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Weekly Market Update for February 8, 2019

by JM Hanley

The Dow was down on Friday, falling 63 points to close at 25,106. For the week, the Dow was up 0.2% (SP500 flat) and year-to-date is now up 7.6% (SP500 +8.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell five basis points, closing at 2.63%.

Markets went into a mid-week tailspin after an Administration official downplayed the likelihood of signing a trade agreement with China anytime soon. They later found their footing on reports that business leaders are exerting pressure on both sides to conclude a deal. The market has gotten sanguine about the trade dispute – possibly too much so. Their logic is that trade chaos is politically unpalatable at a time when growth seems fragile and elections are approaching in the US. A détente may be most likely, but it’s not certain, and there’s been little recent news one way or the other from those involved.

But just as American investors have reconciled themselves to trade uncertainty, trouble has sprung up across the other ocean. The EU as a whole has reduced its near-term forecast for economic growth. Manufacturing data from Germany, long the main engine of Eurozone growth, has lately been underwhelming. Italy, the EU’s problem child, has entered recession. That development could force Brussels and the populist government in Rome to reopen the matter of Italy’s budget deficit. The country’s huge debt load makes this risky terrain. And then there is the uncertainty of Brexit. This sudden squall has shortened the odds that the European Central Bank will take a more dovish tack on interest rates. Investors have piled into German bunds as a result; this has held in check US Treasury yields (which are similarly risk-free).

The price of crude oil fell 5% this week to $52 a barrel – up 16% YTD. US crude stockpiles showed a smaller-than-expected build – of 1.3m barrels – while product inventories of gasoline rose (+0.5m bls) and diesel fell (-2.3m bls). The drop in crude pricing was pretty steady throughout the week, driven by weaker economic data and unplanned refinery outages. We could see a bounce back next week if Libya infighting escalates (again) and the drop in Venezuela exports to the US shows itself in storage data.

Fourth quarter earnings season has almost concluded. Advertising and cloud computing helped Google accelerate revenue growth. Some were unhappy to see higher-than-anticipated expenses, but investments in new projects and coding talent typically pay off in Mountain View. The stock of Euronet Worldwide, which operates ATMs for tourists, reacted positively Friday after the firm detailed its plans to take advantage of Visa’s new rules for surcharging. In other corporate happenings, BB&T announced Thursday that it would buy regional banking peer SunTrust. The news helped our holdings of SunTrust preferred shares.

*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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