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Weekly Market Update for December 29, 2017

The Dow finished down on Friday, falling 118 points to close the year at 24,719. For the week, the Dow fell 0.1% (S&P 500 -0.4%) bringing the year-to-date return to 25.1% (S&P 500 +19.4%, NYSE +15.8%). The nearly-5,000 point gain in 2017 was a record, and percentage-wise the second largest jump in a decade. US economic data were mostly absent this week, as were trading volumes with many investors on holiday break. After showing a swift rally to 2.50% last week, the yield on the 10-year Treasury declined 3 bps on Friday to finish at 2.41%, ending the year 7 bps lower than it began despite three Fed hikes.

On our fixed income side, despite being positioned defensively for rate hikes in the second half of the year, we are very pleased with our performance. While numbers are yet to be finalized, a rough cut suggests our fixed income portfolios were up over 6% this year, above our target of 5% and a solid return for clients dependent on a stable income stream. On the equity side, our portfolios likely outpaced both the S&P 500 and the Russell 3000 indices.

As we look to 2018 there are many reasons to be positive regarding the markets despite the bull cycle coming upon its nine-year mark. Tax reform is likely to boost corporate profits (potentially by 7-10% on average) and may provide a boost to economic growth. Capital availability and credit quality remain strong. Consumer, investor, and business confidence remain near multi-decade highs. Employment numbers and wage growth continue to show improvement. While we are cognizant that “everything looks good, until it doesn’t” and we are always on the lookout for signs of a turn, we don’t see a need to move defensive on the equity side or more defensive on the fixed income side in the near term.

The price of crude oil rose 4% this week to over $60 a barrel. Oil finished the year up over 12% after being down as much as 21% in June. US crude stockpiles showed a larger-than-expected draw this week – of 4.5m barrels – while product inventories of gasoline (+0.6m bls) and diesel (+1.1m bls) both rose. From the peak in inventories in February, the US has worked off (aka drawn down) over 167 million barrels of crude oil and petroleum products (~8% reduction). If we look just at crude, gasoline, and diesel that number is closer to 189 million barrels (~17% reduction).

Clearly the oil markets have been rebalancing after a period of excess supply in 2015-2016. On the equity side, we made a bet earlier in the year that this would be the case leading to a move in oil prices materially higher, and we are now seeing the benefits of our positioning. We think the inflows to the sector of late can continue in 2018.

The market (and our offices) will be closed next Monday in observance of the New Year. We will reopen on Tuesday and would love to answer any questions you have regarding your portfolios and positioning into 2018. Highlights on next week’s economic calendar include December manufacturing indices, automotive sales, and the employment report (Friday), along with FOMC meeting minutes.

Happy Holidays!

*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.


Ulland Investment Advisors

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