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Weekly Market Update – March 3, 2017

The Dow finished up on Friday, rising 3 points to close at 21,005 – holding the 21k mark for a third trading day.  For the week, the Dow was up 0.9% (S&P 500 +0.7%) and year-to-date is now up 6.3% (S&P 500 +6.4%).  According to Bank of America, the S&P 500 ETF saw inflows of $8.2bn on Wednesday following the President’s congressional address, and the number is now close to $80bn of inflows to equities since the November election.

US economic data was largely positive this week.  Preliminary January durable goods orders surprised, rising 1.8% m/m versus expectations of 1.6% and a 0.8% m/m decline in December.  The Conference Board Consumer Confidence Index rose to 114.8, a fifteen-year high.  February ISM manufacturing rose to 57.7 versus expectations of 56.2 and above the 56.0 in January, suggesting that manufacturing activity continues to expand and at an increasingly faster pace.  Weekly jobless claims of just 223k were the lowest since March 1973 according to the Labor Department.  The only fly in the ointment seemed to be January automotive vehicle sales, which while still strong, disappointed expectations at a 17.5m annualized pace. 

While the President’s first address to Congress on Tuesday was light on policy details/timing, he did reiterate a $1 trillion infrastructure target – which has been rumoredly pushed out to 2018 – and struck a calmer, more Presidential tone, which the markets found agreeable.  Meanwhile, a number of Federal Reserve members hinted this week that a March rate hike was increasingly likely.  In Janet Yellen’s words, a March hike “would likely be appropriate,” NY Fed President Dudley said a hike has become “a lot more compelling,” and Fed Governor Powell stated a hike has “come together.”  The positive economic data, Presidential address, and hawkish “Fedspeak” all contributed to the Dow’s push above 21,000 and the S&P 500 surpassing a record 2,400 intraday level this week.  Outside the US, international developments were also solid with data out of China and the EU showing improvement, which could pull forward investors’ expectations of when the ECB will begin tapering stimulus.

The price of crude oil was down ~1% on the week to $53 a barrel – down ~1% YTD.  EIA reported crude stockpiles increased again this week – only by 1.5m barrels versus estimates of 3.0m barrels – but also that product inventories of gasoline (-0.5m bls) and diesel (-0.9m bls) continue to fall.  Saudi Aramco lowered their official selling prices (OSPs) for April delivery, which suggests there is still some unfavorable slack in the market balance.  The rig count continues to rise, up 2 (oil +7, gas -5), but has slowed the last two weeks vs. the YTD weekly average of +13 rigs.

The yield on the 10-year Treasury rose 1 bp Friday to 2.48%, finishing a big 16 bps reversal versus last week.  The yield is now flat from the beginning of the year.  This had a very negative impact on the Barclays Aggregate Bond Index, but our portfolios held up quite well, benefitting from our strategic shift to fixed-to-float securities over the past few quarters.  Through Thursday, March 2, our trust preferred portfolios were up over 1.7% YTD, substantially more than 0.2% for the Barclays Aggregate Bond Index.

Next week’s economic calendar highlights will include January factory orders on Monday (3/6), the January trade balance on Tuesday (3/7), weekly jobless claims on Thursday (3/9), and the big February employment report on Friday (3/10).  The employment report is typically a significant market mover, and this month payrolls are expected to rise by 186k, the unemployment rate is expected at 4.7%, and average hourly earnings growth is expected to slightly accelerate to +0.3% m/m (+2.8% y/y).  Looking out a bit further, the Federal Reserve’s FOMC will make their rate decision on March 15th

We’d also like to note that Schwab reduced commission charges from $8.95 to $6.95 last month, and has now announced a further reduction to $4.95 per trade regardless of the size of the trade. 

Have a great weekend!


Ulland Investment Advisors

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