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Weekly Market Update for September 27, 2019

by JM Hanley

The Dow was down on Friday, falling 71 points to close at 26,820. For the week, the Dow was down 0.4% (SP500 -1.0%) and year-to-date is now up 15.0% (SP500 +18.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell three basis points, closing at 1.69%.  The price of crude oil fell 4% this week to $56 a barrel – up 23% YTD

As investors await the next rounds of trade negotiations, tensions seemed to be thawing this week.  China has resumed purchases of US pork and soybeans after the US agreed to postpone the tranche of tariffs scheduled for October 1st.  Meanwhile, markets were happy to see that the Chinese delegation will reportedly include a Vice Premier – a sign Beijing is serious about making a deal – though his power may have been curtailed.

The good news was disrupted today, when the Administration said it would consider limiting Americans’ ability to invest in China. The Chinese Minister subsequently responded in a hawkish speech. After a few months of escalation, trade negotiations seem to be settling into a period of equilibrium. A deal seems far off. Most important for the market will be the round of tariffs scheduled to come into effect December 15. With the tariffs implemented so far, firms have managed to find alternatives to Chinese sources to avoid raising prices. That will be more difficult for the duties scheduled to come into effect in mid-December.

Economic data this week depicted an economy in which growth has decelerated. Consumer confidence fell, worse than expected, last month. Data from the Richmond Fed showed that manufacturing orders and shipments had weakened, though employment remained robust. Second quarter GDP growth wasn’t revised – it remained at 2% – as higher estimates of government spending and exports offset lower estimates of consumer spending and business investment in capital equipment. This was unsurprising in light of weak consumer confidence.

The lone exception to weak economic trends was in the housing market, which has seen an upswing since the end of July thanks to lower interest rates. New and existing home sales rebounded more quickly than expected in August, and pending home sales also look good. Refinancing has been robust ever since the Fed cut rates. More importantly, one index showed that home price increases have slowed. Starter home prices, unaffordable to debt-burdened first-time buyers, have been an impediment to a sustained housing boom. If builders find a way to add more affordable housing supply, that trend could reverse.

Monday is the last day of the third quarter. Earnings will follow shortly thereafter. The direction of earnings and forecasts for the fourth quarter will have a big influence on the market, as will the tone of comments as the trade discussions with China approach.

*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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