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Weekly Market Update for June 5, 2020

by Jim Ulland

Henry Wadsworth Longfellow wrote in A Psalm of Life, “Let us, then, be up and doing.” And so we were. The May “Jobs Report” showed that non-farm payrolls unexpectedly rose by 2.5 million whereas the forecast was for a decline of 7.5 million! The unemployment rate declined from 14.7% in April to 13.3% in May, another surprise – especially since the median forecast was for it to rise to 19%. No wonder the Dow raced up 829 points, 3.15%.

The pace of reopening the economy quickened. The feared spike in Covid 19 cases has not occurred. The Heller Hurwicz Economics Institute at the U of M suggested that good public policy would be for everyone under the age of 70 to go back to work because fatality rates for those younger than 70 are so low. Secondly, they suggested quarantine and testing for those with symptoms or who have been exposed. Gary Stern, the retired head of the 9th District Federal Reserve, called these suggestions “reasonable.”

The stock market is clearly looking past this economic crisis partially buoyed by more trials of a vaccine and treatment for Covid 19. Also, air travel is returning. American Air said April daily passengers were 32,000. By mid-May the count had risen to 78,000. At the end of May, daily passengers were 110,000. People are understanding that air in the plane’s cabin circulates 20 times each hour, half of which is fresh. This is about the quality in a hospital and much better than office buildings. Restaurants too are limping forward. They are allowed to use their outdoor seating in most states, but that might not be enough to stave off a lot more bankruptcies. New York City won’t even allow outdoor dining until mid-July.

The SP 500 was up 4.9% for the week. The NASDAQ lagged with a 3.4% weekly gain. The most beaten down sectors continued to have the best weekly performance: banks, retail, oil and gas, hotels, resorts, airlines, and casinos. Preferred stock, which is the dominant security in our fixed income strategy, was up smartly. We feel portfolios of 100% preferreds will turn positive for the year sometime this summer, maybe very soon. Our equity portfolios out-pace their comparative index once again.

The trend of declining volatility in the markets persisted. Volatility was down 11.5% for the week. Low volatility is making investors more comfortable that the market hit bottom in late March and has no intention of returning there any time soon. The $5 trillion of idle cash “on the sidelines” is rushing back into the market. Who wants to miss a rebound? The SP 500 reflected this enthusiasm as it completed a strong week which concluded with the favorable jobs news: The SP 500 was up +0.4% Monday, +0.8% on Tuesday, +1.5% on Wednesday, -0.3% on Thursday and, +2.6% on Friday.

Our fixed income strategy using preferred stock had a week of solid gains. Bank common stocks were one of the strongest sectors mirroring the rising confidence that bank loan losses will be less than expected. The returns on 10 Year Treasuries ended the week at 0.9%, up from 0.67%. The relatively high yield on preferreds intensified buying from those who need income.

Next week will feature news on further reopening of the economy. The Fed will have a press conference Wednesday after its meeting and one inflation index will be released, the Producer Price Index. More is likely in the dispute with China. And, of course, plenty of politics.

*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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Ulland Investment Advisors

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