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Weekly Market Update for August 17, 2018

by JM Hanley

By and large, it was a sleepy late-summer week on Wall Street. The Dow was up on Friday, rising one hundred ten points to close at 25,669. For the week, the Dow rose 1.4% (SP500 +0.6%) and year-to-date is now up 3.8% (SP500 +6.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell one basis point, closing at 2.86%. The week saw some hints of a long-promised “rotation” from stocks that are attractive because of their prospects for future revenue growth to steadier but less-exciting businesses (value stocks). Telecom, consumer staples, and industrial stocks performed well. Energy, technology, and consumer discretionary firms performed worse.

With the exception of trade disputes, the global economy has been an afterthought for investors recently as America’s economy has boomed. That changed this week. Turkey’s currency, the lira, depreciated steeply once again. A much larger emerging market, China, also saw its currency tumble. Growth figures are coming in weak. The major Chinese stock index is off 20% this year. America and China’s decision to resume trade talks next week provided a rare bit of good news.

Stateside, confidence that large tech stocks will march steadily higher has eroded.  Big tech firms have grown at a remarkable pace over the past two and a half years. Investors have shown themselves willing to pay almost any price to own a piece of the business. Some poor earnings reports this quarter may have broken the spell, at least temporarily. Yet other macroeconomic trends may slow a full rotation into conventional stocks, which have been neglected of late. Firms with rapid earnings growth (like tech companies) suffer when interest rates rise. But central bank policy in Europe, Japan, and to a lesser extent the US, has slowed an increase in rates. Those factors, plus a strengthening dollar, have made for volatile equity markets.

The price of crude oil fell 3% this week to $66 a barrel – up 9% YTD. US crude stockpiles showed a surprise build – of 6.8m barrels – while product inventories of gasoline fell (-0.7m bls) and diesel rose (+3.6m bls). Oil prices took the leg lower this week amidst an anxious macro backdrop, including Turkey-driven emerging market concerns as well as falling industrials metals prices, stoking global demand concerns. This was further exasperated by another negative inventory report. Share prices of domestic oil producers felt the pain, dropping 5% this week.

Shares of the Chinese tech conglomerate TenCent suffered this week after the firm reported weak profits in its gaming segment.  Its e-commerce counterpart Alibaba 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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