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Weekly Market Update for December 1, 2017

by JM Hanley

The Dow was down on Friday, falling 41 points to close at 24,231. For the week, the Dow rose 2.86% (S&P 500 +1.53%) and year-to-date is now up 22.6% (S&P 500 +18.0%). The yield on the 10-year Treasury rose seven basis points, closing at 2.39%.

This week proved the exception to the market’s pattern this year of mostly ignoring political news. The major indexes climbed for the first four days of the week as the passage of the Senate’s tax bill grew more likely. Industrial and financial companies performed well. Firms in these sectors tend to pay high taxes and stand to gain most from a reduction in the corporate rate. Energy companies also performed well as the price of oil rose. Tech stocks, which pay a low effective tax rate, retreated.

As of Friday afternoon, the Senate appeared likely to pass tax cut legislation. Details of the bill continued to be refined in the hours before the vote. It appears that the Senate’s proposal would reduce the corporate tax rate to 20% and allow for limited deductions of state, local, and property taxes. It will probably allow domestic companies to bring profits held overseas to the US at a one-time tax rate of 14%.

The House of Representatives passed its own tax cut bill two weeks ago. It differs from the Senate’s in a number of respects. The two pieces of legislation would need to be merged together into a single bill, which both houses of Congress would then have to pass. To avoid these complications, the House may simply pass the Senate’s bill, which could then be signed into law.

The price of crude oil rose this week above $58 a barrel – up 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.8m barrels – while product inventories of gasoline (+3.6m bls) and diesel (+2.7m bls) rose. Oil prices benefitted from the 173rd OPEC Meeting which took place on Thursday. Member countries, along with their strategic non-OPEC partner countries, collectively decided to extend their group production cuts an additional nine months, carrying the agreement through year-end 2018. Saudi Arabia’s Minister of Energy noted that oil fundamentals are on firm ground and that, despite still elevated levels of storage, inventories are continuing on the right direction (i.e. lower), with no need for deeper cuts.

Third quarter earnings season here concluded with good news. Nutanix, one of our core equity positions, rose nearly 10% today after reporting earnings on Thursday night. In addition to better-than-expected sales and earnings growth, the company’s management noted that they had recently signed deals with Toyota, Scholastic, and ConocoPhillips.

*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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