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Weekly Market Update for September 21, 2018

by JM Hanley

The Dow was up on Friday, rising 87 points to close at 26,744. For the week, the Dow rose 2.3% (SP500 +0.9%) and year-to-date is now up 8.2% (SP500 +9.6%). The yield on the 10-year Treasury (an important interest-rate indicator) rose seven basis points, closing at 3.07%.

Trade-related news actually buoyed equity markets this week. The Administration announced on Monday that it would impose duties on an additional $200 billion in Chinese imports, as anticipated. However, the 10% tariff rate, which was lower than expected, represents a modest conciliatory gesture. Both Washington and Beijing have good reasons to get a deal done. Two other trends helped. The dollar has weakened, which aids emerging market economies. And China introduced new spending to stimulate its flagging economy. All of this news was enough to power emerging-markets funds upwards for the first time in a long time.

As investors’ appetite for emerging-market risk returned, they shifted funds from safe options including US Treasury bonds. Treasury yields rose for that reason and others. The Federal Reserve still seems more concerned with full employment than righting the interest rate curve (which would require raising rates more aggressively). The Fed also looks likely to sell a significant share of its own Treasury holdings at the end of October. Anticipation of this deluge has dragged prices down.

The price of crude oil rose 3% this week to $70 a barrel – up 17% YTD. US crude stockpiles showed an in-line draw – of 2.1m barrels – while product inventories of gasoline fell (-1.7m bls) and diesel rose (+0.8m bls). Oil prices moved steadily upwards throughout the week as we approach a joint OPEC-Russia oil strategy meeting this weekend. The market continues to tighten as production declines in Venezuela and exports in Iran begin rolling over due to sanctions, both reducing OPEC spare capacity.

The key question remains how much Saudi Arabia el al. are willing to offset these impacts. In the US, the President called for OPEC to raise production to lower crude, and consequently gasoline, prices. Through year end, supply risks seem higher than any potential demand reduction that may result from shakiness in emerging markets.

Highlights on next week’s economic calendar include consumer confidence on 9/25, new home sales on 9/26, the Fed’s interest-rate decision on 9/26, and the final estimate of second quarter GDP on 9/27.

*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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