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Weekly Market Update for June 14, 2019

by JM Hanley

The Dow was down on Friday, falling 17 points to close at 26,089. For the week, the Dow was up 0.4% (SP500 +0.5%) and year-to-date is now up 11.8% (SP500 +15.2%). The yield on the 10-year Treasury (an important interest-rate indicator) was unchanged, closing at 2.08%.

Economic data this week was mixed. US Industrial production and retail sales, two metrics tied to growth, increased more than than expected last month. These were offset by decelerating inflation. Medical service costs are still increasing quickly, but rent and housing costs declined again. Expectations of future inflation – which can determine how much employers raise wages, for instance – missed forecasts by even more. These signs of slowing growth, accompanied by the downbeat comments from Broadcom, has investors wondering how much the Fed will cut rates. Chairman Powell’s commentary last week, to the effect that the Fed needs to leave itself room for maneuver during the next crisis, suggests investors had best keep their hopes in check.

News was no better across the Pacific. Industrial production, investment, yuan-denominated lending, and (unsurprisingly) imports were all worse than expected. China watchers had thought they were in the clear after economic performance seemed to improve in March and April. The government announced new stimulus measures, but these more or less sustain fiscal and monetary support at the level it’s been.

Trade remains the elephant in the room. Mexico staved off tariffs after reaching a deal with the US last week. But what worries investors about the incident is that tariffs were used to achieve a political objective that wasn’t linked to trade (as has been the case for Europe and China, for example). This presumably expands the realm of situations in which they can be used.  Regarding China, the hope is that the US and China can agree to postpone the new tariff schedule at the G20 summit at the end of this month. But the two sides remain far apart. The outlook for trading relationships with Japan and Europe is slightly better.

The price of crude oil fell 3% this week to $52 a barrel – up 16% YTD. US crude stockpiles showed a surprise build – of 2.2m barrels – while product inventories of gasoline rose (+0.8m bls) and diesel fell (-1.0m bls). Oil prices moved lower to begin the week, driven by yet another weak inventory report leading to further supply-and-demand imbalance concerns. But oil rebounded to end the week following attacks on two transport tankers in the Gulf of Oman. OPEC-member Iran is thought to be the culprit of the attacks, but some question that conclusion given it could also hinder their strategic efforts. Energy equities tracked the commodity, with domestic producers falling 3% and service providers by 5%.

In corporate happenings, semiconductor and infrastructure giant Broadcom noted that the uncertainty surrounding the US-China trade relationship had resulted in gloomy sentiment and sluggish investment. Broadcom’s scale and line of work often make it a barometer of corporate earnings and macroeconomic conditions broadly. This could augur poorly for second quarter earnings reports next month.

*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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