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Weekly Market Update for July 5, 2019

by JM Hanley

The Dow was down on Friday, falling 44 points to close at 26,922. For the week, the Dow was up 1.2% (SP500 +1.7%) and year-to-date is now up 15.4% (SP500 +19.3%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points to close at 2.04%.

Events in Europe this week accelerated the ongoing decline in global bond yields. First, European leaders nominated Christine Lagarde, well-known to be an advocate of lower interest rates, to head the European Central Bank. Brussels also agreed not to punish Italy for running a deficit after the latter agreed to trim spending. This reduces the odds of a volatility-inducing standoff between the EU and its (heavily-indebted) third-largest economy. Finally, underwhelming German factory orders heightened the chances that the ECB might follow through on its pledge to cut rates further to support growth.

Today’s jobs report was much better than expected. The economy added 224,000 jobs last month; only 160,000 had been expected. Unemployment actually climbed since labor force participation (the percent of the population looking for work) went up. Wage growth remains sluggish. The report suggests May’s weak jobs number was an outlier. Wall Street was disappointed. Investors have pinned their hopes on a steady regimen of rate cuts from the Fed in response to a slowing economy. A quarter-point cut at the end of this month is still likely. But signs that the labor market is holding up better than expected means that the odds have dimmed on a half-point trim, as well as further reductions in the fall.

By contrast, last Saturday’s meeting between US and Chinese leaders on trade went about as expected. The US agreed to suspend new tariffs for the time being, and China agreed to resume purchases of US agricultural products. There were also suggestions that US firms might be able to resume exports to Huawei, although few details were provided. The two sides will resume negotiations soon, though considerable distance between them remains.

The price of crude oil finished the week unchanged at $58 a barrel – up 29% year-to-date. US crude stockpiles showed a lower-than-expected drop of 1.1 million barrels.  OPEC agreed to extend production cuts for ten months, more than the six the market had expected. This news, which typically would have buoyed prices, was offset by the strong production from the US. Investors also doubt Russia will cooperate with OPEC as much as it claims.

Fed Chair Jerome Powell’s appearances before Congress will probably take top billing on Wall Street next week. A release of Chinese economic data (on Wednesday and Friday), the resumption of negotiations with China (next Monday), US inflation data (on Thursday), and the formal beginning of second quarter earnings will also be important.

*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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