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Weekly Market Update for March 2, 2018

by JM Hanley

The Dow was down on Friday, falling 71 points to close at 24,538. For the week, the Dow fell 3.05% (SP500 -2.04%) and year-to-date is now off 0.7% (SP500 +0.7%).  Healthcare and technology stocks did relatively well, while oil companies, banks, and industrial firms performed poorly. The yield on the 10-year Treasury, an important interest-rate indicator, fell twelve basis points, closing at 2.80%.

Policymakers raised some eyebrows on Wall Street this week. Testifying before a Congressional committee, Federal Reserve Chairman Jay Powell suggested the economy had strengthened in recent months.  He added that the Fed will reassess changes to the American economy’s outlook, including the tax cuts and spending increases recently passed by Congress, at its March meeting. New York Fed President Bill Dudley later made the gist of Powell’s remarks explicit: the Federal Reserve could conceivably raise interest rates four times this year, he said. The Fed had previously forecast only three rate hikes.  Then, on Thursday, the Administration announced it would impose tariffs on imported steel and aluminum.  These measures could increase the cost of some industrial materials and consumer goods. They could also provoke retaliatory tariffs from affected countries.

Domestic economic indicators proved disappointing this week. America’s GDP grew 2.5% in the last three months of 2017, according to the second of three estimates.  Durable goods orders and capital goods shipments, which are both correlated with total economic growth, disappointed analysts’ expectations.  This news prompted the Atlanta branch of the Federal Reserve to lower its forecast of domestic economic growth to 2.6% for the first three months of this year.  Analysts at JP Morgan and Goldman Sachs suggested that GDP growth might have reached a plateau. Consumer confidence nonetheless has climbed to a seventeen-year high.

New home sales were 8% lower than in December. The news follows a decline in existing home sales reported last week. Interest rates on mortgages have become more expensive, which may have diminished potential homebuyers’ enthusiasm. But with lower demand, home prices fell.  That could coax some buyers off the sidelines.

The price of crude oil fell 4% this week to $61 a barrel – up 1% YTD. US crude stockpiles showed a larger-than-expected build this week – of 3.4m barrels – while product inventories of gasoline (+2.5m bls) rose and diesel (-0.9m bls) fell. The size of the gasoline build spooked investors. Also pressuring prices was news that Libya had managed to offset a drop in production at fields where workers were protesting by temporarily increasing production at other fields.  And an additional blow came from Norway, where officials increased their estimate for “undiscovered petroleum resources” by 40%.

Companies continued to report their fourth-quarter earnings this week. Shares of Axon rose 36% this week after the Taser manufacturer reported strong fourth-quarter results and predicted significant profit margin expansion in 2018.  Envision Healthcare also performed well after the firm reported success in trimming operational overhead. Nutanix also surprised investors with a better-than-expected report.

*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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