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Archive for June, 2021

Weekly Market Update for June 25, 2021

by JM Hanley

It was a relatively quiet week on Wall Street. After a Fed-induced downturn last week, markets more than made up the lost ground. Value stocks retraced most of their losses, while technology and other growth industries surged ahead. The S&P finished the week up 2.7%; the Nasdaq was up 2.4%.

A barrage of commentary from Federal Reserve board members softened the hawkish tone the central bank struck last week. While the Fed seems divided on the matter, a majority seems committed to a patient approach to rate increases. The Fed also released the results of its “stress tests” this week. All of the 23 “too big to fail” banks passed, which means they have sufficient reserves to survive a downturn. Banks may now accelerate the pace at which they return cash to shareholders via buybacks.

Economic data was largely consistent with the Fed’s theory that high inflation is transitory, linked to the rapid reopening of the economy. PCE, a tracker of consumer spending and a favored inflation metric of the Fed, came in lower than expected. Some think it may have peaked. Categories that are sensitive to virus restrictions have improved substantially but are still far below their pre-covid peak. Even home sales were something of a disappointment. Sales of existing homes declined, in part because supply is so constrained. But the sale of new homes did as well, and that seems correlated to recent spike in prices. Two measures of long-term household and business investment were also weak. And jobless claims declined by less than expected.

The Administration and a bipartisan group of senators have apparently reached an agreement on infrastructure legislation worth $579 billion over eight years. That’s relatively modest given the size of the economy and the extent of federal spending. The bill doesn’t include any tax increases to pay for the spending, and its passage through Congress already looks imperiled. Investors have long been skeptical of the bipartisan negotiations. They expect that more significant measures – significant new spending commitments on a range of priorities, partially paid for with an increase in the corporate tax rate and other taxes – will come in a bill Democrats attempt to pass on their own later this year.

Next week will mark the end of the second quarter. Companies will begin to report earnings in the middle of next month. In the meantime, investors will be waiting for next Friday’s June jobs report. May and April’s numbers were disappointing, and if that continues, the forecasted pace of recovery may be revised.   Data on wage gains will be another indicator of inflationary pressures.

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 June 18, 2021

by JM Hanley

Investors spent the first half of the week awaiting the outcome of the Federal Reserve meeting Wednesday. When the meeting ended, there were two surprises. The Fed was more “hawkish,” or aggressive about raising interest rates, than expected. The second was the market’s reaction. Treasury yields normally rise when faced with higher interest rates. Instead, the curve “flattened,” as near-term Treasury yields rose and those for longer-dated bonds fell. This is consistent with higher-than-expected interest rates in the short term, and lower inflation in the longer term. The SP 500 ended the week down nearly 2%, while the Nasdaq was down 0.3%.

The Fed’s meeting was hawkish on two fronts. The Fed now anticipates it will raise interest rates twice in 2023. Previously, it hadn’t anticipated any increase until 2024. The Fed also broached the subject of when it would slow its bond-purchasing program (which currently totals about $120 billion per month). This helped keep corporate debt markets liquid during the depths of the pandemic.

The faster pace of rates hikes was more surprising because it followed weeks of sluggish economic data (like jobs reports). Indeed, the Fed’s forecasts of future economic growth were revised up just slightly. Instead, their commentary emphasized the rapid improvement in the covid outlook. Reduced economic risk from the pandemic likely explains much of the newly aggressive stance.

The week’s rate news was all the more important because it was the first hike previewed under the Fed’s new interest-rate policy, average inflation targeting. Many thought this shift would lead the Fed to let inflation run hot for a while to make up for years of sluggish numbers. That doesn’t appear to be (entirely) the case. This explains why long-dated Treasury bonds now imply lower inflation and lower interest rates will persist in the future.

Other economic data this week suggested the economy is recovering more slowly than expected. Initial jobless claims and retail sales came in lower than anticipated. So did two Northeastern manufacturing indices. The high cost of building materials weighed down new housing starts.

The weak data and Fed’s new stance prompted investors to reassess “reopening” stocks. Markets had anticipated that even lackluster businesses would benefit from a booming economy, plenty of government stimulus, and a steady supply of cheap money. With the first and the last now in question, funds shifted to sectors that do well even in a slower-growth economy. Technology and healthcare stocks did well. Materials, energy, and industrials trailed the market.

Highlights on next week’s economic calendar include existing home sales on Tuesday and new home sales on Wednesday. Friday will bring personal income, personal spending, and consumer confidence updates.

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 June 11, 2021

by Jim Ulland

The market sent out surprising signals on inflation this week. It sounded like Bobby McFerrin and his song “Don’t Worry Be Happy.” The Fed has been arguing that the inflation spike is temporary. They contend that once September comes, schools will reopen for in-person learning, the bonus unemployment payments will end, and Covid concerns will diminish allowing people to return to work. The Fed also thinks that once supply chains normalize, product price increases will be tempered. That said, prices of airline tickets, apparel, rental cars, used cars, oil, gasoline, food, and many commodities have risen. Many do not believe the Fed after experiencing this flood of price increases in just about everything. Yet, on Thursday when the May CPI figures came out and showed inflation at the highest level since 2008, the market went up and government bond yields went down. That was the opposite of what was expected.

Consumer expectations about inflation have been surprisingly modest. The UMich consumer sentiment report said consumers expected only a 2.8% average inflation level over the next five years. Let us hope the Fed is right and inflation will stay in check. Pent up spending and too much stimulus will test the Fed’s view. Apparently, a tentative agreement has been reached on an infrastructure spending bill, not the type of medicine the economy needs when in a hot recovery. The World Bank forecasts that 2021 will produce the strongest global growth in 80 years, hardly the environment for low inflation.

A day after the CPI report was released, stocks were still going up and bond prices down. This is favorable for our fixed income strategy Intelligent Fixed Income, but we are ready and able to reposition quickly should the Fed have misjudged the situation. This week’s unemployment filings, which were at another post-pandemic low, raised additional questions about the Fed’s inflation view. Job openings rose by 998,000 to a record of over nine million.

The market focused on the strength of the economy rather than the fear of inflation. We expect the strength of the economy will drive corporate revenues and profits higher allowing stocks to grind upwards as Q2 earnings and revenue announcements are made in July. Interest rates continue to stay surprisingly flat, pushing investment dollars into preferred and common stock.

The Nasdaq closed the week +1.85% higher. The SP 500 was up +0.41%. Monday the SP 500 was down -0.08%, Tuesday +0.02%, Wednesday -0.18%, Thursday +0.47%, and Friday +0.19%.

Next week there will be a lot of discussion of the infrastructure bill as well as how the G-7 minimum corporate tax would work. May retail sales and housing starts will make news. Lumber prices have come down some, but they are still way above January 1st levels and are likely to slow housing starts.

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 June 4, 2021

by Jim Ulland

The market spent the week celebrating the end to mandatory masks and the reopening of most bars and restaurants without restrictions. Businesses announced return-to-the-office schedules. New Covid cases and deaths fell to pandemic lows.

The broader market narrative continued with fears of inflation causing concern that the Fed will raise interest rates more quickly than expected. Higher interest rates could slow the recovery. Housing would be vulnerable. At the same time, there is a concern that the economy is “too hot.” Those with this concern, including us, don’t want more stimulus fuel put on the fire. The stimulus debate is centered in Washington where a bi-partisan infrastructure bill has yet to be fashioned. Few argue that some infrastructure spending is needed, but the amount and how to pay for the spending is where the debate centers. A side debate is on the definition of infrastructure which traditionally has meant roads, bridges, and airports. Some want to expand the definition to include “human infrastructure,” a definition that can include almost anything.

The temperature of the economy was shown in this week’s unemployment filings, which were at a post pandemic low. Job growth in May was 560,000. There are still millions of jobs open which are an indicator of a tight labor market. The higher vaccination levels should make more people comfortable returning to work. Schools are announcing a return to full in-person learning, which will release more parents to the work force. The bonus unemployment payments also are starting to expire, another factor encouraging a return to work. Employers are paying more and need additional workers, as signs in store windows indicate.

Manufacturing surveys showed strong demand even with the supply shortages. Energy stocks, material production and distribution companies, ag equipment companies, banks, and auto manufacturing all boosted forecasts of production and profits. Autos also had some relief from the chip shortage by using better inventory management.

We expect stocks to grind higher with stronger earnings and revenue announcements. Interest rates have stayed surprisingly flat, but we expect them to drift higher into the end of the year. Floating rate preferreds are one of our tools to manage this situation.

The Nasdaq closed the week +0.48% higher. The SP 500 was up +0.88%. Tuesday -0.05%, Wednesday +0.14%, Thursday -0.36%, and Friday +0.88%.

Next week there will be a lot of discussion of the infrastructure bill. The May CPI will be reported on Thursday and is likely to fuel more debate on inflation.

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