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Weekly Market Update for July 20, 2018

by JM Hanley

The Dow was down on Friday, falling six points to close at 25,058. For the week, the Dow rose 0.2% (SP500 flat) and year-to-date is now up 1.4% (SP500 +4.8%). The yield on the 10-year Treasury (an important interest-rate indicator) was up seven basis points, closing at 2.90%.

Testifying before Congress, Federal Reserve Chairman Jerome Powell predicted that the labor market would remain strong for the next few years. This could keep inflation around 2%. Powell added that the uncertain climate for international trade could discourage companies from raising their workers’ wages and investing in their businesses.

Powell’s comments followed the release of the Fed’s semi-quarterly report. The “Beige Book” noted that manufacturers across the country are worried that tariffs will disrupt their supply chains. Otherwise, they said, higher supply and labor expenses have compressed their profit margins, but the costs largely were not being passed to consumers.

Consumer spending accelerated in the second quarter. But after accounting for the higher price of fuel, retail sales increased only modestly. Clothing and department stores are still losing the battle with Amazon. In other news, it’s still a seller’s housing market. Homebuilders aren’t really building more to meet demand. Construction materials have gotten expensive and qualified workers are hard to come by in today’s tight labor market.

The price of crude oil fell 4% this week to $68 a barrel – up 13% YTD. US crude stockpiles showed a surprise build, of 5.8m barrels, while product inventories of gasoline (-3.2m bls) and diesel (-0.4m bls) both fell. The week’s entire $3 drop in oil occurred on Monday as the WSJ broke news that the White House and Western officials were “actively accessing whether to dip” into the country’s Strategic Petroleum Reserve (SPR) to “ensure oil markets remain well supplied amid a host of production disruptions” globally.

The Journal also suggested that US sanctions on Iran may not ultimately knock these barrels off the market. Instead, China may “vacuum up” barrels that others won’t buy, soothing the impact on prices. Despite the 4% decline in the commodity, the stock prices of domestic oil producers held firmer, dropping only 2% this week.

United Health Group expanded profit margins and increased its forecast earnings this year. It wasn’t quite enough to satisfy high expectations for the nation’s largest health insurer. General Electric continues to struggle. While the company has had success in getting expenses down, reorganizing its Power business has presented more of a challenge. Facebook, Amazon, Visa, and Granite Construction, 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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