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Weekly Market Update for February 21, 2020

by JM Hanley

The Dow was down on Friday, falling 223 points to close at 28,992. For the week, the Dow was down 1.4% (SP500 -1.3%) and year-to-date is now up 1.6% (SP500 +3.3%). The yield on the 10-year Treasury (an important interest-rate indicator) fell twelve basis points, closing at 1.47%. The price of crude oil was up 3% this week to $54 a barrel – down 12% YTD.

The coronavirus has effectively replaced trade as a source of investor concern, and by extension day-to-day volatility. Apple’s warning that the outbreak would substantially impair first -quarter profits – China is where most iPhones are made, and the second-largest country for sales – weighed upon the market early in the week. Commentary from Hong-Kong based HSBC was similarly discouraging. Stocks rallied mid-week as the details of Beijing’s stimulus plan to combat the economic fallout proved more favorable than expected. But equities fell again later in the week as the “case count” of those infected in China climbed dramatically. The numbers of those with the virus outside of China rose as well. Some high frequency data indicate factory activity in major Chinese cities began to reaccelerate mid-week – a possible sign the worst has passed. But disruption to firms’ Chinese supply chains could cast a long shadow.

Economic data was disappointing in the US and good in Europe. A mid-month “temperature check” on economic activity in the US showed manufacturing dipping to levels last seen in August, while the reading for the service sector was the lowest in years. Coronavirus and other temporary factors are mostly to blame, but longer-term concerns about slowing growth and the presidential election are also present. Europe was a different story. An acceleration of German manufacturing output powered the eurozone upwards. Long shipment times mean the data mostly reflects orders before the coronavirus outbreak.  Domestic demand was apparently healthy. But European industry remains export-oriented, and China is their most important market.  Europe could deteriorate again in mid-March.

A number of energy firms reported fourth-quarter earnings this week. Results at Devon Energy were as expected, while the firm’s outlook for this coming year was good. New wells in Wyoming have proven very profitable, which has enabled the firm to increase its dividend.  Results at Parsley were about as expected. Solaris, which provides infrastructure to shale drillers, reported excellent results and a strong earnings forecast for this coming year. The company has been using cash to buy back shares and increase the dividend.

About 81% of SP500 companies have now reported quarterly results. 72% of firms have had better earnings than expected. Earnings have grown about six percent in aggregate since last year; they had been expected to grow just one percent. Lowe’s and Playa Resorts will report earnings next week.

*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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