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Weekly Market Update – January 29, 2016

The Dow rose 397 points Friday on the strength of a number of factors, including a weaker-than-expected Q4 US GDP report and stimulus action by the Bank of Japan.  For the week the Dow was up 2.3% and for the year the index is now down 5.3%.

Q4 US GDP came in at .7%, below Q3 growth of 2.0% and the estimate of .8%.  Personal consumption rose 2.2% in Q4 but was below Q3’s 3.0%.  Though Q4 GDP was below 1%, the economy’s annual growth rate remains in the 2-2.5% range, the prevailing rate of the last six years.  In addition to the GDP report, consumer confidence fell slightly (in response to the market turmoil) while the January Chicago PMI manufacturing report showed the highest level of manufacturing growth since January of last year.  Last night European and Asian markets also closed sharply higher after the Bank of Japan announced it will, among other stimulus measures, adopt a negative-rate interest rate policy to boost growth and inflation.
Q4 earnings reports continued Friday with Microsoft and Visa beating expectations.  Not surprisingly, Chevron reported a significant drop in earnings for 2015 while Amazon missed analyst’s forecasts on earnings and revenues.  Microsoft, Visa and Chevron moved higher while Amazon’s shares fell sharply.

The yield on the 10-year Treasury fell 5 basis points (bps) Friday to 1.93%, down 12 bps for the week and now down 34 bps for the year.  Trust preferred shares have held up nicely as a result.  Oil rose Friday to a three-week high, up 25% for that span, closing at $33.62.  Rumors of a cut in daily oil production by OPEC and Russia combined with the release of weekly and monthly reports showing a reduction in the number of operating US drilling rigs and US November production, respectively, helped boost prices of energy-related securities.

Next week’s economic calendar highlights include January domestic auto sales on Monday, weekly jobless claims on Thursday and the important January jobs report on Friday.  Expect auto sales to fall slightly from December, weekly jobless claims to settle in the 280-290,000 range (from 278,000 this week) and the jobs report to show the addition of approximately 180,000 jobs in January (from 292,000 in December) and an unchanged unemployment rate of 5.0%.  Fourth quarter earnings reports will continue through the week as well. 


Ulland Investment Advisors

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