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Weekly Market Update for December 22, 2017

by JM Hanley

The Dow was down on Friday, falling 28 points to close at 24,754. For the week, the Dow rose 0.4% (S&P 500 +0.3%) and year-to-date is now up 25.3% (S&P 500 +19.9%). The yield on the 10-year Treasury, an important interest-rate indicator, rose thirteen basis points, closing at 2.48%. Rising interest rates typically have a negative effect on fixed-income securities. Most of our preferreds pay a coupon that varies (are “floating” or will in the future) along with rates. Rising rates thus have a limited impact on our fixed income’s value. In the equity market, energy stocks performed particularly well as the price of oil continued to rise and the outlook for the new year brightened.

Tax reform passed both houses of Congress and was signed into law. The legislation cuts corporate taxes dramatically, but also modifies or eliminates a number of popular business deductions. Wall Street analysts, CFOs, and accountants will spend the next few months parsing which firms will benefit, and by how much. One analysis estimates that lower tax rates will increase firms’ earnings by an average of 7-10%.

Data released this week showed a housing market that continues to thrive. Seven hundred thirty-three thousand homes new homes were sold in November. That’s more than in any month since July of 2007. The median house cost $318,700. That price increased from the previous year, which reflects strong demand. All homes currently on the market would be sold in less than five months at the current pace of sales. Developers are thus working to bring more homes to market. Builders began construction on 1.3 million new homes last month, with a notable increase in single-family homes. The pace of building has only been that fast once before in the past ten years. The National Association of Homebuilders’ index reached an eighteen-year peak as a consequence.

The price of crude oil rose 2% this week to $58 a barrel – up 9% YTD. US crude stockpiles showed a larger-than-expected draw – of 6.1m barrels – while product inventories of gasoline (+1.3m bls) and diesel (+0.7m bls) both rose. A number of small oil-related headlines contributed to the commodity tailwind this week, along with news of the federal tax changes. Amidst the recent softness in tech stocks the past few weeks, we have seen energy names among those beneficiaries of shifting dollars. We think the inflows can continue with traders noting clients are becoming more constructive on energy for 2018.

The market (and our offices) will be closed next Monday in observance of Christmas. Trading during the remaining four days of the week is expected to be very light. Highlights on next week’s economic calendar include the Dallas Fed’s manufacturing index on Tuesday, pending home sales on Wednesday, and retail inventories on Thursday.

*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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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464