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Weekly Market Update for January 26, 2018

by JM Hanley

The Dow was up on Friday, rising 224 points to close at 26,617. For the week, the Dow rose 2.09% (SP500 +2.23%) and year-to-date is now up 7.7% (SP500 +7.5%). The yield on the 10-year Treasury, an important interest-rate indicator, rose one basis point, closing at 2.62%.

The government shutdown ended Monday after members of Congress reached a deal to fund it for three weeks. The agreement did not resolve the underlying policy dispute. Fortunately, the shutdown seems to have had no effect on the market’s upward path.

In other political news, the dollar experienced some volatility in currency trading this week. The cause was a comment by the Treasury Secretary which implied that a weaker dollar could be good for the US. Yet concerns about the dollar have intensified in recent months. It has weakened despite the benefit of higher interest on US Treasury bonds and firms returning cash to the US after the passage of corporate tax cuts. Expectations of higher inflation may be the culprit.

The economy grew 2.6% in the last three months of 2017. This number is often revised. That’s a bit slower than economists had expected. Businesses added fewer goods to their inventories, which weighed on growth. But personal consumption, government spending, and exports rose. The national savings rate fell to just 2.6%. New and used home sales also proved lower than expected. A limited supply, and thus higher prices, may be discouraging would-be homebuyers.

The price of crude oil rose 5% this week to $66 a barrel – up 10% YTD. US crude stockpiles showed a smaller-than-expected draw this week – of 0.8m barrels – while product inventories of gasoline (+3.1m bls) and diesel (+0.6m bls) both rose. Crude inventories in Cushing, OK – a key hub that investors monitor – fell below 50% utilization for the first time in three years. If oil exploration and production management teams can stay disciplined in their capex outlooks for 2018 when they report earnings over the next couple weeks, the rally in crude pricing could continue. If small- and mid-sized companies speak of ramping up capex and production growth, like they did in early 2017, prices could turn lower. Hopefully last year’s mistake was learned and companies instead will use their improved cash flows to pay down debt and return cash to shareholders.

Companies continued to report their earnings for the fourth quarter this week.  General Electric’s quarter proved better than feared. However, news that the SEC plans to investigate the company’s insurance division overshadowed the good numbers. Shares of Netflix rose nearly 25% after the company reported that it had added eight million subscribers. Intel and 3M had a strong quarter, but United Airline’s numbers were quite poor. Facebook, Google, Amazon, and Apple, among others, will report earnings next week.

*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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