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Weekly Market Update for July 6, 2018

by JM Hanley

It was a shortened and sleepy summer week on Wall Street. The Dow was up on Friday, rising 100 points to close at 24,456. For the week, the Dow rose 0.8% (SP500 +1.4%) and year-to-date is now off 1.1% (SP500 +3.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points and closed at 2.83%.

The jobs market keeps getting better. Payrolls increased by 223,000 in June. Unemployment technically rose to 4%, but that was because more Americans out of work started looking for jobs (and were thus counted in the numbers). Wages, on the other hand, still aren’t growing much.

Stagnant wages might stay the Federal Reserve’s hand in what would otherwise be a moment ripe for substantial interest-rate tightening.  In moments from their June meeting, Fed members agreed the economy was very strong. But the pace of inflation has reached just 2%, near the Fed’s long-term target. That kind of trend justifies only a gradual cadence of rate hikes.

Elsewhere, capital-goods orders, an important metric of manufacturing output, proved resilient. New orders are still coming in, but managers have added uncertainty over international trade to a list of worries that includes a scarcity of workers, expensive transportation, and the rising cost of supplies.

The price of crude was flat this week, hovering around $74 a barrel – up 22% YTD. US crude stockpiles showed a surprise build, of 1.2m barrels, while product inventories of gasoline fell (-1.5m bls) and diesel rose (+0.1m bls). Shrugging off the bearish inventory report as well as a WSJ article calling into question whether the Saudi Aramco IPO will ultimately occur, crude oil benefitted from Iranian threats to close the Strait of Hormuz (where a third of seaborne oil passes) and force majeure at two oil terminals in Libya. Stock prices of domestic oil producers have lagged the rise in oil prices over the past month, but we expect to see some catch-up this summer.

Earnings reports for the second quarter begin next week. A strong economy, and the full benefit of the corporate tax cut, should bolster earnings growth.

*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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