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Weekly Market Update for November 2, 2018

by JM Hanley

The Dow was down on Friday, falling 110 points to close at 25,271. For the week, the Dow was up 2.4% (S&P 500 +2.4%) and year-to-date is now up 2.2% (S&P 500 +1.9%). The yield on the 10-year Treasury (an important interest-rate indicator) rose fourteen basis points, closing at 3.22%.

After a very negative October, stocks recaptured some lost ground. There was no reason for them not to. Corporate earnings forecasts have held steady through this year’s bouts of volatility. These have furnished both a floor and a ceiling for equity indexes thus far. Investors also got more optimistic about a trade deal with China. The situation changes from minute to minute, but both countries’ politicians seem eager to avert further economic pain. Today’s jobs report also was positive. Labor force participation, and wages, rose meaningfully.

American voters will head to the polls this Tuesday. Polls indicate that Democrats are likely to recapture the House of Representatives while Republicans will keep control of the Senate and add one or two seats. Under such a scenario, federal policy probably wouldn’t change much. The parties’ Congressional leadership shares some priorities, like lowering drug prices and spending to repair national infrastructure. But even then, disagreement about how to accomplish those goals would likely impede bipartisan legislation.

The price of crude oil fell 6% this week to $63 a barrel – up 5% YTD. US crude stockpiles showed an “as-expected” build – of 3.2m barrels – while product inventories of gasoline (-3.1m bls) and diesel (-4.1m bls) both fell. Prices declined steadily throughout the week despite the well-known energy sanctions to be re-imposed by the US on Iran this Sunday. The price weakness was likely driven by reports that the US has granted waivers to eight large countries that import Iranian oil. Share prices of domestic oil producers bucked the commodity move, however, rising 1% this week. Perhaps, investors are willing to look past these “temporary” waivers as quarterly earnings reports have largely come in favorably for the group.

General Electric had another difficult quarter. The power business, which continues to drag down the rest of the firm, is to be reorganized. The company all but eliminated its common stock dividend, which is good news for fixed income holders. News was better at Facebook. The social network has had a year of bad headlines and rising spending on oversight. This quarter, it recorded strong profit margins and impressive user growth. Alibaba cut its 2019 sales forecast modestly. Otherwise, its report was not as bad as feared and showed revenues up 48% over last year.

Earnings reports will continue at a fast clip next week. Ebix, Hortonworks, CVS, Worldpay, Axon Enterprises, Devon Energy, and Playa Resorts are all scheduled to 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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