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Weekly Market Update – August 4, 2017

The Dow finished up on Friday, rising 66 points to close at 22,092. For the week, the Dow rose 1.2% (S&P 500 -0.2%) and year-to-date is now up 11.8% (S&P 500 +10.2%). Market indices have shown little concern regarding geopolitical tensions among North Korea, Russia, and the US; however recently, fund flows have shown dollars leaving US equities in favor of foreign markets and fixed income dollars flowing into US Treasuries and investment-grade bonds from high yield. The yield on the 10-year Treasury fell 5 bps Friday to 2.22%, down 7 bps for the week, proving to be another good week for preferreds.

US economic data were mixed this week. July automotive vehicle sales as well as the ISM manufacturing report were a little soft, while June pending home sales and the July employment report were stronger than expected. In July, non-farm payrolls increased 209,000, above the market estimate of 180,000, and June’s employment gains were revised higher (to 231,000, from 222,000). The unemployment rate ticked down to 4.3%, as expected, while average hourly earnings rose 2.5% y/y.

Debate continues on where corporate tax rates will ultimately shake out if congress is successful in passing tax reform. When legislators return from recess they will need to quickly work on a debt ceiling raise or face a similar debt cliff crisis like we saw in August 2011. Earnings season continues to hum along, with over 70% of S&P 500 companies beating revenue expectations and a similar number surpassing EPS forecasts. On average, companies have expanded revenues by 5% and earnings by 10% y/y – both solid numbers.

The price of crude oil was roughly unchanged this week in the $49-50 a barrel range – down 8% YTD. US crude stockpiles showed a smaller-than-expected draw – of 1.5m barrels – and product inventories of gasoline (-2.5m bls) and diesel (-0.2m bls) declined as well. In addition to the continued inventory draws, oil prices were helped this week by drilling spending cuts from some large US producers and the continued turmoil in Venezuela. On Monday, some members of OPEC/non-OPEC will meet in Abu Dhabi to discuss, once again, group compliance and to pressure non-compliant members into cooperation.

Next week’s economic calendar highlights will include the NFIB Small Business Optimism Index on 8/8, July PPI inflation on 8/10, and CPI inflation on 8/11. Business optimism is expected to remain near record highs, while both inflation measures are forecast to stay in that 1.7-2.0% range. Q2 earnings should mostly wrap up next week as well.

*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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