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Weekly Market Update for October 20, 2017

by J.M. Hanley

The Dow was up on Friday, rising 166 points to close at 23,324. For the week, the Dow rose 2.00% (S&P 500 +0.86%) and year-to-date is now up 18.04% (S&P 500 +15.0%). The yield on the 10-year Treasury rose ten basis points this week, closing at 2.38%. Third quarter earnings reports pushed stocks higher.  Three-quarters of companies have reported earnings higher than Wall Street’s expectations, though profits growth has slowed from recent quarters.  Progress on tax reform also gave equities a boost.

Economic data released this week presented a mixed picture. There continued to be a divergence between “soft” data assessing economic sentiment and “hard” data tracking actual production and sales.  The Empire Manufacturing Index, which measures sentiment among industrial producers, reached its highest point in eight years this month.  Industrial production rose 0.3% in September.  Manufacturing output was a bit sluggish. 

Elsewhere, the National Association of Homebuilder’s housing market index reached its highest point in six months.  However, starts for new housing were a bit lower than analysts had anticipated. Weakness in multi-family units weighed on the numbers, and new building permits were also low. Existing home sales did a bit better.  Sales climbed 0.7% in September, faster than most had anticipated. Average sales prices rose substantially from a year ago.  High prices could be discouraging some would-be first-time buyers.

In Washington, the Senate passed a 2018 budget which will also enable Congress to begin work on tax reform in earnest.  The bill passed Thursday was crafted in such a way that the process could move along more quickly than anticipated.  The tax reform bill has yet to be released, and many details continue to be negotiated.  The news pushed equity valuations higher.   Elsewhere in the capital, interviews continued for the next chair of the Federal Reserve.  The choice seems to be between current Fed governor Jerome Powell and Stanford economist John Taylor.  Powell would be expected to continue status-quo policies, while Taylor could take a more conservative approach.

The price of crude oil rose 1% this week to ~$52 a barrel – down 3% YTD. US crude stockpiles showed a larger-than-expected draw – of 5.7m barrels – while product inventories of gasoline (+0.9m bls) and diesel (+0.5m bls) both rose. Refinery utilization again dropped below seasonal norms driven by Hurricane Nate curtailments. Nate also shut-in significantly more oil & gas production in the Gulf of Mexico than that of Harvey.

Third quarter earnings reports brought mostly good news.  In Ulland Portfolios, health insurer United Health Group climbed seven percent after it reported that it paid out less in claims than forecast.  Next week will be a busy one.  Google, Amazon, Granite Construction, and General Motors, among others, are expected 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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