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Weekly Market Update for July 13, 2018

by JM Hanley

The Dow was up on Friday, rising 95 points to close at 25,019. For the week, the Dow rose 2.3% (SP500 +1.5%) and year-to-date is now up 1.2% (SP500 +4.8%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 2.83%.

Fed governors took different views this week. Fed Chair Jerome Powell repeated the oft-made point that tax cuts and higher government spending have further fueled an economy already well into an expansion. Two regional Fed presidents laid out a more aggressive pace of interest-rate hikes than what’s currently proposed. But a third, Atlanta Fed President Rafael Bostic, said he’d grown worried the interest rate curve would invert. An inversion, which occurs when shorter-dated Treasury bills pay more than longer-dated, often precedes a recession. Bostic said the risk could warrant slowing the pace of rate hikes.

Inflation is still gathering steam. It rose to nearly three percent last month on an annualized basis. Higher gas prices are partly, though not exclusively, to blame. In May, and again in June, inflation cancelled out the increase in wages.

Business owners are still happy. An index of small-business optimism is the sixth-highest on record. Thanks to the booming economy, sales are better than they’ve been in years. Lower taxes, and an easing of regulations, have made small-business owners more confident in their firms’ outlook. More and more say they intend to hire workers and add to inventories. Consumers have mixed feelings. Most are still quite optimistic they’ll keep (or find) jobs, and see their pay go up. But many, especially those with higher incomes, feel queasy about the new tariffs’ impact on the economy.

The price of crude oil fell 4% this week to $71 a barrel – up 18% YTD. US crude stockpiles showed a larger-than-expected draw, of 12.6m barrels, while product inventories of gasoline fell (-0.7m bls) and diesel rose (+4.1m bls). The bulk of the draw was driven by volatility in imports, with sharp declines of incoming barrels from Canada, Nigeria, and South America. Despite the positive inventory report, crude oil was pressured by the return of Libyan supply following last week’s force majeure as well as potential US state department sanctions exemptions for some countries sourcing Iranian shipments. Stock prices of domestic oil producers caught up a bit with the YTD rise in oil; the group is now lagging the commodity by just 1%.

A few of America’s largest banks reported second-quarter earnings today, heralding the unofficial start to earnings season. JP Morgan saw broadly based strength in its loans, credit, and trading businesses. Government fines continue to weigh on profits at Wells Fargo, but its loan quality remains good. United Health Group, General Electric, and Goldman Sachs, 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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