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Weekly Market Update – October 28, 2016

The Dow was down eight points on Friday as uncertainty about the upcoming presidential and congressional election continued to roil the market. It was flat on the week. Year-to-date the index is up 4.2%.

Economic data on the week were mixed. Numbers released Friday showed that GDP grow by an annualized 2.9% in the third quarter, ahead of expectations of 2.5%. This was a considerable acceleration from the 1.4% growth in the second quarter, and in fact marked the fastest quarterly growth rate in two years. New home sales in September rose to a seasonally-adjusted 593,000. Though this was below consensus estimates of 600,000, it was nevertheless an increase of 3.1% from August’s mediocre sales numbers. Durable goods orders disappointed, falling by 0.1% against expectations for a 0.1% increase. Meanwhile, the trade deficit fell 5% on the month to $56.1 billion. An uptick in exports (up 0.9%) and a fall in imports (down 1.1%) drove the decline in equal measure. Jobless claims came in at 258,000, in line with expectations. Consumer confidence was weaker than expected. The 98.6 index figure was down from 103.5 in September and below the consensus estimate of 101.2

The Federal Reserve offered little additional interest rate guidance this week but investors continue to believe a rate hike is likely at the Fed’s meeting in December. San Francisco Fed president John Williams reiterated the case for a hike at that point. While Williams emphasized that rate hikes were necessary if inflation and unemployment met the board’s targets, he noted that sluggish growth meant that the Fed would raise rates more slowly than it had in the past. The market puts the odds of a quarter-percent rate hike at the December meeting at over 70%. For the week, the US preferred index was up 0.35%. Our fixed-income strategy continues to outperform this index and the Barclay’s Bond Index.

Crude retreated a bit following its 15-month high of $51.78 last week. Doubts about OPEC’s promised production cuts, announced in late September, continued to percolate. Members continued to debate the terms of the agreement, while Iraq threatened to pull out and Russia tried to dodge cuts to output. Crude finished the week down $2.18 (4.2%), at $49.60.

The week’s corporate earnings announcements were a mixed bag. Google was up following strong revenues and earnings while Amazon reported disappointing earnings but solid revenue growth. Likewise, Apple’s reported $9 billion in net income marked its first revenue decline in 15 years, pushing the stock price down on the week.

Highlights in next week’s economic calendar include auto sales (Nov. 1), crude inventories (Nov. 2), and most importantly, nonfarm payrolls (Nov. 4). Additionally, fourth quarter earnings reports will continue. Facebook, UHaul/Amerco, and Callon Petroleum, among others, are scheduled to report.

Have a great weekend.

J.M. Hanley

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Ulland Investment Advisors

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