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Weekly Market Update for January 5, 2018

by JM Hanley

The Dow was up on Friday, rising 221 points to close at 25,296. For the week, the Dow rose 2.3%, while the S&P 500 was up 2.6%. The yield on the 10-year Treasury, an important interest-rate indicator, rose four basis points, closing at 2.45%.  It was a quiet week, as firms and investors prepare for the beginning of fourth-quarter earnings season next week.  Utilities and real estate firms were weaker, facing the prospect of higher interest rates. Tech and energy stocks performed best.  Rising oil prices aided the latter. Enthusiasm about global growth, and a resulting preference for momentum stocks, continued to help the former. Analysts have also noted lower corporate taxes and a more measured approach to regulation as reasons for optimism about 2018.

Today’s December jobs report was mixed. After months of rapid payroll growth, the economy added only 148,000 jobs last month. Economists had planned on 189,000.  However, the prior two months’ figures were revised higher.  Unemployment remained at a seventeen-year low. Wages still grew slowly – a trend that has persisted even as the labor market has boomed.  Productivity growth, which typically pushes wages higher, has also been sluggish.  Equity markets shrugged off the weak report.  In other news, domestic manufacturing grew at its fastest pace in eleven months. Exports and new orders both exceeded expectations. Employment in the sector also has climbed rapidly by recent standards. The outlook in the service sector was not quite as rosy, but still good.

The price of crude oil rose 2% this week to over $61 a barrel. US crude stockpiles showed a larger-than-expected draw this week – of 7.1m barrels – while product inventories of gasoline (+4.8m bls) and diesel (+8.9m bls) spiked higher. It should be noted that given tax maneuvering by companies on the Gulf Coast, inventories typically show volatile swings the last week of the year and first week of January. Crude inventories in Cushing, OK – a key hub that investors watch – continue to decline, falling to their lowest level since February of 2015. This is positive for oil prices.

Firms will start reporting their 2017 fourth-quarter earnings next week, beginning with the big banks. Most management teams will discuss their outlook for the upcoming year, and will offer estimates of their firms’ earnings. We expect good news on both fronts. Economies are surging in the US and around the world. The corporate tax cut passed before Christmas could also result in positive surprises to firms’ guidance.

*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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