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Weekly Market Update for April 20, 2018

by JM Hanley

The Dow was down on Friday, falling 202 points to close at 24,463. For the week, the Dow rose 0.4% (SP500 +0.5%) and year-to-date is now off 1.0% (SP500 -0.1%). The yield on the 10-year Treasury, an important interest-rate indicator, rose thirteen basis points, closing at 2.96%

Retail sales rose a little last month after falling for the first three months of the year. On the other hand, the housing market slowed. Tariffs, including one on lumber from Canada, have raised the cost of building supplies. Home prices have increased as a result. But American factories are humming along. Over the last two quarters, output has grown at its fastest pace in six years.

The International Monetary Fund released its world economic outlook on Tuesday. The world economy is expected to grow around four percent this year and the next. Tax cuts and higher federal spending will fuel America’s economy. The party is expected to continue until around 2020, when the “bills” for deficit spending will start to come due. It’s anticipated that growth will slow further in 2023, when tax incentives for business spending end.

The Federal Reserve remains sanguine. The San Francisco Fed President argued that concerns over the national debt would eventually increase the cost of longer-dated bonds. More broadly, the Fed reiterated that wage growth and inflation remain slow despite America’s strong labor market. Such conditions justify a more measured approach to interest-rate hikes.

The price of crude oil rose 2% this week to $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise draw this week – of 1.1m barrels – while product inventories of gasoline (-3.0m bls) and diesel (-3.1m bls) also fell more than expected. Stocks of energy companies outpaced the jump in oil this week, rising 4%, but are still trailing the commodity YTD, up 5%.

In addition to the bullish inventory report, oil benefitted from a number of positive news items that more than offset weak (flat y/y) vehicle miles traveled and criticism from the President towards OPEC. Multiple sources suggest the Saudis are targeting $80/barrel crude prices. And crude inventories in the US are now below their 5-year average for the first time since 2014, with global stocks near their average.

Companies continued to report their earnings for the fourth quarter this week. Shares of United Health Group rose after the insurer reported yet another quarter of steady membership growth and lower healthcare costs. And long-suffering General Electric cleared a low bar by reporting better-than expected sales and maintaining its full-year profit outlook. Facebook, Google, Amazon, and Visa, among others, will report earnings 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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