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Archive for March, 2021

Weekly Market Update for March 26, 2021

by JM Hanley

Prior to this week, markets had spent much of the past month digesting four major new developments. Congress passed a stimulus bill that put plenty of cash in consumers’ pockets. The Administration also suggested its next priority will be an even larger spending package aimed at upgrading the nation’s infrastructure. In the US, the vaccine drive began to accelerate. That raised the possibility that activities currently limited – like entertainment and indoor dining – could return to normal more quickly than expected. After a year at home, consumer bank balances are healthy, and many are ready to spend. Finally, anticipating an economy flush with cash, the Federal Reserve said it was relaxed about the risk of inflation, and would remain patient about raising interest rates.

The country has not seen synchronized, expansionary fiscal and monetary policy of this magnitude in some time. Investors fretted that (despite what they might say) inflation would return and the Fed would have to raise rates. Bond yields climbed as a result. So did the stocks of banks, which benefit from higher interest rates. Airlines, industrial firms, and oil – all of which stand to benefit from reopening – outperformed. Major pandemic winners, including big technology firms, did worse.

This week, some of those trends normalized. Treasury yields came down slightly, as Chairman Powell and others insisted the risk of inflation was remote in testimony before Congress. The move in yields helped fixed income, including preferreds. The SP 500 finished finished the week up about a percent and a half, but the narrative for equities was less clearly defined. Utilities and real estate did well, aided in part by the stabilization in bond yields. Materials and industrials – beneficiaries of reopening as well as the President’s infrastructure push – also outperformed.

Energy also performed better than market as a whole. The price of oil fell early in the week, over concerns that Europe’s slow vaccination drive and renewed lockdowns could keep demand low. But then the sector got a boost from a freak accident. A quarter-mile long Japanese container ship was blown aground in the Suez Canal on Tuesday, which has blocked traffic through the waterway. The earliest the ship can be re-floated is by the middle of next week, with some estimates suggesting it could last much longer. The canal carries 12% of global trade, including plenty of oil tankers. Alternative shipping routes around the Horn of Africa are substantially longer and more expensive. Oil ended the week down less than a percent.

Economic data readouts from last month were poor, due in part to the extreme cold. Sales of new and existing homes were worse than expected. So were some metrics of consumer spending. On the other hand, initial jobless claims for this week were the lowest since the pandemic began, and consumer confidence appears to be rising.

Next Wednesday will bring the end of the first quarter, and hopefully the last one in which the economy bears the full brunt of the pandemic. Firms will begin reporting earnings by the middle of next month. In the meantime, next Friday’s jobs report is the highlight of the economic calendar.

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. Investors 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 investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

Weekly Market Update for March 19, 2021

by Jim Ulland

The stimulus legislation is like eating too much at Thanksgiving with the resultant stomachache. The bad stomach persisted all week in the market. Long-term interest rates moved higher even as the Fed said it would keep short-term rates low into 2023. Aggravating the situation was the economic growth report for March from the Philadelphia Fed, which was the highest index reading in 50 years. Other economic news reinforced the economic recovery story. The Fed raised its economic growth forecast for 2021 from 4.2% to 6.5%. In the market’s view, the recovery seemed well underway before the $1400 stimulus checks were distributed.

Other favorable news showed why the Fed raised its growth rate forecast. Vaccination availability is working its way quickly to everyone. Estimates were released that say “herd immunity” will be achieved by early summer. States are easing restrictions on entertainment, food and beverage, and social gatherings. Retail spending was below expectations in February, but this was mostly weather related. The same is true of unemployment filings which were slightly above expectations. March reports will be stronger.

The volatile market caused some pain for investors. The Nasdaq is flat for the year, but down about 7% from its February high and presents an entry point opportunity. Energy stocks fell with reports of higher inventories and that electric cars will replace gasoline fueled ones in the next ten years did not help. Stocks of smaller companies continued to make up some of the performance they lacked in 2020.

The good economic news and the expected control of Covid-19 turned the focus to interest rates. Higher rates hurt fixed income securities, especially those with low yields and/or extended maturities. The lowest paying securities are government bonds which showed a sharp decline, especially if they had a maturity many years in the future. Interest rates are now slightly above their pre-pandemic level. As such, this is simply a return to where we were. Securities with high yields like preferred stock, are more insulated. Should rates continue higher, several sectors of the economy will have to adjust. Home building will slow with higher mortgage rates. The US Government will feel the pain as debt costs escalate and crowd out other expenditures. Companies that borrow a lot will have higher interest expenses. As a boutique firm, we can be nimble and reposition with these changes. Everyone is not so fortunate.

The market will be volatile until interest rates stabilize. For the week, the NASDAQ was down -0.79 %. The SP 500 was down -0.77 %. Monday the SP 500 was +0.65%, Tuesday -0.16%, Wednesday +0.29%, Thursday -1.48%, and Friday -0.06%.

This week the Administration announced its effort to increase taxes on corporations, personal income, and capital gains. Although the proposals are targeted at upper-middle and higher income earners, very frequently increases expand to encompass the middle class. One way to save a few dollars is to remember that your first quarter income tax estimate for 2021 is still due April 15 even though your taxes due for 2020 are delayed a month.

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. Investors 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 investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

Weekly Market Update for March 12, 2021

by Jim Ulland

The theme of economic recovery played strongly this week. The stimulus bill passed and, when combined with the December $900B pandemic aid, became the largest stimulus spending in economic history. The Fed insisted it would keep interest rates low even as rates crept up during the week. Economic growth forecasts were raised. The Covid infection and death rates fell and vaccinations became increasingly available. More states lifted more lockdowns. Workers anticipated being called back to work and corporate earnings forecasts were raised. Moreover, reports on how much consumers had saved during the lockdowns were released suggesting pent-up demand for spending. The DOW and the SP 500 hit record highs.

Sitting on the sidelines in cash does not look like a very rewarding strategy. The NADSAQ is down about 5.5% from its February high and presents an entry point opportunity. Some of the decline is attributed to investors switching out of tech, which had about a 40+% rise last year, and into those sectors that were left behind in 2020 like banks, energy, and manufacturing. The slightly higher interest rates help bank profits. Faster economic growth will give a boost to energy stocks.

The big unresolved concern in the market is interest rates. They are back to pre-pandemic levels, which was expected with the forecast for robust economic growth. High growth could trigger unwanted inflation. Yet, prices have been relatively stable. However, pressure on prices will come soon if it is going to come at all. Most of the $1.9T stimulus bill is headed into consumers’ bank accounts starting this weekend. Congress is saying it wants to add a large infrastructure repair bill on top of the stimulus spending. The country has not done this much deficit spending before in such a short time. There are no historical examples on how this will play out. The Fed said that some short-term inflation may result, but they suggest interest rates will stay low for longer. Some economists argue that we are in a world economy which is very price competitive, making it hard for prices in the US to rise. Interest rates in Europe are negative, making it difficult for US rates to rise much more. But we are in a new economic experiment, which is why the market is nervous.

Weekly economic news was good. Unemployment filings were down. The US Treasury was able to sell a lot of bonds without forcing interest rates higher. Consumer confidence was up. The Producer Price Index was subdued except for gasoline. More solid economic news is expected next week.

In response to the uncertainty, the market was volatile but trending up. The Nasdaq continued to recapture losses of late February and early March having two days this week of 2% or better and only one particularly weak day. For the week, the NASDAQ was up +3.09%. The SP 500 was up +2.64%. Monday the SP 500 was -0.54%, Tuesday +1.42%, Wednesday +0.60%, Thursday +1.04%, and Friday +0.10%.

The market is likely to stay volatile in the short run, especially if interest rates do not flatten next week.  The power of economic growth is so strong it may well push stocks higher in 2021. Time to put idle cash to work.

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. Investors 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 investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

Weekly Market Update for March 5, 2021

by Jim Ulland

“Enough already,” the market seemed to be saying after taking a drubbing for most of the week. Interest rates, as represented by the 10 Yr Treasury, continued upward but not beyond their level before Covid-19 arrived. Growth stocks, which were up strongly last year, pulled back the most. The Nasdaq turned briefly negative for the year after being up almost 10% at its high.

The Fed Governors were on the speaking circuit and said that slightly higher interest rates were a natural result of the improving economy. However, the Fed is maintaining its policy of low rates into 2023. The market views higher rates as a headwind for economic growth. Other developed countries are keeping rates low which implies that the rise in US rates will flatten soon.

One other market concern is the stimulus package. Several changes have been made to get the votes to pass the legislation in the Senate, such as sending the checks to those in more need rather than to “everyone.” This is termed “better targeting.” The supplemental unemployment benefits were also reduced. Supplemental benefits are on top of ordinary unemployment benefits. Employers argue that too high a benefit level is a deterrent to employees returning to work, since some make more on unemployment. The $15 minimum wage language also was dropped. The final objection is the sheer size of the spending, which the market views as potentially inflationary. Expect a vote this weekend.

The weekly economic news was good. Several states are lifting their lockdowns to various degrees including CT, MA, TX, MS. This helped the February jobs report which showed a net of 379,000 additional jobs. The unemployment rate fell to 6.2%. Expect continued job growth as vaccinations roll out and food and beverage businesses are permitted to reopen. Vacation bookings are only 2% below pre-pandemic levels. Job openings are 4% above. The delay in reopening schools is a problem for students and restricts some parents from returning to work.

Covid cases and deaths have dropped dramatically. Some of this is a result of vaccinations. Johnson and Johnson’s one-shot vaccine was approved and will add substantial supply and convenience. Vaccinations are a critical component to the recovery since even after lockdowns are lifted, people must feel safe if they are to return to normal activities.

2021 is expected to be a period of high economic growth, maybe 5%, whereas 2-3% is average. Part of this week’s market drop was caused by excessive speculation in a variety of small companies. Much of the air in this balloon came out Thursday and Friday morning. Corporate profitability and stock prices are expected to benefit as the recovery develops. The Nasdaq started to recapture losses on Friday afternoon, although this did not prevent a -2.06% loss for the week. The SP 500 was +0.81%. Monday the SP 500 was +2.38%, Tuesday -0.81%, Wednesday -1.31%, Thursday -1.34%, and Friday +1.95%.

If interest rates flatten next week, expect more recovery in the market. Passage of the stimulus package is likely to give the market fuel as well, even with its imperfections. Looking forward, we hope to see a calmer market with reduced speculation.

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. Investors 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 investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

 

Ulland Investment Advisors

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