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Weekly Market Update – September 30, 2016

The Dow was up 165 points on Friday to end the week higher after the first presidential debate. For the week the Dow was up 0.26%. Year-to-date the Dow was up 5.1%.

Economic data was mostly positive this week. Q2 GDP growth was revised up to an annualized rate of 1.4% from 1.1%. August new home sales came in much better than expected at 609,000, a 20.6% increase from 2015. The Conference Board Consumer Confidence Index rose to 104.1 for September, beating the 98.8 consensus estimate and up from 101.8 in August. The initial jobless claims increased 3,000 to 254,000, better than the 260K consensus. Pending home sales for August fell 2.4%.

Federal Reserve Chairwoman Yellen said most officials believe a rate hike is likely this year, though there is no fixed timetable. San Francisco President Williams (non-voter) reiterated his view that the economy is strong enough to withstand a rate hike, while Chicago President Evan’s (non-voter) said weak growth, an aging workforce and poor productivity may leave the US stuck with low rates for years to come. Additionally, former Philly Fed President Plosser said the central bank has a credibility problem as officials failed to fully explain the decision to keep rates unchanged last week. Fed Governor Powell said the FOMC can continue to be patient, and supports a gradual path for rate increases. For the week, the U.S. Preferred Stock Index was down 0.83%.

The price of crude oil rose as the market continued to weigh a tentative agreement to cut production among members of OPEC. On Thursday, OPEC officials reportedly reached an agreement to limit production to 32.5M to 33M bpd, compared to the August production level of 33.2M bpd. The key obstacle in negotiations has been divisions between Saudi Arabia and Iran, with the latter unwilling to freeze production until it returned to pre-sanctions levels of over 4M bpd. Crude was up 7.9% for the week.

All of corporate America continues to be under intense criticism. Some of it is justified but the level of criticism generally is way disproportionate to the behavior. Wells Fargo is the latest in the news. In the Wells Fargo case, one article cited the total cost to customers of opening bogus checking and credit card accounts at $5 million or so. Fees generally are not charged on unused checking accounts or credit cards, which limited losses. However, the fines to date are $185 million, about 37 times the customer losses. The CEO forfeited $41 million and the head of retail banking $19 million. If you add in the forfeited pay/bonuses, the penalties are 49 times the loss to customers! In the past, a penalty of triple damages” was thought to be very severe. Today in banking, instead of tree times damages, we have 49 times and counting. In most cases, the customer loss already has been refunded.

Next week’s economic calendar highlights include Auto and Truck Sales (Oct. 3), ADP Employment Change and Crude Inventories (Oct. 5), Initial Jobless Claims (Oct. 6), and Nonfarm Payrolls (Oct. 7). Q3 ends today and earning reports will start in two weeks.

Have a great weekend,
Yansong Pang

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464