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Weekly Market Update – April 24, 2015

The Dow rose 21 points Friday on the strength of better-than-expected earnings reports.  For the week the Dow was up 1.4% and for the year the index is up 1.5%.

With no major economic data reported Friday corporate earnings took center stage.  Microsoft and Amazon both reported solid Q1 earnings and led Friday’s rally, both advancing over 10%.  Starbucks also surged after reporting late Thursday.  The enthusiasm generated from the releases propelled the NASDAQ and S&P 500 to record highs. 

Oil fell .8% to $57.28 Friday, ending the week up 2.0%.  Despite the number of oil rigs in operation in the US falling to its lowest level since 2010, oversupply concerns sent oil lower on news that Russia and Saudi Arabia were increasing production.

The yield on the 10-year Treasury fell 3 bps Friday to 1.92%, up 7 bps for the week and now down 25 bps for the year.  Through Thursday, April 23, our trust preferred portfolios were up approximately 4.5%, on average, versus 1.71% for the Barclays Aggregate Bond Index. 

Many accounts have Magnum Hunter preferreds which were under pressure today as the company is in the midst of raising capital.  Earlier in the year, the company announced it was seeking a joint venture partner to develop some of its Ohio and West Virginia natural gas acreage.  The joint venture appears to be delayed from the original March/April timeline discussed on the last earnings call.  After speaking with management today, we believe the joint venture is 45-60 days out.  The company is looking to get an upfront payment in the $30-$100 million range, with the partner paying for future drilling costs between $300-$400 million.
 
We believe the company will issue additional equity in the near future to raise additional cash, which we view as a positive step to securing the dividend payments. We expect the preferred shares to remain volatile until a joint venture agreement is reach in the next 6-8 weeks.

Next week’s economic calendar highlights include consumer confidence reports on Tuesday and Friday and weekly jobless claims and an April manufacturing report on Thursday.  Expect consumer confidence to remain steady, weekly jobless claims to settle in the 280,000 – 290,000 range (from 295,000 this week) and the manufacturing report to show an uptick in activity from March. 

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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