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Weekly Market Update for July 12, 2019

by JM Hanley

The Dow was up on Friday, rising 244 points to close at 27,332. For the week, the Dow was up 1.5% (SP500 +0.8%) and year-to-date is now up 17.2% (SP500 +20.2%). The yield on the 10-year Treasury (an important interest-rate indicator) rose eight basis points to close at 2.12%.

Federal Reserve Chairman Jerome Powell’s appearance before Congress Wednesday went about as expected. Powell’s testimony, along with the minutes of the Fed’s last meeting, has Wall Street all but certain that rates will be cut by a quarter point at the end of the month. Powell emphasized that the outlook for US growth was good, but said that stubbornly slow inflation and uncertain international growth could justify lower rates. In the meeting minutes, other Fed members expressed concern about business’s lower investment in equipment, presumably out of caution due to the trade dispute.

The next day, in an odd juxtaposition, June inflation came in higher than expected, and accelerated on an annualized basis. Rent, health costs, and prices for used cars and clothing all grew quickly. Tariffs contributed only somewhat, which suggests most of their impact will show up in this month’s numbers. If the economy can sustain faster inflation, the Fed may only cut rates once more this year (assuming they do so in two weeks). Elsewhere in the world, export data from China was about as expected. Some signs of deflation in the Chinese economy have emerged, however. European industrial production in May was good; welcome news after weeks of data suggesting the opposite.

The price of crude oil steadily climbed 5% this week to $60 a barrel – up 32% YTD. US crude stockpiles showed a greater-than-expected draw – of 9.5m barrels – while product inventories of gasoline fell (-1.4m bls) and diesel rose (+3.7m bls). Oil prices got a big boost from the strong inventory report on Wednesday along with Tropical Storm Barry shutting down deepwater oil platforms as it barreled through the Gulf of Mexico. Then prices plateaued late in the week as the storm approached landfall and coastal refineries began deactivating facilities. Energy stocks trailed the commodity, with domestic producers rising 1% and service providers by 2%.

Second quarter earnings season begins in full next week with the big banks. Goldman Sachs, Wells Fargo, Bank of America, and JP Morgan are all scheduled to report. Earnings reports thus far have been largely worse than expected, though these mostly have been from a small number of industrial companies. Early reporters in the IT and consumer discretionary sectors have given more reason for optimism.

*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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