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Weekly Market Update – February 17, 2017

The Dow held onto its streak on Friday, rising 4 points to close at 20,624 – marking seven consecutive record highs.  For the week, the Dow was up 1.7% (S&P 500 +1.5%) and year-to-date is now up 4.4% (S&P 500 +5.0%).

US politics continue to garner a lot of attention; however, the market seems willing to accept Washington volatility as deregulation, potential tax reform, and favorable economic data continue to nudge the markets higher.  The path of least resistance is currently up, with reflation expectations a major driving force.  January CPI rose 0.6% m/m vs. expectations of 0.3% and PPI rose 0.6% vs. expectations of 0.3%. 

In addition to the strong inflation data, we saw solid January retail sales (+0.4% m/m vs. consensus 0.1%), January housing starts (1.246m annualized vs. consensus 1.226m), and weekly jobless claims (239k vs. consensus 245k) despite softer January Industrial Production (-0.3% m/m vs. consensus of flat).  Another economic check, courtesy of The Conference Board, shows leading economic indicators (the LEI Index) increased 0.6% in January versus 0.5% in December and only 0.2% in November.  Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, stated “The January gain was broad based among the leading indicators.  If this trend continues, the U.S. economy may even accelerate in the near term.”  Likewise, the NFIB showed small business optimism rose to 105.9 in January, from 105.8 in December, to the highest level since December 2004.  They note that the surge in optimism that some investors flagged as fleeting may have some staying power.

The price of crude oil was flat on the week, closing Friday at $53.72 a barrel – also flat YTD.  Oil fell during the first half of the week with growing concern surrounding inventory builds in the US and strengthening US Treasury yields, but regained ground in the latter half of the week – similar to last week – as the 10-year Treasury interest rate faded and the US dollar weakened.

The yield on the 10-year Treasury declined 3 bps Friday to 2.42% after rallying earlier in the week – up 1 bp for the week and still down 6 bps for the year. Neither Yellen’s testimony this week nor the drop in the 10-yr yield did much to change the course of winds behind the big banks.  The S&P Banks were up 3.1% this week, ahead of the S&P 500 by 1.6%.  Earnings also boosted sentiment as several of the large European banks beat earnings projections.  Through Thursday, February 16, our trust preferred portfolios were up over 1.5% YTD, substantially more than 0.3% for the Barclays Aggregate Bond Index. 

Next week’s economic calendar highlights will be busy, including FOMC minutes on Tuesday 2/21, January existing home sales on Wednesday 2/22, January new home sales on Friday 2/24, and the February University of Michigan Sentiment Index on Friday as well.  The pace of home sales is expected to continue picking up, while sentiment has been trending in the positive direction.

Have a great weekend!


Ulland Investment Advisors

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