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Weekly Market Update – April 28, 2017

The Dow finished down on Friday, sliding 40 points to close at 20,940.  For the week, the Dow rose 1.9% (S&P 500 +1.5%) and year-to-date is now up 6.0% (S&P 500 +6.5%) driven by an increase in the likelihood of an Emmanuel Macron French Presidential win, reducing the perceived risk stemming from the Eurozone.  The yield on the 10-year Treasury was down 1 bp Friday to 2.29%, ending the week up 6 bps.  Our portfolios experienced a strong week – through Thursday, April 27, our trust preferred portfolios were up over 3.1% YTD versus the Barclays Aggregate Bond Index up 1.5%.

US economic data leaned negative this week. While the housing market showed strength (new home and pending sales positively surprised), consumer confidence ticked down, durable goods orders were weak, and GDP underwhelmed low expectations.  The preliminary Q1 GDP estimate for the US showed the economy growing at just 0.7% (weakest in 3 years) versus expectations of 1.0% and versus Q4 growth of 2.1%.  The GDP miss was partly driven by weak personal consumption, up just 0.3% versus expectations of +0.9%.  The UK saw a similar slowdown, with GDP growing just 0.3% versus 0.7% in Q4, also led by a soft consumer.  It is worth noting, however, that US Q1 GDP has been weak in recent years before accelerating in the remaining quarters.  According to the Wall Street Journal, Q1 GDP has averaged +1% since the recession, but +2.5% for Q2-Q4’s – so we’ll give Q1 “a pass.”

Republicans tried to set up a new vote on an ACA replacement for this weekend in time for the President’s 100th day in office, but found they are still lacking enough votes.  The Administration did release a tax proposal Wednesday, calling for a reduction in the corporate tax rate to 15% from 35%, including a 15% top rate for “pass-through entities.”  Treasury Secretary Mnuchin says the plan should pay for itself via economic growth.  On the personal income side, the proposal reduces the seven-tier personal tax bracket system to three tiers, eliminates the estate tax, and returns the top capital gains rate to 20%.

The price of crude oil fell a hair this week to slightly above $49 a barrel – now down 8% YTD.  The EIA reported that crude stockpiles declined this week – by 4.1m barrels – while a rise in product inventories of gasoline (+3.4m bls) and diesel (+2.7m) continued to concern the market.  We still contend that seasonal crude oil draws will begin in earnest in the coming weeks and will result in material crude inventory reductions in the second half, with OPEC extending their cut agreement through year end.

Next week’s economic calendar highlights will include April ISM Manufacturing and automotive vehicle sales on Monday (5/1), the Fed’s FOMC rate decision on Wednesday (5/3), Q1 non-farm productivity on Thursday (5/4), and the April employment report Friday (5/5).  ISM manufacturing is expected to tick down while the vehicle sales pace bounces back (to 17.1m from 16.5m in March).  The FOMC is expected to leave the Federal Funds Rate unchanged at the 0.75-1.00% range.  The big unemployment report is expected to show a sharp bounce back in job growth from an unexpectedly low +89k in March to +190k in April, but with a slight uptick in the unemployment rate.

Have a great weekend!

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Ulland Investment Advisors

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