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Weekly Market Update for February 16, 2018

by JM Hanley

The Dow was up on Friday, rising 19 points to close at 25,219. For the week, the Dow rose 4.3% (SP500 +4.3%) and year-to-date is now up 2.0% (SP500 +2.2%). After a precipitous drop last week, equity markets bounced back. Large tech firms, banks, and payment companies did particularly well. Healthcare and car companies underperformed the market. News of quickening inflation weighed on the prices of US government bonds. The yield on the 10-year Treasury, an important interest-rate indicator, rose three basis points, closing at 2.89%.

Economic data released this week underscored the economy’s momentum. Developers are now building new homes at the fastest pace in ten years. Construction of multifamily units, in particular, has grown rapidly. With all the positive signs, US consumers now report that they feel more optimistic about the economy than they have at any point since 2004. Inflation has picked up. Data for last month revealed that prices rose over two percent since January 2016 – the fastest pace in more than a year. Many analysts had correctly predicted that inflation would pick up, since wages grew last month.

Retail proved to be one of the few weak spots. Sales fell 0.3% in January, the worst decline in eleven months. Industrial production was also a bit weak. Many managers blamed the rising cost of supplies.

The price of crude oil rose 4% this week to $61 a barrel – up 2% YTD. US crude stockpiles showed a smaller-than-expected build this week – of 2.3m barrels – while product inventories of gasoline (+3.6m bls) rose and diesel (-0.4m bls) fell. In addition to the smaller crude build, a sizeable draw at the Cushing hub, along with strong product demand and a weaker US dollar, pushed commodity prices up. We continue to believe the supply-demand setup is favorable for oil producers this year, particularly after we exit the refinery maintenance period occurring February to April.

Companies continued to report their earnings for the fourth quarter this week. Granite Construction’s stock rose after the firm reported that its revenues grew more than expected, and its profit margins expanded. By now, 80% of companies listed on the S&P 500 have reported fourth-quarter results. Nearly four out of five have recorded revenue growth. Earnings per share have grown 15.2%, on average, which marks the fastest pace since the third quarter of 2011. Medtronic, Devon Energy, Stamps.com, and Nutanix, among others, will report earnings next week.

The market, and our offices, will be closed 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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Ulland Investment Advisors

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