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Weekly Market Update – February 3, 2017

After falling and struggling to find direction during the week, stocks jumped on Friday to close back near record highs after a slightly favorable monthly jobs report and executive orders signed by President Trump to ease financial regulations.  The Dow climbed 186 points to cross the 20,000 mark once again, led by 2-4% gains among the banks.  For the week, the Dow was down 0.1% and year-to-date is now up 1.6%.

The January employment report showed a gain of 227,000 jobs (beating estimates of 180,000 and the prior month’s 157,000) driven by strong gains in construction, retail, and financial industries.  The unemployment rate ticked up to 4.8% from 4.7% due to more Americans entering the workforce (participation rate of 62.9% up from 62.7%).  Average hourly earnings came in a bit weak, up just 0.1% versus the prior month (+2.5% versus last year) and below expectations of 0.3%.  During January, manufacturing activity expanded at its fastest rate in two years, with the ISM index climbing to 56.0 vs. the consensus forecast calling for 55.0.

The Federal Reserve, at its February meeting this week, kept benchmark overnight interest rates unchanged.  We believe strong employment and a gradual rise in inflation will push the Fed to raise rates a couple times this year.  Current uncertainty surrounding the new Trump administration may cause the timing of these hikes to come in the second half. 

Rising rates – in addition to executive orders that aim to weaken the Dodd-Frank Act, including the Volker rule – are good for bank financials, increasing their ability to lend or deploy capital at better terms.  Rates were roughly flat this week, but are positioned to continue their rise.  Despite bank stocks posting their strongest trading day since November and showing nearly 20% outperformance versus the S&P 500 since the election, we believe the banks have more room to run. UIA holds a sizeable position in preferreds issued by financial firms, including many of the largest banks, which should perform well as rates continue to rise.

Next week’s economic calendar highlights will include weekly jobless claims on Thursday and another consumer confidence report on Friday.  Weekly jobless claims are expected to total 250,000 while consumer confidence should continue its march higher.

This week at UIA, Jared Plotz joined the firm as the new Director of Research, a Carleton grad and Iowa MBA.  He will draw upon his experiences both on the sell-side at Robert W. Baird in Milwaukee and buy-side including Cornerstone Capital Management in the Twin Cities to lead the research efforts at UIA going forward.  We’d also like to mention that Schwab has reduced commission charges by $2 per trade, from $8.95 to $6.95, which will benefit clients.

We hope you enjoy your weekend!


Ulland Investment Advisors

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