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Weekly Market Update for January 11, 2019

by JM Hanley

The Dow was down on Friday, falling six points to close at 23,996. For the week, the Dow was up 2.4% (SP500 +2.5%) and year-to-date is now up 2.9% (SP500 +3.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points, closing at 2.70%.

Jerome Powell is a newly popular man on Wall Street. The Fed chair reiterated his willingness to suspend the rate-hike regimen if financial markets remain unsettled. More pointed comments from one of his subordinates suggested there’d be no more hikes until June. Modest inflation (due to low labor force participation and crude prices) gives the Fed time to be patient. Fewer rate hikes are good news for preferreds, which are up considerably so far this year.

The January thaw has been supported by an emerging consensus that in their sharp selloff before Christmas, the indexes may have disconnected from fundamentals. Job growth is strong, the Fed is patient, and emerging market economies may rebound. Trade envoys for the US and China are making progress. Private sector debt and inflation, which have played a prominent role in prior recessions, are about normal. But the yield curve and credit markets imply the market is still anxious.

Against this positive though unsettled backdrop, we await fourth quarter earnings announcements. Investors will be listening to the management teams from banks, credit card firms, computer chip companies, and industrial manufacturers for hints about the health of the economy. The big banks – Wells Fargo, JP Morgan, Goldman Sachs, and Bank of America – will report earnings next week. So will United Health Group.

The price of crude oil rose 8% this week to $51 a barrel – up 14% YTD. US crude stockpiles showed a draw in line with expectations – of 1.7m barrels – while product inventories of gasoline (+8.1m bls) and diesel (+10.6m bls) continued their significant builds. Oil prices extended their move higher on growing optimism regarding the global economy and the effects of OPEC production cuts.  Saudi Arabia, after releasing favorable (reduced) export data last week, suggested more cuts could be coming at the next group meeting (April).

*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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