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Weekly Market Update – June 2, 2017

The Dow finished up on Friday, rising 62 points to close at 21,206. For the week, the Dow rose 0.6% (S&P 500 +1.0%) and year-to-date is now up 7.3% (S&P 500 +8.9%). Our equity portfolios outperformed nicely this month.

The yield on the 10-year Treasury was off 6 bps on Friday at 2.15%, ending the week down 9 bps. Despite continued strength in “soft” data points (i.e. confidence/sentiment/expectations), recent weakness in “hard” data points – including inflation and GDP – has called into question just how “transitory” the Q1 economic slowdown may have been.  This slows down expectations for the speed of further Fed rate hikes (though likelihood of a June hike is still high).  We have been proactively hedging (via fixed-to-float securities) against a rise in interest rates that should eventually accelerate; thus the recent drop in US Treasury rates, while not hurting absolute performance, did narrow our lead over the Barclays Aggregate Bond Index during May.  Through Wednesday, May 31, our trust preferred portfolios were up over 3.4% YTD, substantially more than the Barclays Aggregate Bond Index, which was up 2.4%.

Most US economic data were in line this week, except disappointing automotive sales and the all-important jobs report. Personal income and spending are both tracking up 0.4% m/m. May ISM and Markit manufacturing indices were as expected and roughly unchanged m/m. But the May employment report was negative.  Unemployment did move lower to 4.3% from 4.4%, yet payrolls rose just 138,000 (below 182,000 expected) and growth in average hourly earnings was a bit light.

The price of crude oil fell 4% this week to under $48 a barrel – now down 11% YTD. Crude stockpiles declined this week – by 7.4m barrels – and product inventory of gasoline fell (-2.9m bls) while diesel was up small (+0.4m bls). The inventory report was well received; however, the US exit from the Paris climate accord subsequently stoked concerns of increased US drilling. 

Next week’s economic calendar looks abnormally light before becoming very busy the week after. On Monday, we will get final non-farm productivity for Q1, which should be less negative than Q4; we will see final April durable goods orders, which have been weakening lately; and the Fed will release its Labor Market Conditions Index, which continues to improve. 

Have a great weekend!


Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464