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Weekly Market Update – January 13, 2017

The Dow was flat Friday. Solid fourth quarter earnings reports from big banks offset falling oil prices and soft holiday sales numbers in retail. For the week, the index was up 0.4%; year-to-date it’s up 0.6%. Our preferreds continue to outperform the Barclay’s Aggregate Bond Index, and are off to a good start in 2017.

It was a quiet week for domestic economic headlines. The NFIB small business optimism index saw its largest monthly gain on record, rising to 105.8 last month from 98.4 in November. The sharp increase was linked to the outcome of the election. Heightened expectations drove the surge. 50% of small business owners expected the economy to do better, and 31% expected sales to increase. Elsewhere, December retail sales rose 0.6% from the previous month, slightly disappointing analysts who had expected a 0.7% increase. The National Retail Sales Federation announced that holiday sales rose 4.3%. This outpaced the expected 3.6% increase. Online sales, which increased 12.6%, were particularly strong. The producer price index (PPI) rose 0.3% in December after an increase of 0.4% in November. PPI’s annualized 1.6% surge in December is the fastest in three months, and underscores the likelihood that higher inflation could be on the horizon.

Several of the nation’s largest banks reported fourth-quarter results Friday, marking the unofficial start to earnings season. Results were generally positive. J.P. Morgan outperformed. It posted earnings of $1.71 a share, about 20% better than Wall Street had forecast. Bank of America also beat expectations, as lower expenses offset a slight decline in revenue. Wells Fargo offered a mixed bag. While revenue missed estimates, its net interest margin – the income earned from its deposits – outperformed, making investors optimistic given rising interest rates. Shares had climbed 1.5% by the end of the day.

The price of crude oil (Brent) closed at $55.61 a barrel on Friday, down 2.6% on the week. This marked the largest weekly drop since early November. Prices have risen steadily since major oil exporters signed on to a production cut agreement in December. Investors, however, remain wary that exporters won’t comply with the deal’s caps on production. Higher-than-expected buildup of U.S. oil and fuel inventories also weighed on prices.

Highlights on next week’s economic calendar include the consumer price index (Jan. 18), initial jobless claims (Jan. 19), housing starts (Jan. 19) and the Philadelphia Fed’s manufacturing index (Jan. 19). Fourth-quarter corporate earnings releases will continue next week.

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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