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Weekly Market Update – August 19, 2016

The Dow finished 45 points lower on Friday as investors anticipate higher chances of an interest rate hike this year. Year-to-date the index is up 6.5%.

Not much came out from this week’s domestic economic data. Jobless claims fell to 262K from 266K in the prior week. The Philly Fed index for August rose to +2 from (2.9) and was in line with consensus. July Federal Open Market Committee (FOMC) Minutes this Thursday gave out no real directional takeaways. The minutes indicated there was a general agreement that the committee should wait before raising rates until there was more economic data that provided more confidence that the economy was strong enough to withstand the potential impact to demand from an increase. Some participants felt that a rate hike was or would soon be warranted, while others wanted to wait for more evidence of inflation. The minutes noted that with neutral rates potentially remaining quite low, the Fed’s framework should have capacity to supplement conventional policy accommodation with other measures. Recall there has been a pickup in conversation about a “rethink” of policy in the increasingly accepted new low natural rate world, which San Francisco Fed President Williams discussed on Monday and St Louis Fed President Bullard touched on today. The minutes also revealed some discussion about potential overvaluation in the CRE market, elevated level of equity values relative to expected earnings and the reach for yield. For the week, the U.S. Preferred Stock Index was -0.3%.

For the week, the crude was up 8.8%. Upbeat prospects for a rebalance of the oil market were fueled by drawdowns in U.S. crude and gasoline inventories, declining production in China and Latin America, and recent indications that major producers both outside and within the Organization of the Petroleum Exporting Countries could take steps to stabilize prices.

Next week’s economic calendar highlights include New Home Sales (Aug. 23rd), Crude Inventory (Aug. 24th), and Initial Jobless Claims and Natural Gas Inventories (Aug. 25th). The rest of August normally has low trading volume as Well Street heads off for vacations.

Have a great weekend,
Yansong Pang

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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