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Weekly Market Update for February 14, 2020

by JM Hanley

The Dow was down on Friday, falling 25 points to close at 29,398. For the week, the Dow was up 1.0% (SP500 +1.6%) and year-to-date is now up 3.0% (SP500 +4.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis points, closing at 1.59%. Fixed income was strong. The price of crude oil was up 4% this week to $52 a barrel – down 15% YTD.

Weekly economic data presented a mixed picture. Inflation increased slightly faster than expected, driven by the cost of housing and healthcare. However, US retail sales declined last month when some volatile categories are excluded. A confident US consumer has at times been the sole engine of global growth in recent years. Fortunately, a widely-watched indicator of consumer confidence increased. Elsewhere, industrial production declined last month.

A number of payment firms reported earnings this week. Credit card and bank software provider Fidelity Information Services (FIS) reported slightly better than expected results. The firm’s integration of ecommerce payment processor WorldPay is going better than expected, and the firm’s management foresees abundant opportunity to sell WorldPay’s software to its existing clients. FIS will spend slightly more next year to take advantage of these opportunities.

FIS’s next-door neighbor Black Knight, which sells software to service mortgages, continues to prosper in this era of ultra-low mortgage rates. Interest in the firm’s new software for selling mortgages is apparently robust. Black Knight’s profit outlook for next year was about as expected. Euronet Worldwide, which runs ATMs and remittance terminals, was the unusual disappointment in the payments sector. Winter is the weakest season for the firm’s ATMs, which are targeted at tourists in Europe. Meanwhile, more stringent ID requirements in the US have put a temporary damper on the sending of remittances.

Elsewhere, CVS’s earnings were about as expected, as was its outlook for this year. New business is picking up at the firm’s drug plan management (PBM) business. The company has also remodeled some stores with a focus on health and beauty products, which earn higher profits than the merchandise they have replaced. Results at Chinese ecommerce giant Alibaba were better than expected for the period just before the coronavirus outbreak. Comments from the CFO indicate the outbreak’s impact upon the firm will likely be substantial. But since the outlook for future growth is otherwise healthy, Wall Street seemed inclined to give Alibaba a pass.

Air Lease, which rents aircraft to small airlines, is hoping for similar investor lenience. Asia comprises 40% of the firm’s business, and there travel has dropped precipitously. The firm has had to offer lease repayment deferrals and other accommodations to keep its customers solvent.

About 70% of SP500 companies have now reported quarterly results. About 74% of companies have had better earnings than expected. Earnings have grown about 2% in aggregate since last year; excluding the energy sector, they have grown 5%. Devon Energy, Parsley Energy, and Granite Construction, among others, will report earnings next week.

Our offices will be closed this coming Monday in observance of Presidents’ Day.

*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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