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Weekly Market Update for August 24, 2018

by JM Hanley

The Dow was up on Friday, rising one hundred thirty-three points to close at a record high of 25,790. For the week, the Dow rose 0.5% (SP500 +0.9%) and year-to-date is now up 4.3% (SP500 +7.5%). The yield on the 10-year Treasury (an important interest-rate indicator) fell five basis points, closing at 2.81%.

The week brought another rash of dramatic episodes in Washington.  Over the past few years, similar headlines have induced turbulence in the markets temporarily.  Yet stocks and fixed income have gone back to trading on economic fundamentals, which recently have been positive. We continue to monitor the situation closely.

This week’s economic data reflects an economy that has cooled modestly after running red-hot in the first half of the year. Markit’s survey of manufacturers reported that the pace of new orders has slowed. Firms also have adopted a more cautious approach to hiring as their operating expenses have risen. It’s a similar story in the services sector. Clients are spending less.  But excluding aircraft and military supply, shipments of capital goods increased last month. Businesses are continuing to invest despite the ongoing trade skirmish.

Limited supply has made the housing market an exception to the rule. Prices are up about five percent from a year ago, but the number of homes for sale actually has fallen.

Fed Chair Jerome Powell stuck to the script in his annual speech at Jackson Hole, which tilted dovish. Powell indicated he was happy with the Fed’s slow-but-steady cadence of rate hikes. Inflation has nearly reached the Fed’s target of 2%, he said, but seemed unlikely to accelerate much beyond that. Minutes of the Fed’s July meeting, released Wednesday, revealed Fed governors are similarly ambivalent. Trade, oil prices, and emerging markets may continue to be a source of uncertainty. But most economic indicators still point upwards.

Fed governors were divided on the yield curve. If short-term interest rates are higher than long-term rates, the yield curve is termed “inverted.” A number thought a potential inversion warranted more attention, but others downplayed its predictive value.

The price of crude oil rose 4% this week to $69 a barrel – up 14% year-to-date.  US crude stockpiles were drawn down by 5.8 million barrels.  Wall Street had expected a draw of just 1.9 million. The US soon will re-impose sanctions on Iran’s oil exports, but on Monday, Tehran forbade other OPEC members from taking its share of the export quota. Additionally, China resumed imports of American oil.

The last week of August looks to be a sleepy one. All but a few firms have reported their third-quarter earnings. Highlights on next week’s economic calendar include PCE and GDP estimates, both on Thursday, 8/29.

*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