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Weekly Market Update for August 2, 2019

by JM Hanley

The Dow was down on Friday, falling 98 points to close at 26,485. For the week, the Dow was down 2.6% (SP500 -3.1%) and year-to-date is now up 13.5% (SP500 +17.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell twenty-three basis points to close at 1.84%.

As expected, the Federal Reserve cut interest rates by a quarter point. The unusual mid-cycle cut, enabled by low inflation, was intended as a plum for financial markets (though some market optimists had held out hope for even more). But Jerome Powell almost squashed hope for more cuts at the subsequent press conference. The Fed Chair suggested a steady regimen of rate cuts wasn’t in the cards, which came as an unwelcome surprise to Wall Street.

But this rate news, and the ensuing volatility on the Treasury yield curve, were swiftly overtaken by the Administration’s decision to impose tariffs on more Chinese imports. Negotiating tactic or not, the duties (mostly on consumer goods) stand a decent chance of coming into effect September 1st. China’s economic prognosis has improved recently, so Beijing may feel less pressure to make concessions. The resulting increase in consumer prices could slow America’s economy. Now investors’ hopes for an aggressive schedule of rate cuts are back on.

Today’s July jobs report was good. The number of jobs was about as expected, but wages increased quickly, and more people are looking for work.

The price of crude oil fell 1% this week, crossing under $56 a barrel – up 23% YTD. US crude stockpiles showed a greater-than-expected draw – of 8.5m barrels – while product inventories of gasoline (-1.8m bls) and diesel (-0.9m bls) both fell. Oil prices were on an upward grind early in the week on favorable inventories and seething tension in the Middle East, then flattened out mid-week after the Fed rate decision. Prices fell hard Thursday after the White House actions on trade stoked fears of a global slowdown and its negative impact on oil demand. Energy equities had a rough week, with domestic producers falling by 4% and service providers by 6%.

Second-quarter earnings continued this week. Granite Construction has seen costs run higher than expected on some major government projects. A judge’s decision to leave Granite with a larger share of expenses on a contested contract didn’t help either. Elsewhere, iPhone sales weren’t as bad as feared, aided in part by China’s improving economy. Success with the Apple Watch and wireless headphones also helped. These boosted as-expected results from Services, which includes music streaming and IT support.

Fintech firm FIS finally completed its acquisition of payment acquirer WorldPay. Shares of WorldPay have been replaced with shares of FIS (and some cash) in equity portfolios.   Finally, cloud computing firm CloudEra outperformed the market considerably today after word that legendary activist investor Carl Icahn had taken a 13% stake in the firm. Icahn has yet to make his intentions for the firm clear.

*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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