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Weekly Market Update – November 18, 2016

The Dow was down 35 points on Friday, though on the week the index was up 5.5%. Equities continued to surge in light of the Trump administration’s announced plans for major infrastructure spending and reduced regulation, along with likely corporate tax reform and new healthcare legislation. Year-to-date the Dow is up 8%.

Economic data on the week were mostly positive. Retail sales climbed 0.8% in October, beating consensus forecasts of a 0.6% gain. Auto sales (up 1.1%), gasoline (up 2.2%), and building materials (up 1.1%) drove the beat. The October numbers showed the highest growth in core retail sales since April. The producer price index (PPI) was unchanged in October, disappointing analysts. Excluding food and energy, the indicator fell 0.2% against expectations for a 0.2% increase. On the other hand, the consumer price index was up 0.4% from its September, and 1.6% from October of 2015. This marked the fastest annual growth rate in two years. Initial jobless claims came in at 235,000. This was considerably below Wall Street’s consensus estimate of 257,000 and marked their lowest level since November 1973. Elsewhere, new housing starts were a seasonally-adjusted 1.32 million. This beat the Street’s expectations of around 1.16m.

Federal Reserve members continued to signal that a December rate hike is likely. In a speech before Congress’s Joint Economic Committee, Fed Chair Janet Yellen said that the case for a near-term rate hike continued to strengthen. Though she acknowledged that uncertainty is likely to persist in the wake of the election, Yellen reiterated that gradual tightening was still appropriate. St. Louis Fed President Bullard affirmed this stance. He observed that the re-pricing in equities and the dollar since the election remained within the range of fluctuations over the previous year. One rate hike, he said, could therefore be enough to achieve equilibrium monetary policy. Investors put the odds of a quarter-percent rate hike in December at 91%. The US Preferred Index is down 3.2% on the month. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index, although all fixed income is down sharply since the election.

Crude rebounded to $45.70, finishing the week up around 5.3%. Trading was volatile throughout the week as analysts assessed the chances of a production cut at OPEC’s meeting at the end of the month. Reports of progress on a deal, including a suggestion Russia would cooperate with OPEC on such a measure, spurred crude prices to their best one-day gain since April on Tuesday. Prices retreated towards the end of the week amid persistent doubts that major producers could agree on the terms of a production deal. Rising US crude stockpiles and a strengthening dollar also weighed on prices.

Next week’s economic calendar highlights include new home sales (Nov. 23rd) and initial jobless claims (Nov. 24th). Additionally, a final few third quarter earnings reports will be released. DollarTree, HP, MedTronic, and Hormel Foods, among others, are scheduled to report. Volumes will likely be light during the second half of the week. Markets will be closed in observance of the Thanksgiving holiday next Thursday, and will only open for half a day on Friday.

Have a great weekend.

J.M. Hanley


Ulland Investment Advisors

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