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Weekly Market Update for September 22, 2017

by JM Hanley

The Dow finished down on Friday, falling 10 points to close at 22,350. For the week, the Dow rose 0.4% (S&P 500 +0.8%) and year-to-date is now up 13.1 % (S&P 500 +11.8%). Corporate news was light in this second-to-last week of the third quarter.  Energy, financial firms, and some industrial companies performed best as investors anticipated higher inflation.  The yield on the 10-year Treasury rose five basis points this week, closing at 2.25%.

Housing data released this week reflected a market still feeling the impacts of hurricane season. Existing home sales declined 1.7% sequentially this month.  Construction of new houses also fell, for the second month in a row.  Analysts had expected both to increase.  Hurricane Harvey bears much of the blame.  Sales in Houston, the nation’s fourth-largest metropolitan area, declined 25%.  The blows to Texas’s and Florida’s economies also created uncertainty about the availability of building materials and labor. Not surprisingly, a Wells Fargo index measuring confidence among homebuilders fell.

The storm added to some already unfavorable trends in the housing market.  There are fewer homes for sale than usual.  Prices have climbed as a result, making a purchase too expensive for many would-be buyers.  The median home sale was $255,300 in July, up 6% on a yearly basis. It increased twice as fast as Americans’ incomes over the same period.

Markets spent the first half of the week awaiting the Federal Reserve’s Wednesday meeting.  When it came, there were few surprises. The Fed affirmed that it would begin reducing its holdings of US government bonds – so-called “balance-sheet normalization” – next month.  Fed governors collectively estimate that they’ll raise interest rates three times in 2017 and 2018.  That number was unchanged from the Fed’s June outlook, despite some recent evidence of slow inflation.  Wall Street now puts the odds of a December rate hike at over seventy percent.

The price of crude oil rose 1% this week, above $50 a barrel – down 6% YTD. US crude stockpiles showed a smaller-than-expected build – of 3.0m barrels – while product inventories of gasoline (-2.1m bls) and diesel (-5.7m bls) declined significantly. Refinery utilization did improve to 83%, but remains below the 3 year average of 92% for this time of year. Members of OPEC sounded more confident this week that oil market balances were improving and thus delayed any decisions on further agreement extensions. While we maintain a positive view of crude prices, we do expect producer hedging activity to increase with oil above $50 and a drawdown of the roughly six thousand drilled-but-uncompleted (DUC) wells to occur. Both will be headwinds as prices grind higher.

Highlights on next week’s economic calendar include the Dallas Fed.’s Manufacturing Activity index on 09/25, consumer confidence on 09/26, revised second-quarter GDP on 09/28, and personal income and spending on 09/29.

 *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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