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Weekly Market Update for September 29, 2017

by J.M. Hanley

The Dow finished up on Friday, rising 24 points to close at 22,405. For the week, the Dow rose 0.25% (S&P 500 +0.36%) and year-to-date is now up 13.4% (S&P 500 +12.5). Rising confidence that the Fed will raise rates in December, along with Congress’s release of a blueprint for tax reform, helped push the major indices to record highs for a second straight week. The yield on the 10-year Treasury rose three basis points this week, closing at 2.31%.

Economic data reported this week were mixed.  The Commerce Department now estimates that US GDP grew at an annualized rate of 3.1% in the second quarter.  This marks its fastest pace of growth in two years.  While positive, the second quarter compensated for sluggish growth in the first three months of the year. Elsewhere, personal consumption expenditures – an alternative measure of inflation – came in slightly lower than forecast.  Nevertheless, Chair Janet Yellen reiterated the Fed’s view that lagging inflation stems from mostly transitory factors. Markets now put the odds that the Fed raises interest rates in December at 78%.

In Washington, Congressional leaders released their outline for tax reform on Wednesday.  The plan would decrease the corporate tax rate and allow businesses to deduct the expense of new equipment more easily, among other measures. Many details of the legislation remain to be worked out.  Markets nevertheless reacted positively to the prospectus, particularly the equities of smaller firms.

 The price of crude oil rose 2% this week, above $51 a barrel – down 4% YTD. US crude stockpiles showed a larger-than-expected draw – of 2.6m barrels – and product inventories of gasoline unexpectedly rose (+1.1m bls) while diesel fell (-0.8m bls). Refinery utilization further improved to 88%, with the metric now nearly in line with the 3-year average of 90% for this time of year.

Oil prices benefitted again this week from developments in the Middle East. The semiautonomous region of Kurdistan – officially part of Iraq – voted strongly in favor of seeking independence, via a nonbinding referendum. The vote was criticized by the US and other int’l parties, particularly Baghdad, who believe it could destabilize the region. Given the large quantities of oil that are located in the Kurdistan region (>500k barrels/day of production), escalation between parties could disrupt the flow of crude and thus pressure oil prices higher.

 *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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