hundred sixty-four thousand jobs were added to domestic payrolls last month. Hourly wages rose a bit, but the length of the average workweek didn’t change. Fewer of those unemployed are looking for work. Partially as a result, unemployment fell to 3.9%, its lowest point since 2000.

Those that are working got slightly more productive over the first three months of the year. That, plus low unemployment, increased employers’ labor costs. Other expenses are rising too. Manufacturing CEOs continue to bemoan the cost of supplies, which have reached a seven-year high. Non-manufacturing managers also are worried about America’s ongoing spat over trade. But new orders remain strong across the economy.

Consumers are feeling some of the boom. Personal incomes rose three-tenths of a percent last month. Spending climbed slightly faster. Home sales remain a laggard. The pace of new listings has slowed, so prices may simply have gotten too high. Oddly, construction spending also declined last month – a major surprise to industry analysts.

As anticipated, the Federal Reserve left interest rates unchanged at its meeting this week. Committee members said that inflation was good, but not good enough to justify higher rates.

The price of crude oil rose 2% this week to $69 a barrel – up 15% YTD. US crude stockpiles showed a surprise build this week, of 5.7m barrels, while product inventories of gasoline rose (+1.2m bls) and diesel fell (-3.9m bls). Despite the negative optics of the headline crude build, the inventory increase was primarily amongst West Coast terminals, where changes are less impactful to the market.

Meanwhile, crude saw strengthening support as we near the deadline next week for a decision on the Iran nuclear deal; Reuters notes the US President “has all but decided to withdraw.” Also boosting prices were surveys suggesting OPEC oil production declined in April versus March, largely on the back of a further drop in Venezuela. Venezuelan production rates have fallen by roughly 500,000-600,000 barrels per day over the past year, and are at risk of dropping a further 200,000 bls/d by year end, according to S&P Global Platts. Compliance with the OPEC agreed cuts remains exemplary and overall production is significantly below even targeted levels.

Companies continued to report their first-quarter earnings this week. Business is booming at Alibaba and Granite Construction. Higher sales and profit margins pushed up the share price of both. Good well results also helped the stocks of Anadarko Petroleum and Devon Energy, in a favorable environment for oil companies.

Earnings per share for stocks listed on the S&P 500 have increased 24% since last year. About half of that can be attributed to the corporate tax cut passed in December.

*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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