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Weekly Market Update – June 30, 2017

The Dow finished up on Friday, rising 63 points to close at 21,350. For the week, the Dow fell 0.2% (S&P 500 -0.6%) and year-to-date is now up 8.0% (S&P 500 +8.2%). Once again the market lacked direction, with a Thursday morning Technology-led slide giving way to a late week rally following positive headlines in the Financials sector. The yield on the 10-year Treasury rose 7 bps on Friday to 2.30%, up 16 bps for the week. Globally, central bankers spoke of dialing back stimulus support as economies continue to improve, which should support a pickup in inflation.

US economic data was largely positive this week. Housing data for pending homes was slightly disappointing while durable goods orders were weak; however the rest of the data looked good. Both measures of consumer confidence showed sequential improvement. Personal income and spending for May were slightly ahead of expectations, while the third (and final) Q1 GDP estimate revision surprised to the upside. Q1 GDP expanded at a 1.4% rate versus a 1.2% prior estimate and 0.7% initial (first read) estimate. Recent positive revisions were driven by stronger consumer spending (albeit still subdued) and greater exports. In China, data also upwardly surprised as both manufacturing and non-manufacturing PMI’s showed sequential improvement, along with strong new orders.

The Fed released solid results from the Dodd-Frank stress tests (DFAST) last week and this week they kept the positive Financials vibe going by approving the capital plans of all banks participating in the Comprehensive Capital Analysis and Review (CCAR). Some investors were worried that Wells Fargo might fail the qualitative test, which they passed. J.P. Morgan was one of the clear winners with their capital plan, announcing an intent to repurchase $19.4bn of equity and pay $7.6bn in dividends over the next 12 months, for a total of $27bn returned to shareholders. That represents more than a 50% increase versus the 2016 plan and dramatically outpaced analyst estimates. We own equity (and fixed income) positions in both of these companies, and both equities were up over 5% this week.

The price of crude oil rose 7% this week to $46 a barrel – down 14% YTD. Crude stockpiles showed a smaller-than-expected draw – of 1.3m barrels – but product inventory of gasoline (-0.9m bls) and diesel (-0.2m bls) both fell as well. Oil finished off its seventh straight day of gains Friday with global inventories continuing to draw. While investor sentiment has become very bearish, there are a number of cyclical catalysts that could push prices higher and we see geopolitical risks among oil-producing countries rising as well.

Next week’s economic calendar highlights will include June manufacturing indices on 7/3, June automotive retail sales on 7/3, the release of the June FOMC minutes on 7/5, and the June jobs report on 7/7. Manufacturing activity is expected to improve, auto sales should remain flat, and the jobs report is expected to show sequential improvement (+180k jobs added) from the disappointing May report (+138k).

We’d like to point out that this coming Monday we will be closing for the day at 1 p.m. CT and the office will not reopen until 8 a.m. on Wednesday morning. If you’d like to speak with us next week, please take note.

*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.



Ulland Investment Advisors

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