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Weekly Market Update for February 23, 2017

by JM Hanley

The Dow was up on Friday, rising 348 points to close at 25,310. For the week, the Dow rose 0.4% (SP500 +0.6%) and year-to-date is now up 2.4% (SP500 +2.8%). Technology stocks performed well, while the consumer goods sector underperformed. The yield on the 10-year Treasury, an important interest-rate indicator, rose three basis points, closing at 2.92%. Equity markets continued to recover from a steep decline at the beginning of this month. Firms’ fourth-quarter earnings have been good. Investors have also gained confidence that the current yield on US Treasury bonds won’t threaten stocks’ growth.

Existing home sales fell last month.  While sales of condominiums increased, it was not enough to offset a big drop in sales of single-family dwellings.  The total number of homes for sale has declined nearly 10% over the past year.  Yet interest from potential buyers remains strong. With more demand and less supply, prices are up.  New homes, which are being built at the fastest pace in ten years, could help ease the pressure.

Elsewhere, a survey of manufacturing firms found that most managers remain optimistic.  Their only complaint was that the cost of supplies continues to increase. A parallel survey of the service sector recorded similar results.

Members of the Federal Reserve have gotten more optimistic about US growth. The corporate tax cut, strong growth abroad, and relaxed regulation could push the economy to expand more quickly.  Minutes of the committee’s January meeting revealed that some Fed members are now discussing raising interest rates four times to combat the accompanying inflation.

The price of crude oil rose 3% this week to $63 a barrel – up 5% YTD. US crude stockpiles showed a larger-than-expected draw this week – of 2.3m barrels – while product inventories of gasoline (+0.2m bls) rose and diesel (-2.5m bls) fell. Oil prices were down to start the week before rallying after the stockpiles report. In addition to the larger crude draw, the report showed that gasoline and diesel demand continue to remain robust and production growth this week was minimal. Headlines suggesting that Saudi Arabia is firmly committed to the OPEC production cut – even in the event of a supply shortage – were warmly received by energy investors, as were indications that Libya may have trouble maintaining current production levels.

Companies continued to report their earnings for the fourth quarter this week. Stamps.com benefited from a strong holiday season for e-commerce shippers. Its stock finished the week up over eight percent.  Devon Energy’s equity suffered after the firm offered a disappointing growth outlook for 2018. K2M, Envision Healthcare, Nutanix, and Callon Petroleum, among others, 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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