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Weekly Market Update for March 22, 2019

by JM Hanley

The Dow was down on Friday, falling 460 points to close at 25,502. For the week, the Dow was down 1.3% (SP500 -0.8%) and year-to-date is now up 9.3% (SP500 +11.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell fifteen basis points, closing at 2.44%. This decline may have been triggered by rumors that the Mueller report would be released after the market closed, which it was.

The March meeting of the Federal Reserve ended with few surprises. Members of the Fed unsurprisingly expect to raise interest rates less than over the next three years than they did in December. In accordance with this view, Chairman Powell sounded sanguine about the prospects for economic growth – but expressed concern about inflation remaining too low. And as expected, the Fed said it would slow the pace of (deflationary) sales of assets on its balance sheet. The Fed’s reevaluation of its target inflation rate went largely unmentioned.

Now that markets have fully digested the Fed’s news, economic growth in China has become the most important factor. Europe’s economy relies on the export of luxury goods and advanced industrial products; China is their second-largest customer. Faster growth in China means faster growth in Europe. In turn, that would weaken the exchange rate of the dollar to the euro. An “expensive” dollar hurts US firms with earnings in foreign currencies.

The price of crude oil rose 1% this week to $59 a barrel – up 30% YTD. US crude stockpiles showed a surprise draw – of 9.6m barrels – while product inventories of gasoline (-4.6m bls) and diesel (-4.2m bls) likewise fell. This “triple draw” sent oil prices higher through Thursday, but market woes on Friday erased oil’s gains on the week. Shares of US domestic producers were modestly positive on the week, rising 2%.

After a false start, the UK’s Parliament reportedly will vote for a third time next week on the Prime Minister’s proposal for exiting the European Union. Developments in London and Brussels prompted Goldman Sachs to slightly raise the odds of a disruptive “no deal” departure. Its analysts still consider it more likely than not that Parliament will approve the Prime Minister’s deal. Any eventuality would have limited repercussions for US firms’ earnings. However, the uncertainty accompanying a no-deal exit could temporarily spook investors, and volatility in European sovereign bond markets is often felt in Treasury yields.

Important data releases next week include a revision to fourth quarter GDP, an important indicator of German business confidence, and Eurozone inflation. America’s Treasury Secretary and its Trade Representative will visit Beijing as progress continues on a trade deal. And a lengthy schedule of on-the-record events for members of the Fed and the chair of the ECB promises to keep trading action lively. Of course, any part of the Mueller report that is released will be market moving.

*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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