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Weekly Market Update for July 26, 2019

by JM Hanley

The Dow was up on Friday, rising 52 points to close at 27,192. For the week, the Dow was up 0.1% (SP500 +1.71.2%) and year-to-date is now up 16.6% (SP500 +20.7%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis point to close at 2.07%.

Second quarter GDP, out this morning, showed the economy grew a little over 2%. That was better than expected. Consumer spending was the reason why. Business spending was weak, as was inflation. The news heightens the odds that the Fed’s plans for future interest rate cuts will disappoint investors next week. Low inflation has given the Fed leeway for a quarter-point “insurance” cut, but many doubt it’s needed. The strong economy is starting to make anything more look superfluous. But Wall Street seems to think it’s coming.

The price of crude oil rose 1% this week to $56 a barrel – up 24% YTD. US crude stockpiles showed a greater-than-expected draw – of 10.9m barrels – while product inventories of gasoline fell (-0.3m bls) and diesel rose (+0.6m bls). Oil prices bumped along within a narrow band this week. A strong inventory report, the potential expiration of Chevron’s US waivers in Venezuela, and continued tension in the Strait of Hormuz beckoned oil higher. But soft global economic data points and renewed talks between Saudi Arabia and Kuwait regarding a restart of “neutral zone” production capped gains. Energy equities trailed the commodity slightly, with domestic producers falling by 2% and service providers by 1%.

Second quarter earnings season continues to be much better than feared. Most of Big Tech was on the earnings docket this week. Amazon’s bet that delivering items in one day would help it sell more appears to be paying off. But building the capacity to do so is expensive. The cloud computing business, AWS, is facing tough competition from the likes of Microsoft and Google. Management has hired more salespeople to fight the slump, and the heftier payroll is weighing down profit margins. More of the same can be expected next quarter. News was better at Google. YouTube and Google’s own cloud computing product both had good quarters. A temporary break in some expenses meant profits improved significantly. That may not last.

Facebook also had a good quarter by the numbers. Instagram and Facebook Messenger have gotten more popular with users than Facebook itself. The company has also seen growing success selling ads across its entire suite of products. As has recently been typical for Facebook, however, updates on regulatory matters overshadowed the positive print. The Federal Trade Commission is the most recent to tighten the screws. Zuckerberg and co. made it seem as though the worst was behind them. But complying with the rash of regulatory strictures will cost money and dent the firm’s ability to target ads at users.

Strong US consumer spending detailed in today’s GDP report helped Visa’s quarterly earnings. Lower gas prices did not. Uncertainty linked to departing the EU didn’t help business in the UK either.  Euronet Worldwide, operator of ATMs and remittance terminals, similarly felt the pinch from Brexit. New ID requirements for sending a remittance from Walmart also proved to be a headwind.

*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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