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Weekly Market Update – November 4, 2016

The Dow was down 42 points on Friday as employment data signaled modestly slowing growth in the labor market and broader economy. For the week the Dow was down 1.5%. Year-to-date the Dow is up 2.7%.

Economic data came in mixed. October nonfarm payroll rose by a seasonally adjusted 161,000 from the prior month, though the longer-term growth trend remains low. ISM manufacturing index improved to 51.9 in October from 51.5 in September, while ISM non-manufacturing index came in at 54.8, down from September’s 57.1 level. Business activity was weaker in October at 57.7 against September’s 60.3 reading. Unit labor costs were up 0.3% on an annual basis vs. consensus for a 1.5% rise and prior increase of 3.9%. Hourly compensation was up 3.4%. Chicago Purchasing Manager’s Index fell to the lowest reading since May. Personal income for US consumers increased by 0.3% and personal spending increased by 0.5%.

The Federal Open Market Committee (FOMC) made no interest rate change at its November meeting, as was widely expected. The meeting released no guidance on an interest rate hike. However, it did note that household spending has been “rising moderately” (as opposed to “growing strongly,” from the September statement). One notable change was that Eric Rosengren, who voted for a hike at the September FOMC meeting, favored a hold in this meeting. The market’s attention now moves to the Fed’s December 13-14 meeting, which will include a scheduled press conference. Currently the market sees a 70% chance of a hike at that time. For the week, the U.S. Preferred Index was down 2.26%. Our preferred continue to outperform this index and the Barclay’s Aggregate Bond Index.

The price of crude oil finished 9.5% lower this week, following the lack of progress on oil production deal to reduce output from the OPEC and non-OPEC producers. The deal is intended to be finalized at a 30-Nov OPEC meeting and OPEC’s Secretary-General stated that the deal remained “on course.” The EIA reported a record weekly 14.4M barrel crude inventory build on Wednesday, far in advance of the 1.5M consensus. The market remains skeptical about a production-freeze deal.

Corporate earnings are running ahead of expectations with upside surprises from Stamps.com, Air Lease, Alibaba, Ligand Pharmaceuticals, and Callon Petroleum Company.

Next week’s economic calendar highlights include Wholesale Inventories and Crude Inventories (Nov. 9), and Initial Jobless Claims (Nov. 10). Q3 earning reports will continue next week for widely held companies like Priceline, Uhal, Softbank, etc. The U.S. presidential election will add to the continued volatility of the market.

Have a great weekend,
Yansong Pang

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Ulland Investment Advisors

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