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Weekly Market Update for August 30, 2019

by JM Hanley

The Dow was up on Friday, rising 367 points to close at 26,403. For the week, the Dow was up 3.0% (SP500 +2.8%) and year-to-date is now up 13.2% (SP500 +16.7%). The price of crude oil rose 2% this week to $54 a barrel – up 21% YTD.

Trade remains the most important topic on investors’ horizon. After back-and-forth reached a fever pitch last week, rhetoric cooled. China announced it hoped for a “calm” end to the trade war and wouldn’t retaliate for Washington’s escalation last Friday. The Administration reciprocated with constructive comments of its own. But little progress seems to have been made in negotiations; in fact, no substantive negotiations seem to be taking place.

Beijing may sense that things are shifting in its favor, and feel little pressure to compromise. Its unelected leaders have full control of fiscal and monetary policy and its economy has proven more resilient than thought. American officials enjoy no such ease of action. A breakthrough in the short term could thus prove elusive. As a result, the slate of tariffs scheduled for the first of September will very likely come into effect. The tranches scheduled for the first of October and for mid-December are less certain, and investors will watch closely.

Meanwhile, the trade policy outlook elsewhere has improved. Tariffs on imported European cars seem less likely, if US rhetoric after the G7 is anything to go by. And Japan and the US have purportedly reached a trade deal “in principle.”

The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points, and near a fresh low at 1.49%. The move anticipates a month of central bank interest-rate cuts. Chief among these will be the European Central Bank. Signals from Frankfurt, already dovish, have grown more pronounced as the German economy has continued to weaken. Investors expect the ECB to announce it will purchase about fifty billion euros’ worth of sovereign bonds. Additionally, political developments in debt-laden Italy means the country will likely avoid elections that could have brought a budget-busting populist party to power. The resulting rally in Italian bonds was felt throughout the market.

For its part, the Fed will probably cut rates a quarter point in mid-September. Whether or not the latest round of interest rate easing will have the intended effect of catalyzing growth is unclear. Rates were already low, and the inversion of the yield curve has lately been a headwind for stocks.

*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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