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Weekly Market Update for June 28, 2019

by JM Hanley

The Dow was up on Friday, rising 73 points to close at 26,719. For the week, the Dow was down 0.5% (SP500 -0.3%) and year-to-date is now up 14.0% (SP500 +17.4%). The yield on the 10-year Treasury (an important interest-rate indicator) fell five basis points to close at 2.01%.

The last week of the second quarter was an uneventful one. Economic data this week showed an economy remains mostly healthy. Businesses’ spending on equipment, or capital expenditures (an important indicator of economic health), was better than expected. So were imports, existing home sales, and home prices. Personal consumption expenditures, a proxy for inflation, was about as anticipated. A survey of consumer sentiment by the University of Michigan turned out better than expected, and expectations of future inflation ticked back up. Some manufacturing survey data, however, was weak.

The president of the St. Louis Federal Reserve dismissed chatter that the Fed would cut interest rates by half a percent in July, instead of their typical one-quarter increment. Most investors had assumed as much anyway. European Central Bank president Mario Draghi is expected to cut rates and (possibly) resume ECB purchases of members’ sovereign bonds in September.

In their collective pivot back to dovishness, the ECB, the Fed, and the Bank of Japan have shown themselves ready to intervene if the world economy weakens. But now that the news is out, equity markets probably won’t feel much additional momentum from central bank policy. Investors know that the BOJ has limited room for maneuver, the ECB faces political obstacles to resuming its bond-buying on a large scale, and in present circumstances the Fed has little appetite to resume its own.

The price of crude oil finished the week unchanged at $58 a barrel – up 27% YTD. US crude stockpiles showed a surprisingly large drop of 13 million barrels, the largest since 2016. Exports have accelerated. Product inventories of gasoline declined, in part due to the explosion last Friday at a major East Coast refinery.  An easing of tensions with Iran partially offset those factors.

Markets spent much of the week awaiting news of tonight’s meeting between Chinese and American leadership on the sidelines of the G20 summit in Osaka, Japan. Investors are pretty confident the two sides will postpone new tariffs and get trade negotiations back on track – and confident the deal won’t go much beyond that. If this prediction comes to pass market reaction should be muted.

Firms will begin reporting second quarter earnings in two weeks. These could be disappointing, to judge by some companies that have reported early. Barometers of economic health, like Broadcom (semiconductors), Carnival Cruise Lines, and FedEx, sounded cautious about economic conditions. However, Micron (also semiconductors) and Nike were positive.

*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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