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Archive for May, 2021

Weekly Market Update for May 28, 2021

by Jim Ulland

The economy and the market seemed to start the Memorial Day weekend about five days early.  In a word, the week was quiet.  The market was generally positive.  Congress played nice as it tries to find a compromise over the infrastructure bill.  The Fed sent speakers out saying the upswing in prices was temporary, but if it persisted, they would talk about doing something, like raise interest rates.  They did not spook the market.  Interest rates fell.

The Nasdaq closed the week 2.06% higher as it tries to catch up to better performance so far this year in both the DOW and the S&P 500, which was up 1.16% this week. The Nasdaq substantially out-performed other indices in 2020. High-flying commodities gave back some of their price increases, but shortages were still in the news.  Auto production was slowed by the lack of semiconductor chips.  Housing was hampered by the high prices of lumber and shortages all through their supplier pipelines. Energy moved higher as production and distribution had trouble getting back to normal.  In some spots, gasoline hit $3/gal.

The labor market continued to be tight.  Fewer filed for unemployment, the lowest number since mid-March of 2020.  Employers are offering more, yet almost ten million jobs remain open.  A hot economy with a tight labor market does not need the additional stimulus from a big infrastructure bill, but it seems we are destined to have one.  Fortunately, the spending will be spread over seven to ten years.

Government agencies and health departments have taken Memorial Day as a target to reduce mask wearing and other Covid restrictions.  A woman in Ohio won $1 million in a lottery for getting vaccinated.  The vaccination march continues and now the talk of herd immunity is frequent.  As businesses reopen and school children are assured of in-person learning next September, there is more fuel for the recovery.  We feel stocks will rise more as the recovery rolls on.  Expect volatility along the way.  60% to 70% of the economy is based on consumer spending.  One indicator of consumer spending is the Personal Consumption Index.  That index came in at the second highest level since 1981.

An interest rate increase could put a chill on the recovery, but the Fed is giving no indication of action this year.  Thus, the market keeps moving higher.  Monday the S&P 500 was up +0.99%, Tuesday -0.21%, Wednesday +0.19%, Thursday +0.12%, and Friday +0.08%.

Next week there will be a lot of discussion of the President’s budget proposal, which calls for a 25% increase in spending and more taxes.  This is not the policy direction the market welcomes.  But let’s leave that until next week.  Everyone deserves this break for Memorial Day.

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 May 21, 2021

by Jim Ulland

This week was dominated by inflation concerns even though the 10 Yr Treasury interest rate was flat. This security is a major indicator of the direction of interest rates. High-flying commodities like lumber, which is up 100% since January 20th, declined 13% in the last two weeks. Crude oil also fell this week by 2.5% but is still up 31% this year as oil producers hurry to raise supply. Many businesses are short of workers even with upwards of ten million unemployed. Weekly unemployment filings fell to the lowest level since Covid’s full emergence, showing the tightness in the labor market. Some factors are helping people get back to work. The teachers’ unions have agreed to reopen most schools for in-person learning, which will allow parents more freedom. The bonus unemployment checks have ended in several states and will end for all in September removing this economic disincentive. The increasing vaccination rate will also help workers return. These changes should cool the inflationary impact of worker shortages.

The economy is strong. Retail sales are one indicator. Sales at Target for Q1 were up 23% over last year. Home Depot was up 30%. Many manufacturers are seeing such a rapid increase in demand that they are concerned about supply shortages. For instance, auto production is constrained by a lack of semi-conductor chips. Parts shortages and general supply bottlenecks cause price increases and inefficiencies. The Fed says these constraints will be transitory, but there are a lot of price pressures in the economy today. The Fed is counting on the heat coming out of prices before the public starts expecting inflation. Once the public expects inflation, it is almost sure to arrive because behavior changes.  In this over-heated environment, the last thing the economy needs is more stimulus.

If we get persistent inflation, the Fed will move interest rates higher and slow the economy. Home construction is sensitive to higher rates as are consumers who finance purchases such as autos. Businesses that borrow will see costs rise and margins shrink. Stocks purchased for their dividends will be under pressure as the value of dividends is eroded. As a boutique manager we can respond more quickly to changing circumstances than large firms. Market volatility provides opportunities through dislocated values. Although we do not invest in it, an example of volatility this week was crypto currency, which fell 30% at one point before a partial recovery.

When investing in stocks today, valuation has become increasingly important. Selecting companies with solid growth prospects post-Covid, and avoiding companies sensitive to interest rate increases are prudent considerations. In fixed income, we select securities with a high coupon or a dividend that floats upward as rates rise. We are on high alert to changing conditions.

The SP500 fell -0.43% this week, not much off its all-time high. The Nasdaq closed +0.31% but had a lot of volatility. Monday the SP500 was -0.25%, Tuesday -0.85%, Wednesday -0.29%, Thursday +1.06%, and Friday -0.08%.

The robust economy continues to surge forward, fighting the headwinds of potentially higher taxes and excess stimulus. Hold on to your hats and apply that sunscreen. The weather is going to hot as well.

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 May 14, 2021

by Jim Ulland

This week was a “heat check” in the market. Some sectors were thought to be running too hot and would cool off before attracting more investment dollars. Technology was one of those sectors, so the sector pulled back five percent by mid-week. The interesting thing is that Big Tech is hardly overvalued. Google, Facebook, and Apple have price-to-earnings ratios from 26 to 28. On next year’s earnings, all are two to four points lower. The growth rate of revenues and earnings in Big Tech is from 20-40%, although Apple’s revenue growth is lower. By the end of this week, Big Tech was back in favor.

Inflation fears also spooked the market in the first half of week. Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) reported figures substantially above expectations. The biggest price increase were in used cars, gasoline, and airfares. The Fed implied that these increases were more of an adjustment to one0time events rather than the start of a spike. Used auto prices rose because the chip shortage reduced the production of new cars. Gasoline prices rose as new supply lagged demand. Airlines tickets rose, but only to the extent that the discounts to Covid travelers largely ended. It is hard to have a lot of inflation when ten million people are still unemployed. Those who find unemployment compensation too attractive to return to work will face the reality of bonus unemployment payments already ending in some states and in all states by September. Those working parents who have had had to homeschool will see in-person learning return no late than September. Workers afraid of Covid if returning to work will find most of their work colleagues vaccinated already or soon. This worker availability should blunt wage inflation.

Interest rates jumped at the start of the week, peaked on Wednesday, and fell to slightly above where the week started. This interest rate roller coaster provided opportunities for our fixed income strategy, Intelligent Fixed Income. The government could destabilize interest rates if spending is not restrained. Already the government has injected a trillion dollars more in transfer payments into the economy than were lost due to Covid.

The market will pause several times in 2021 since the return to normal will be uneven. However, the direction of the economy is clearly upward and robust. A gradual increase in interest rates is likely. Besides actions by our government, there are a lot of festering problems around the world that could disrupt the positive forecast. Being a boutique manager, we continue to respond to changing interest rate expectations.

The SP 500 fell 1.4% this week, not much off its all-time high. The Nasdaq did not recover all its weekly loss and closed down 2.3%. Monday the SP 500 was down -1.04%, Tuesday -0.87%, Wednesday -2.14%, Thursday +1.22%, and Friday +1.49%.

Earnings releases will conclude this coming week. If you are vaccinated, take off your mask and breathe a little fresh air. We made it.

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 May 7, 2021

by JM Hanley

Markets spent another week fretting about reopening, inflation, and the effect of both on interest rates. Some (otherwise poor) manufacturing data early in the week emphasized higher commodity costs, a shortage of computer chips, and other covid-induced supply chain disruption. On Tuesday, Treasury Secretary Yellen (herself a former Fed chair) indicated that interest rates might need to rise to prevent the economy from overheating. These factors together exacerbated the market’s inflation and interest rate fears. The Fed reiterated that an increase in rates was a long way off, but the damage was done.

Markets were thus primed for a blockbuster new jobs number that would presage the Fed’s tapering its asset purchases and raising interest rates. But employers added only one quarter as many jobs as expected and previous months were revised down. The unemployment rate actually increased. However, average hourly pay and average hours worked went up, which is hardly consistent with a bad jobs market.

This seems to indicate that employers have plenty of jobs, and are having trouble filling them. Roughly half of workers are making more on unemployment than they would at work. Many are concerned about the health risks of returning to the workplace, and plenty more are supervising children learning remotely. But with vaccination ramping up, enhanced unemployment benefits scheduled to end this September, and students learning in-person next year, these problems should abate. Questions about a labor shortage and inflation will then resurface. In the meantime, with those out of the workforce collecting generous unemployment, the impact on consumer spending will be modest.

The SP 500 finished the week up 1.2%, while the Nasdaq was down 1.5%. Value stocks outperformed growth by a substantial margin. 10 Yr Treasury yields fell almost a tenth of a point, and our fixed income strategies benefitted accordingly.

Quarterly earnings continue to come in better than expected. In healthcare, analysts expected a surge in elective procedures as potential patients got vaccinated and emergency covid wards emptied out. But numbers have so far been lower than expected. That helped CVS’s insurance business (formerly Aetna), as it has other insurers. A booming housing market and a successful acquisition boosted Black Knight, the mortgage software company. The pandemic-driven shift to ecommerce continues to be a tailwind for FIS, a banking and credit card software firm.

Robust trends continued at public safety technology provider Axon this quarter. Revenues grew by a third from last year – with earnings rising more than 50% – driven by growing demand for TASER devices and software-heavy body camera bundles. Expansion into new markets, both geographically as well as adjacent customer sectors such as the Federal government and private security, also lifted results. Strength in their platform should continue as they roll out new technologies at a fast clip, while adding strategic partners including a Carleton-alum founded startup, RapidSOS. The company raised their full-year outlook and they could be a beneficiary of a government infrastructure bill, if passed.

Thus far, about three-fourths of the SP 500 has reported. A remarkable 88% have reported better-than-expected profits, by an average of 23%. Electronic Arts (better known as EA) is the only portfolio company scheduled to report earnings next week.

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