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Archive for August, 2021

Weekly Market Update for August 27, 2021

by Jim Ulland

Federal Reserve Chair Powell knows how to end the week on an upbeat note. After the troubling international and domestic headlines, he calmed the markets by saying the Fed was not through providing stimulus to the economy in the form of continued low interest rates. Many felt his Jackson Hole retreat comments would signal a reduction in the asset-purchase plan used to keep rates low. However, he said this “tapering” would not begin until year-end and that it would not signal an immediate interest rate increase. This now is expected at the end of 2022. The market embraces statements like this since low interest rates tend to fuel the economy and the stock market.

During the week, the market ignored the problematic rise in the Covid Delta variant. There is not a rush to close the economy again. The public seems willing to manage around this health problem and allow more parts of life to return to normal.

Inflation concerns also took a back seat to Chairman Powell’s remarks. This was despite the rise in crude oil prices by 10% and the announcement by the largest chip manufacturer in the world, Taiwan Semiconductor, that it was increasing prices by up to 20%. Chips shortages, which have slowed auto production, are expected to be in short supply well into next year. Unemployment filings were up marginally, but still bumping along a pandemic low. The July Consumer Price Index was up 4.2%, well above the Fed’s 2% target, the fastest pace in more than twenty-five years, but slightly below expectations.

Afghanistan generated big headlines, but the market seemed to lump that story in the political rather than economic news category. As tragic as the Afghanistan story is, it has not had an impact on the market, yet. Other political news was important, but not to the market. The Supreme Court allowed the renters’ eviction moratorium to expire. And the $3.5T “infrastructure” bill is not close enough to passage to cause alarm. Fears linger that this amount of additional spending will trigger inflation. The tax increase provisions in the bill are both numerous and substantial. If passed, these could slow the recovery. That concern will intensify if the legislation gets closer to passage.

Pandemic news was largely positive. The Pfizer/BioNTech vaccine received final approval. Previously, it and all other Covid vaccines had been for “emergency use only”. Official approval may encourage more to get vaccinated. A high vaccination rate is the ultimate defense against the pandemic.

The market wants to go up. By the end of the week, both the SP500 and the NASDAQ had set new records. For the week, The NASDAQ was up +2.82% the SP 500 was up +1.52%. Monday the SP 500 was +0.85%, Tuesday +0.15%, Wednesday +0.22%, Thursday -0.58%, and Friday +0.88%.

Next week, watch for the report on net new jobs created in August.

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 August 20, 2021

by Jim Ulland

For a summer week, headlines were unusually bold. The stories behind the headlines included: “Vaccines and Booster Shots to Prevail Against Covid Variant.” This story developed as the fear of Delta variant infections drove more of the unvaccinated to the get theirs. Higher Delta exposure wasn’t the only fear raised. More infections meant some reintroduction of restrictions on restaurants, entertainment, and other gathering spots. Retail in July was down more than expected as many returned to online shopping. Amazon surpassed Walmart as the world’s largest retailer. Yet the public seems to have little tolerance for another lockdown and thus most elected officials have been reluctant to reimpose the restrictions just lifted.

A second story was inflation. We all know it is lurking, but crude oil has had seven straight days of decline. Lumber is 73% below its May peak and back to the level before the price spike. Soon the special unemployment payments will end, taking some wage pressure out of the mix. That is not to say inflation is subdued, but it has slowed.

A third story was Afghanistan and the clumsy withdrawal. In economic term, our economy doesn’t know the country exists. It is small, remote, and almost totally disconnected from the US as either a supplier or a market. History suggests Afghanistan will be soon forgotten…unless all of the US weapons left behind create a well-armed and destabilizing Taliban. Afghanistan is still a major political story and tragedy, so its major short-term impact may be in the midterm elections.

A fourth story is that of China. It is playing nice with the Taliban so that it can control the rare metals deposited in those rugged mountains. However, China is not playing nice with its large tech companies. Xi Jinping doesn’t like powerful people like the CEOs of its large tech firms. He deems them too rich as well as having better information on China’s citizens than the government. We have reduced our exposure to Chinese stocks by more than half due to this uncertainty.

A final story is that the market continues to grind forward. The SP 500 has set 48 all-time highs since last December. In the history of the SP 500, there has only been one year when it set more highs, 1964. Part of the fuel in the market came from the very strong corporate earnings reports from Q2. CEOs raised their predictions for revenue and profit growth for Q3. Many companies announced stock buy-backs which tend to drive stock prices and earnings per share up. Our view is that the market will go higher, and investors should stay invested. For those who want a more defensive positioning, our fixed income strategy, Intelligent Fixed Income, continues to rank exceedingly high among all fixed income managers producing a current yield between 4-5%.

For the week, The NASDAQ was down -0.73% and the SP 500 was down nearly the same at -0.59%. Monday the SP 500 was +0.26%, Tuesday -0.71%, Wednesday -1.07%, Thursday +0.13, and Friday +0.81%.

Next week, watch as the stories above make new headlines. It is unlikely that the market will find them so unsettling that it is knocked off its grind upward.

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 August 13, 2021

by JM Hanley

It was a sleepy summer week on Wall Street. Stocks moved upward steadily if slowly. Cyclicals, and to a lesser extent value stocks, were better than growth companies after weeks of underperformance. Treasury yields rose midweek but then retreated; preferreds moved inversely. The S&P 500 finished the week up 0.7%; the Nasdaq was nearly flat. Banks, Materials, and Industrials outperformed.

Wednesday’s release of inflation data was most anticipated. It came in lower than expected. Excluding food and energy, inflation slowed down compared to the prior month. One major factor was used car prices, which decelerated sharply after months of significant increases. The cost of rent also increased less than expected. Readouts from other sources suggests the number used for rent is improbably low, possibly because of data delays. And looking past cars and businesses reopening after the pandemic, inflation remains about as fast as it was last month, about half again higher than the pre-pandemic trend.  A subsequent release Thursday (PPI, a metric favored by the Fed) told a similar story.

These takeaways were juxtaposed with rising concerns about the Delta variant, which would put a damper on demand and thus slow inflation. After the report, bond yields initially increased. Then today, one survey showed consumer confidence falling dramatically, to its lowest level since 2011, due to concerns about a covid resurgence. Yields have since largely retreated to where they started the week.

Fed members also contributed to the unsettled state of affairs. In public remarks Monday, two members urged the rest of the Fed to slow its bond-purchasing program in September, earlier than the market is currently expecting. That would drive yields up. The next day, two other Fed members refuted that view. The rising prominence of changes to Fed policy seems to have made some fixed income investors nervous, resulting in volatile trading for bonds and preferreds.

Next week will also be quiet. Tuesday will bring retail sales data and Wednesday, a number of updates on the housing market. A number of major retailers will also report second-quarter earnings next week. Home Depot and Walmart will report on Tuesday, followed by Lowe’s and Target on Wednesday.

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 August 6, 2021

by Jim Ulland

90% of the largest 500 corporations have reported earnings from Q2. What are the CEOs saying on their conference calls? First, they are very happy since over 86% of them beat the earnings that analysts had forecast. In aggregate, the earnings exceeded expectations by 17%. 87% of the companies also beat revenue expectations. Many of the CEOs mentioned pricing pressures on their input costs and labor as well as supply constraints. Yet, there were few who said that cost pressures or the Delta variant had slowed order or reservation patterns. Both the NASDAQ and the SP 500 set records during the week.

One thing the Delta variant has done is to urge more to become vaccinated. Perhaps the corporate leaders expect the higher levels of vaccination to blunt the impact of the new Covid variant. Most of those being hospitalized have not been vaccinated. Corporations are struggling to manage employees during the new Delta spike. Some are requiring vaccinations or weekly tests as an alternative. This month, Pfizer expects its vaccination to go from “emergency authorization” to “approved.” Some of the hesitancy in being vaccinated is from those who view the “emergency” status as suggesting that those being vaccinated are participating in the world’s largest drug trial. Official approval should reduce this concern.

Despite the Delta variant and parts shortages, a lot more jobs were created in July, almost a million. This reduced the unemployment rate from 5.9% to 5.4%. In addition, the number of workers on unemployment declined, as did new unemployment filings. More people working increases consumer purchases, another boost to growth. The narrative from the CEOs was that growth and higher earnings will continue for the rest of the year.

As a result of the strong economic news, interest rates rose, but this only recaptured some of the recent decline. Somewhat higher rates are welcome by banks who earn very little on excess deposits when rates are low. Our Intelligent Fixed Income strategy is up between 4-4.75% so far this year and was unfazed by today’s rise.  We recommend selling corporate bonds, government bonds, and CDs, all of which pay next to nothing. Stocks can support higher prices now that strong earnings are evident. China is one of the few areas where we are reducing exposure. The new government crackdown on the technology sector has made China much less appealing.

Both the SP 500 and the Nasdaq set more than one record by Friday. For the week, the Nasdaq gained +1.11%. The SP 500 rose +0.94%. Monday the SP 500 was down -0.18%, Tuesday +0.82%, Wednesday -0.46%, Thursday +0.60%, and Friday +0.17%.

Next week there will be the last few large corporate Q2 earnings reports as well as many reports from small companies. Some headlines will be driven by the infrastructure bill which is scheduled for a vote in the US Senate, Saturday 8/7. The biggest fight will be on the following bill called a human “infrastructure” bill which contains both a lot of inflationary-loaded spending and numerous tax raises. The southern border will continue to be in the news particularly since those entering the country illegally have not been vaccinated. More fuel for the political fire.

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