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Weekly Market Update for June 7, 2019

by Jared Plotz

The Dow was up on Friday, rising 263 points to close at 25,984. For the week, the Dow was up 4.7% (S&P 500 +4.4%) and year-to-date is now up 11.4% (S&P 500 +14.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell 6 basis points, closing at 2.08%.

The Friday jobs report was relatively weak, which turned out as a short-term positive for the market. Total non-farm payrolls rose 75,000 in May, below the expectation of 175,000. The unemployment rate held flat at 3.6%, with participation unchanged. Wages were soft at +0.2% m/m. On a whole, this adds further fuel to the “rate cut camp.” It now appears more likely the Fed could move to “ease” sometime this summer.

The outcome of the Fed’s conference this week to review its tools, communications, and overall strategies suggests a slowly evolving mindset around inflation and communication. However, with less room to cut rates – in the event of a recession – versus prior cycles, Chairman Powell suggested that it may be time to retire the term “unconventional tools,” as these tools are likely to be utilized more commonly. These tools include forward guidance and expanded open market operations (i.e. trading of non-government bonds).

The price of crude oil rose 1% this week to $54 a barrel – up 19% YTD. US crude stockpiles showed a surprise build – of 6.8m barrels – while product inventories of gasoline (+3.2m bls) and diesel (+4.6m bls) rose as well. Oil prices floundered mid-week, driven by the weak inventory report and continued trade concerns; however, prices turned higher and erased losses later as congress pushed back on Mexican tariffs and OPEC reiterated rational discipline.  Energy equities tracked the commodity, with domestic producers rising 1% and service providers up 3%.

Our equity holding in Cloudera felt significant pressure on the back of its quarterly results. While the reported results were fine, the future outlook was revised lower and the CEO is stepping down. Given the original thesis has not played out and our confidence in future execution has declined, we are reconsidering the reward-to-risk opportunity in the stock.

Keep an eye out this weekend to see whether any progress is made between US-China trade teams at the G20 finance ministers’ meeting. Also, the White House tariffs on Mexico are set to go live Monday if a compromise isn’t made this weekend.

*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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