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Weekly Market Update – August 11, 2017

The Dow finished up on Friday, rising 14 points to close at 21,858. For the week, the Dow fell 1.1% (S&P 500 -1.1%) and year-to-date is now up 10.6% (S&P 500 +9.0%). After persistently shrugging off political and geopolitical discord for months – and in the meantime setting records for low volatility – the market indices finally showed signs their thick skins were not impenetrable. The S&P 500 dropped 1.7% from its Monday high through Thursday before Friday’s small bounce. The yield on the 10-year Treasury fell 6 bps Friday to 2.19%, down 3 bps for the week.

US economic data were mixed again this week. The NFIB Small Business Optimism Index improved further to 105.2 and June’s JOLTS nonfarm job openings data reached the highest level in its history (back to 2000), far outpacing forecasts. Inflation, however, continues to run below economists’ expectations for the 5th consecutive month. The soft inflation trend (1.7-1.8%) remains the primary obstacle to a third potential Fed rate hike later this year.

The war of words between North Korea and the US is largely being blamed for the “risk-off” sentiment seen mid-week. The ramp in nuclear rhetoric comes after Pyongyang conducted a series of missile tests (including 2 ICBM’s in July) and the UN responded with tougher sanctions this past weekend. This type of nuclear rhetoric has been ongoing for decades; however, intelligence officials have recently concluded that North Korea has produced a miniaturized nuclear warhead that can fit inside its missiles. While US stocks have a good track record of successfully rebounding following geopolitical events – and we are optimistic the current recovery still has further upside – some investors are concerned this event could bleed over into debt ceiling headwinds in Congress this fall and thus are taking some equity chips off the table.

The price of crude oil fell 1% this week to below $49 a barrel – down 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 6.5m barrels – and product inventories of gasoline rose (+3.4m bls) while diesel fell (-1.7m bls). Crude oil was doing well for most of the week driven by continued inventory draws – surpassing the $50 a barrel line – before monthly reports from OPEC and the IEA showed unfavorable revisions to the supply-demand picture late in the week.

Next week’s economic calendar highlights will include July advance retail sales on 8/15, housing starts on 8/16, capacity utilization and leading economic indicators on 8/17, and consumer sentiment on 8/18. Retail sales are expected to show improvement after a disappointing June report, with a consumer sentiment pickup as well. Housing and capacity utilization are expected to run similar to prior months,  while the leading economic indicators are expected to show some slowing from June.

*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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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464