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Weekly Market Update for March 29, 2018

by JM Hanley

The Dow was up on Thursday, rising 255 points to close at 24,103. For the week, the Dow rose 2.4% (SP500 +2.0%) and year-to-date is now off 2.6% (SP500 -1.2%). The yield on the 10-year Treasury, an important interest-rate indicator, fell five basis points, closing at 2.78%.  Stock-market volatility may be driving the risk-averse towards the relative safety of US government bonds. That would depress yields.

It was an odd week.  After last week’s sharp downturn, major indexes swung back and forth, yet there was little news of substance. Word that the US and China were negotiating on trade issues soothed fears of a trade war between the world’s largest economies.  However, concern persisted that more regulation is in the cards for big tech companies.  Facebook’s stock actually recovered some of the ground it lost last week.  Instead, it was Amazon who suffered most from bad headlines.  Comments from the White House suggested heightened scrutiny of the ecommerce giant’s taxes and market share.

The jury is still out on whether more cumbersome tech regulations will materialize. Yet the largest tech companies are quite big; alone, they make up 11% of the SP500. Volatility in the sector has an outsized impact on the market.

The economy remains in (apparently) robust health. Economists now estimate that it grew nearly 3% in the fourth quarter.  Personal incomes are up. Consumers report feeling better about the economy than they have since 2004. As a result, they’re spending more – 0.2% more this month, specifically – and inflation is on the rise. The PCE, the Fed’s favorite inflation indicator, has reached a twelve-month high.

The price of crude oil fell 1% this week to $65 a barrel – up 7% YTD. US crude stockpiles showed a smaller-than-feared build this week – of 1.6m barrels – while product inventories of gasoline (-3.5m bls) and diesel (-2.1m bls) saw large draws. Saudi Arabia suggests that the Aramco IPO is once again slated for later in 2018, while OPEC members are looking to keep their output deal in place through year end. A rise in geopolitical risk (i.e. Iran) is also increasingly being priced in to oil lately.

E&P performance was a bit bifurcated this week following announcement of the largest upstream M&A transaction since 2012.  In the Permian, Concho Resources (a larger-cap) proposed to buy RSP Permian (a small/mid-cap) in an all-stock transaction.  This pressured our large-cap positions (APC & DVN) while boosting our small-cap position (CPE) as investors speculated more industry transactions would follow.

The market, and our offices, will be closed tomorrow in observance of Good Friday.

*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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