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Weekly Market Update – February 5, 2016

The Dow fell 211 points Friday on the heels of a solid January jobs report.  For the week the Dow was down 1.6% and for the year the index is now down 6.9%.

The employment report showed a gain of 151,000 jobs in January (versus the estimate of 190,000) while December’s 292,000 gain was downwardly revised to 262,000.  The unemployment rate fell to 4.9% from 5.0%.  Average hourly earnings rose .5% from December. 
The positive wage growth helped counter the softer-than-expected job number and provided ammunition for the Fed to continue to raise interest rates in 2016, an action that was previously in doubt due to the lackluster start to the year for US and global markets.  Markets responded poorly to the report, fearing that additional interest rate increases will cause the dollar to become even stronger, further negatively affecting oil prices and US exports.

The yield on the 10-year Treasury fell 2 basis points (bps) Friday to 1.85%, down 8 bps for the week and now down 42 bps for the year.  Trust preferred shares were down slightly with the broader market but steady.

Earlier this week, Deutsche Bank announced a $7.3 billion loss for 2015.  Of the $7 billion loss, $5 billion was due to regulatory penalties.  Most believe the penalties are one-time in nature.  We are conducting a full review of the other European banks in the portfolios and feel the regulatory uncertainty is limited to Deutsche Bank, as most of the other European banks we use have a larger retail focus and are profitable with high levels of capital.

Oil closed $.83 lower Friday at $30.89, down 8.8% for the week.  Data released Friday showed the number of US drilling rigs in operation declined by 31 in the previous week.  US oil production is expected to show a large decline during 2016.  On Sunday, Venezuelan Oil Minister Eulogio Del Pino and his Saudi Arabian equal are set to discuss the current state of OPEC and the oil market in general.  With Venezuela’s economy in dire straits due to the oil’s collapse, Del Pino will be pushing for OPEC to strike a deal among its members and Russia to curb production.

Next week’s economic calendar highlights include weekly jobless claims on Thursday and January retail sales on Friday.  Expect weekly jobless claims to settle in the 280-290,000 range (from 277,000 this week) and retail sales to be relatively flat compared to December. 


Ulland Investment Advisors

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