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Weekly Market Update – April 13, 2017

The Dow finished down on Thursday, sliding 138 points to close at 20,453.  For the week, the Dow was down 1.0% (S&P 500 -1.1%) and year-to-date is now up 3.5% (S&P 500 +4.0%).  The yield on the 10-year Treasury fell 1 bp Thursday to 2.23%, ending the week down 14 bps.  

US economic data was mostly positive this week.  The NFIB Small Business Optimism Index remained high in March at 104.7.  The University of Michigan’s Consumer Sentiment Index rose to 98.0 in April, above expectations of 96.9, while the Current Conditions subcomponent rose to its highest level since 2000.  This week’s initial jobless claims fell to 234,000, better than expectations.  However, one of the measures of inflation (PPI) rose only 1.6% y/y in March, below expectations of 1.8%.  The other inflation measure (CPI) will be released tomorrow along with advance retail sales.

Earnings season for the first quarter is now underway, with major banks kicking things off this week.  J.P. Morgan, Citigroup, and PNC all reported positive surprises, while Wells Fargo was neutral to slightly negative.  Recall, we hold significant positions in the major banks.  Tax reform is still in limbo with Gary Cohn, Director of the National Economic Council, suggesting that a bill may not pass before the August legislative recess, contrary to the target of Treasury Secretary Steven Mnuchin.  On the geopolitical front, tensions surrounding North Korea and their nuclear ambitions are of increasing concern to the market.

The price of crude oil climbed 2% this week to $53 a barrel – now down just 1% YTD.  The EIA reported that crude stockpiles decline this week – by 2.8m barrels – following three weekly builds, and also that product inventories of gasoline (-3.0m bls) and diesel (-2.2m bls) continue to fall hard despite US refinery utilization on the rise.  On Monday, the International Energy Agency stated the global oil market is very close to reaching a supply-demand balance despite lowering their forecast for 2017 demand and noting demand growth will slow for the 2nd straight year.  Despite a slowdown from very strong growth in 2015, we’d note demand is still very strong, growing well over 1 million barrels per day y/y and we believe we are in a balanced market today.  Our energy holdings, both in equity and fixed income strategies, should stand to benefit from a potential rise in oil prices towards $60 by year end.  The US rig count rose 8 this week (+11 oil, -3 gas), roughly in-line with YTD averages.

Next week’s economic calendar highlights will include the April Empire Manufacturing Index on Monday (4/17), March housing starts and permitting data on Tuesday (4/18), and the Conference Board’s Leading Economic Indicators for March on Thursday (4/20).  We will see if the market rebounds next week after falling below its 50-day moving average on Wednesday for the first time since the election.

Have a great weekend!

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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