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Weekly Market Update for June 22, 2018

by JM Hanley

The Dow was up on Friday, rising 120 points to close at 24,581. For the week, the Dow fell 2.0% (SP500 -0.9%) and year-to-date is now off 0.6% (SP500 +3.0%). The yield on the 10-year Treasury (an important interest-rate indicator) fell two basis points and closed at 2.90%.  Energy stocks performed well, while banks, tech companies, and industrial firms underperformed the market.

Trade disputes roiled three continents this week. After China issued retaliatory tariffs last Friday, the US threatened to impose duties on an additional $200 billion of Chinese goods. The received wisdom still holds that the world’s largest economies will pull back from the brink of a trade war. Shielding consumers from price rises will be more difficult in subsequent bouts.

Thus far, the impact has been minimal. Goldman Sachs estimates the proposed $200 billion in duties would cut just a tenth of a percent off US GDP, or about a dollar of the S&P 500’s earnings per share.

After the EU has issued retaliatory tariffs of its own, the White House responded with a threat to mark up European auto imports by 20%. It’s unclear if this will come to pass, but the size of the US export market gives America negotiating heft. German industrial barons are said to be amenable to compromise. North of the border, progress has stalled on the NAFTA rewrite.

Economic news was light this week. Homebuilders, coping with scarce labor and high lumber prices, have turned bearish. They still started construction on more houses last month than at any point in the cycle. The good times may not last; the number of building permits issued dropped considerably. The outlook also grew slightly darker in manufacturing. New business is slow, transport networks are stretched thin, and raw materials have gotten more costly.

The price of oil rose 6% this week, closing at $69 a barrel. At their meeting today in Vienna, OPEC and Russia agreed to increase production by a net 600,000 barrels. Investors had anticipated they’d open the taps even further, so energy stocks surged on the news. Energy investors were also cheered to see that the raucous geopolitical coalition comprising (among others) the Gulf monarchies, Iran, Russia, and Venezuela remains – for now – functional.

*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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