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Weekly Market Update for January 12, 2017

by JM Hanley

The Dow was up on Friday, rising 228 points to close at 25,803. For the week, the Dow rose 2.0% (SP500 +1.6%) and year-to-date is now up 4.4% (SP500 +4.21%).  Banks, energy companies, and industrial firms performed well. Tech companies and utilities were weaker.

The yield on the 10-year Treasury, an important interest-rate indicator, rose eight basis points, closing at 2.53%. This marks its highest point in ten months. Foreign policymakers bear some responsibility. A rumor (later discredited) circulated early in the week that the Chinese government would slow its purchases of American government debt. The Bank of Japan and the European Central Bank seemed to suggest that they would ease purchases of their own governments’ bonds. In the U.S., members of the Federal Reserve indicated they still supported the Fed’s plan for raising interest rates despite below-target inflation.

Rising inflation also accounted for some of the increase in yield on Treasuries. The consumer price index, which tracks inflation, climbed 0.1% in November. Exclude food and energy, and the pace was even faster. Higher oil prices, lower exchange rates for the dollar, and the tax cuts recently signed into law (which will give people and businesses more cash to spend) all contributed. Other signs of a strengthening economy abound. Retail sales increased in December, and small-business optimism remains near all-time highs.

The price of crude oil rose 5% this week to over $64 a barrel. US crude stockpiles showed a larger-than-expected draw this week – of 4.9m barrels – while product inventories of gasoline (+4.1m bls) and diesel (+4.3m bls) moved higher. It should be noted again that given tax maneuvering by companies on the Gulf Coast, inventories typically show volatile swings the first two weeks of January. Crude inventories in Cushing, OK – a key hub that investors watch – continue to decline, now filling just 60% of available storage capacity versus 87% at this time a year ago.

Companies began reporting their earnings for the fourth quarter this week. JP Morgan had good numbers, thanks to better-than expected profits on loans it has made. Wells Fargo’s fourth quarter was not as good. The bank’s overhead expenses were higher than anticipated. It also had to write off substantial bad credit-card debt. United Health Group, Goldman Sachs, and Bank of America, among others, will report earnings next week.

The market, and our offices, will be closed Monday in observance of Martin Luther King, Jr. Day.

*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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