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Weekly Market Update for June 15, 2018

by JM Hanley

The Dow was down on Friday, falling 85 points to close at 25,090. For the week, the Dow fell 0.9% (SP500 flat) and year-to-date is now up 1.5% (SP500 +4.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points and closed at 2.92%. The Administration approved tariffs on fifty billion dollars’ worth of Chinese products today; tariffs on an additional $16 billion are expected imminently. Beijing retaliated with tariffs of its own on $50 billion in American agricultural imports.

The Federal Reserve increased its interest rate a quarter of a percentage point. They also said they’d raise rates a total of four times this year, not three. Neither move was surprising. The Fed now takes a rosier view of the economy’s prospects. Torrid growth in household spending, they believe, will spur the pace of inflation. In Frankfurt, the ECB announced it would stop buying member states’ bonds in the coming months. The usefulness of the policy had waned since the worst of the sovereign debt crisis passed.

Inflation increased 0.2% last month, about as much as expected. The report was well-timed to validate the Fed’s more hawkish approach. The annual rate of 2.8% accelerated the most since February of 2012.

Consumers still feel good about the economy, though many have tempered their expectations for the future. Small business owners are about as bullish as they’ve been since 1973. A record number plan to expand, and most intend to increase prices. Retail sales rose again last month, lending credence to their reasoning.

The price of crude oil fell 1% this week to $65 a barrel – up 8% YTD. US crude stockpiles showed a surprise draw, of 4.1m barrels, and product inventories of gasoline (-2.3m bls) and diesel (-2.1m bls) fell as well. Up until Friday, oil prices had rallied to $67 a barrel on curtailments of supply in Libya due to rebel attacks, the strong EIA inventory report, and more toned down rhetoric regarding what Saudi Arabia/OPEC may do on June 22. However, speculator long derivative positions in crude remained elevated heading into the weekend and it’s likely many chose to neutralize (i.e. partially/fully close out) positions on Friday ahead of the meeting next week, leading to a $2 price drop.

It is now generally expected that OPEC/Russia will decide to increase group production rates, possibly by 0.5-1.0m barrels/day, but the amount of any bump is up in the air. Russia stoked fears in recent weeks that the bump could be as much as 1.8m barrels/day.

On Tuesday, a federal judge brushed aside antitrust concerns and ruled that AT&T could buy Time Warner. The news improved the odds that other mega-mergers would win regulatory approval. Shares of CVS and Aetna improved on the news. So did Fox, Comcast, and Disney.

*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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