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Weekly Market Update for August 9, 2019

by JM Hanley

The Dow was down on Friday, falling 91 points to close at 26,287. For the week, the Dow was down 0.8% (SP500 -0.5%) and year-to-date is now up 12.7% (SP500 +16.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell nine basis points to close at 1.74%.

The broad narrative undergirding the market surged back and forth this week. China’s decision to let its currency depreciate as a trade war tactic, and the dramatic rise in the prices of “safe haven” sovereign bonds, spooked investors early in the week. Poor manufacturing data from Germany amplified fears of a global macroeconomic slowdown. Beijing’s subsequent retraction and better news from Germany helped stocks rally mid-week. Signs that the US would take a tough line with Chinese telecom giant Huawei – and news that Europe’s indebted problem child, Italy, is headed for destabilizing elections – ignited fresh uncertainty today.

The price of crude oil fell 2% this week to $54 a barrel – up 20% YTD. US crude stockpiles showed a surprise build – of 2.4m barrels – while product inventories of gasoline (+4.5m bls) and diesel (+1.6m bls) both rose. The negative surprise was driven by a jump in imports along with a decline in exports. The narrowing spread between US and global benchmark prices encouraged Gulf refineries to prefer less US crude. Oil prices fell most of the week on the unfavorable inventories, China’s depreciating currency, and cuts to oil demand forecasts by the IEA. Prices rebounded on Friday as reports suggested that Saudi Arabia was rallying its partner producers within OPEC to explore deeper cuts to export sales. Energy equities trailed the commodity this week, with domestic producers falling by 4% and service providers by 9%.

The week was packed with second quarter earnings reports. The grounding of Boeing’s 737 Max had an impact on Air Lease. The firm, which rents planes to regional airlines, has played it well by swapping some planned Max purchases for a model that’s currently airworthy. But purchases of new aircraft to lease will nonetheless be lower this year. Similarly, the media’s fixation on the Dominican Republic has not helped Playa Resorts, which owns a few properties there. But the stock performed well after the CEO asserted his confidence in long-term growth prospects.

Trucker Daseke disappointed Wall Street’s expectations and lowered its forecast of full-year profitability. A weak market for flatbed trucking was compounded by mismanagement. Axon, which manufactures Taser, had to slow production of the device after a battery supplier encountered unexpected problems. The firm also cut pricing on some new products to encourage clients to give them a try.

CVS, which now includes major health insurer Aetna, performed well this week after it reported a better-than-expected second quarter and increased its forecast of full year profitability. The firm attributed some of its success to a new smartphone app that encourages Aetna clients to take their medications on schedule. That improves patients’ health as well as CVS’s bottom line. Finally, Fidelity Information Services (FIS) also reported a better than expected quarter. The firm has already had success selling WorldPay’s credit card processing services to its banking clients. The acquisition of WorldPay by FIS closed at the end of last month.

*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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