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Weekly Market Update for July 19, 2019

by JM Hanley

The Dow was down on Friday, falling 69 points to close at 27,154. For the week, the Dow was down 0.7% (SP500 down 1.2%) and year-to-date is now up 16.4% (SP500 +18.7%). The yield on the 10-year Treasury (an important interest-rate indicator) fell six basis points to close at 2.06%.

Monetary policy continues to influence markets more than anything else. Future earnings estimates are flat, but lower interest rates can justify higher price-to-earnings multiples. Lower rates also make most existing fixed-income look more attractive by comparison. Investors are certain that the Fed will cut rates at the end of this month, though some were disappointed when a member hinted it would cut rates by just a quarter point (not half a point). Economic data this week confirmed that manufacturing has rebounded, and inflation is moving toward the Fed’s target. That has some investors questioning whether the Fed’s action is needed.

The price of crude oil dropped 7% this week to $56 a barrel – up 23% YTD. US crude stockpiles showed a smaller-than-expected draw – of 3.1m barrels – while product inventories of gasoline (+3.6m bls) and diesel (+5.7m bls) both rose. Oil prices declined fairly steadily throughout the week as Gulf of Mexico oil platforms came back online and demand estimates from the IEA softened. The IEA cited the US-China trade war and slowing global economic growth, particularly out of China, as reasons behind the estimate trim. Hotter rhetoric between the US and Iran also affected supply expectations. Energy equities followed the commodity, with domestic producers falling by 7% and service providers by a similar amount. Iran captured two British oil tankers, which could force oil prices higher next week.

Fourth quarter earnings began in earnest this week with the big banks. Goldman Sachs did good business with initial public offerings, though expenses were a touch high. Wells Fargo, which remains in regulators’ purgatory, had a passable second quarter. Its outlook for the rest of the year was uninspiring. CitiBank was somewhere between the two. Profits from lending didn’t change much with interest rate flat. And the lack of volatility in the stock and bond market means customers didn’t trade securities as much. That hurt the bank’s capital markets (trading) division. All in all, if Wall Street’s earnings were anything to go by, second quarter earnings could turn out better than feared. But it may not suffice to make investors more optimistic about future profits growth.

United Health’s results looked good, but this was largely because claims from the prior quarter turned out less expensive than anticipated. Management seemed unperturbed and increased its forecast for full-year profits. Next week, reports from Big Tech – Amazon, Google, and Facebook – are all on the docket. Euronet, Visa, and 3M are also scheduled to report.

*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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