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Weekly Market Update – January 23, 2015

The Dow lost 141 points Friday as disappointing earnings results from economic bellwether UPS helped drive stocks lower.  For the week the Dow was up .9% (its first positive week in the last four) and for the year the Dow is now down .9%. 

Citing underwhelming performance in US ground shipping last quarter and higher-than-anticipated expenses going forward, UPS announced preliminary Q4 earnings that were lower than previously forecast and tempered revenue and growth expectations for 2015.  About 20% of the S&P 500 companies have announced Q4 earnings to date, with approximately 72% beating earnings expectations (historical average is 63%).

On Thursday, the European Central Bank (ECB) announced a stimulus plan in which it will purchase bonds in the amount of $60 billion euros a month through September 2016 in an effort to stimulate the European economy and stave off deflation.  European markets cheered the news, though remain somewhat nervous heading into Sunday’s Greek parliamentary election.  Syriza, Greek’s anti-austerity party, is at the moment ahead in preliminary polls.  Regardless of who wins the vote, the management of Greek’s debt will dominate the new government’s agenda.

Oil fell 2.2% Friday to close at $45.29 per barrel.  The oil and gas sector is one we continue to closely monitor.  Magnum Hunter, one such company in that sector, has issued three high dividend paying preferred securities that are in most of our portfolios.  The prices of these preferreds have fallen sharply with the 50% decline in oil prices and natural gas prices.  This has raised a concern about the company’s ability to pay its monthly dividend.  We met with the company both in August and December.  This morning, the company hosted a conference call to address its financial health and the ability to maintain its attractive dividend.  As a result of the updated information, the three preferreds had a big rebound, between 22% and 42%.  We feel the company will be able to navigate these stressful times in the energy sector.  The company has cut its drilling budget for 2015 and is seeking a joint venture partner for part of its natural gas find in Ohio.  We reevaluate this situation weekly and it has our full attention.

Next week’s economic calendar highlights include December housing data and consumer confidence on Tuesday, weekly jobless claims on Thursday and the first estimate of Q4 GDP, a January manufacturing report and another consumer confidence reading on Friday.  Expect the housing data to show an uptick in new home sales from November, consumer confidence to hold steady, weekly jobless claims to settle in the 310,000 – 320,000 range (from 307,000 this week), the Q4 GDP estimate to show growth of approximately 3.4% year-over-year and the manufacturing report to show a slight decline in activity from December.  The release of fourth quarter corporate earnings reports will continue throughout the week as well.


Ulland Investment Advisors

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