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Weekly Market Update – April 21, 2017

The Dow finished down on Friday, sliding 31 points to close at 20,547.  For the week, the Dow rose 0.5% (S&P 500 +0.8%) and year-to-date is now up 4.0% (S&P 500 +4.9%).  The yield on the 10-year Treasury was flat Friday at 2.23%, and ended the weak roughly unchanged as well despite dipping to 2.17% on Tuesday.  Our portfolios continue to perform well – through Thursday, April 20, our trust preferred portfolios were up close to 3% YTD versus the Barclays Aggregate Bond Index up 1.7%.

US economic data was somewhat negative this week.  The April Empire State Manufacturing Index dropped sharply to 5.2 from 16.4 in March.  Housing data was mixed with March annualized housing starts of 1.22m missing expectations for 1.25m and a disappointment from the NAHB Index of market conditions, while permitting surprised to the positive.  March “core” inflation, as measured to the consumer, was up 2.0% y/y versus expectations of 2.3%.  On the positive side, The Conference Board’s leading economic indicators (LEI Index) increased 0.4% m/m, above expectations for a 0.2% gain.  Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, stated “The March increase and upward trend in the U.S. LEI point to continued economic growth in 2017, with perhaps an acceleration later in the year if consumer spending and investment pick up.  The gains among the leading indicators were very widespread.”  The Architectural Billings Index (ABI), a leading indicator of non-residential construction activity was also positive, showing a solid rise in March.

Republicans’ efforts to replace the ACA are once again coming back into focus (not the first time we’ve said that), with reports suggesting moderate and more conservative groups within the GOP party coming to agreement on additional key healthcare legislative points.  The President contends there is a good chance congress could come to a vote next week, though gov’t aides downplayed those chances.

Outside the US, Eurozone manufacturing activity for April hit a six-year high and China Q1 GDP grew faster than expected (+6.9% y/y).  North Korea remains a market wildcard with US Vice President Pence stating that the “era of strategic patience is over,” shortly following a failed North Korean missile test.  One of North Korea’s few allies, China, may be an important player in whether this situation de-escalates going forward.

The price of crude oil fell nearly 7% this week to slightly under $50 a barrel – now down nearly 8% YTD.  The EIA reported that crude stockpiles decline this week – by 1.2m barrels – while a rise in product inventories of gasoline (+1.6m bls) for the first time in eight weeks concerned the market.  The drop in oil pressured our energy holdings; however, we believe recent weakness was driven by technical factors, not macro fundamentals, and that negative sentiment will prove transient as we move through the spring. 

Next week’s economic calendar highlights will include March new home sales and The Conference Board’s Consumer Confidence Index on Tuesday (4/25), March pending home sales and preliminary durable goods orders on Thursday (4/27), and the Q1 advance GDP estimate for the US on Friday (4/28). 

Have a great weekend!

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Ulland Investment Advisors

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