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Weekly Market Update – February 24, 2017

The Dow finished up on Friday, rising 11 points to close at 20,821 – marking eleven consecutive record highs.  For the week, the Dow was up 1.0% (S&P 500 +0.7%) and year-to-date is now up 5.4% (S&P 500 +5.7%).  Despite the upward move, US corporations did become a bit more cautious as share repurchases slowed to a six-week low.

US economic data appears mixed this week.  January existing homes sales were better, rising 4% y/y, with median home prices up 7% y/y while inventories are down 7% y/y.  New home sales were up as well, +5.5% y/y at a 555k annualized pace but missed expectations in the range of 570-575k.  The University of Michigan’s consumer sentiment reading for February was better at 96.3, still at decade-high levels.  But January’s ABI reading, a measure of non-residential construction activity, fell into contractionary territory for the first time since September – albeit with a silver lining as the new projects component of the index rose to 60 from 57.6 in December.  The Fed’s January FOMC minutes suggested a rate hike may be justified “fairly soon;” however, we still suspect the first hike of 2017 won’t come until mid-year.  Lastly, weekly jobless claims of 244k were up w/w, but remain relatively low.

Outside the US, German business confidence is good, with the IFO index at the highest level in four years.  China home prices rose a strong 12% in January but continue to slow, and the robustness of growth has cooled as only 45 of 70 major tracked cities saw y/y gains.  The Bank of Japan’s Haruhiko Kuroda said this week that he likely wouldn’t seek to push government rates further into negative territory, suggesting a more positive view on inflation and economic growth moving forward.

The price of crude oil was up ~1% on the week, still hovering around $54 a barrel – roughly flat YTD.  EIA reported crude stockpiles increased again this week – only by 0.6m barrels versus estimates of 3.4m barrels and versus heavy builds the prior two weeks – but also that product inventories of gasoline (-2.6m bls) and diesel (-4.9m bls) fell hard from the prior week.  Crude imports look like they are slowing as the impact of the OPEC cut takes effect, while exports are at record levels, and gasoline demand rebounded a bit this week.  The rig count continues to rise, up 3, but showed a sharp slowdown from the YTD weekly average of +13 rigs.

The yield on the 10-year Treasury declined 5 bps Friday to 2.32%, finishing a steady downward move this week.  The yield finished down 13 bps for the week and is still down 16 bps for the year.  Part of the drop may be attributed to speculation of any infrastructure bill being postponed until next year.  Through Thursday, February 23, our trust preferred portfolios were up over 1.8% YTD, substantially more than 0.7% for the Barclays Aggregate Bond Index.

Next week’s economic calendar highlights will include January durable goods orders and the Conference Board’s consumer confidence on Tuesday (2/28), February ISM on Wednesday (3/1), and weekly jobless claims on Thursday (3/2).  President Trump is scheduled to address congress for the first time on Tuesday (2/28) as well, and the markets will keep a keen ear on what is said.

Have a great weekend!

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Ulland Investment Advisors

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