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Weekly Market Update for September 6, 2019

by JM Hanley

The Dow was up on Friday, rising 26 points to close at 26,797. For the week, the Dow was up 1.5% (SP500 +1.8%) and year-to-date is now up 14.9% (SP500 +18.8%). The yield on the 10-year Treasury (an important interest-rate indicator) rose six basis points, closing at 1.55%. The price of crude oil rose 3% this week to $57 a barrel – up 25% YTD

After the escalation of the trade war two weeks ago, and the détente last week, investors find themselves in a familiar realm of uncertainty.  America’s and China’s lead negotiators spoke in person on Wednesday for the first time since mid-August.  Beijing’s withdrawal of the controversial Hong Kong extradition bill could also be interpreted as a peace offering. In return, they probably expect the October 1st increase in the US tariff rate will be suspended. Markets largely assume the October and December tariffs will be cancelled. For its part, the PBOC (the Chinese central bank) cut interest rates, as expected.

In the US, the health of the industrial economy and the service sector continue to diverge. The ISM’s survey of the former showed it slipped (slightly) into contraction. But the health of the latter, reflected in today’s jobs report, remains good enough to compensate. The number of new jobs, though fewer than expected, was enough to keep the unemployment rate at its current (record) low.  Hourly earnings and labor force participation also improved. Chinese data was muddled. There were some indications the industrial sector could likewise be slowing, but exports (and the service sector) remain healthy. The news was less ambiguous in Germany, where global manufacturing headwinds aren’t offset by the service sector. Most assume Europe’s largest economy is in recession.

The European slowdown has trained attention on the ECB’s meeting next Thursday. Expectations for monetary stimulus, in the form of lower rates and sovereign bond purchases, are high. But the belief that extraordinarily accommodative monetary policy is the new normal has distorted the yield curve. A corrective from Frankfurt could stabilize bond markets, which would soothe equity investors. It’s a delicate needle to thread. Finally, a decision on Brexit will now likely be delayed until mid-winter. Despite the heavy volume of headlines it inspires, the terms of the UK’s departure may have little impact on American equity markets.

*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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