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Archive for September, 2021

Weekly Market Update for September 24, 2021

by Jim Ulland

China rattled the market again on Monday. The most indebted property developer in the world, Evergrande, is on the edge of bankruptcy. China has alerted local government units to prepare for a default. Fortunately, since there are burdensome restrictions on lending in China, US banks have done little. Some non-financial US companies, like hedge funds, have purchased bonds and are likely to take substantial losses. The fear that the failure of Evergrande could destabilize the Chinese banking system and roll that problem world-wide is largely discounted. However, the fear was substantial enough to make Monday the worst day for the SP 500 since May.

Other negative issues from last week have not gone away. The Delta variant is racing through school children. Supply shortages and inflation pressures persist. The Fed signaled that it would start reducing the amount of bonds they are buying in November which will put upward pressure on interest rates. The fiscal stimulus is providing less of an economic tailwind. Congress is somewhat dysfunctional and seems unable to pass a budget extension or to lift the debt ceiling.

Yet, even with these challenges to economic growth, the market had two flat days and two strong days after the Monday drop. Perhaps the market has decided to let the Congress fight it out. The recovery is continuing, and the public seems ready to treat Covid and the Delta variant like a manageable disease, not a continuing crisis. Pfizer is getting approval for more ages for their vaccine and more conditions approved for the booster. Office workers are coming back. Football stadiums are full. Q3 and Q4 corporate profit growth is still expected to be +20%.

Yields this week did tick up 10 basis points to 1.45% on the 10 Yr Treasury. Our view is that these rates will grind higher into year-end. If this is in fact a grind rather than a spike, it is manageable. Any Fed interest rate increase will be late in 2022. Our fixed income strategy, run by Nat Beebe, is up more than 5% so far this year which has made the strategy nationally popular.

The recovery is far from over. We think investors should be fully invested for now. The market’s upward direction could be halted if the $3.5T social safety net legislation is passed. The taxes this legislation contains will dampen growth and the spending could, at the same time, trigger serious inflation. Stay tuned.

The SP 500 and Nasdaq closed higher this week. The NASDAQ was up slightly +0.02% and the SP 500 by +0.51%. Monday the SP 500 was -1.70%, Tuesday -0.08%, Wednesday +0.95%, Thursday +1.21%, and Friday +0.15%.

Next week is all about Congress. The debt ceiling, the budget, and the $3.5T (or much higher according to the Wall Street Journal) social programs bill. Second level stories will be China’s Evergrande debt and the US southern border. The quarter ends Thursday as does September, which has retained its reputation as one of the weakest months of the year for market gains.

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 September 17 ,2021

by Jim Ulland

A week ago, the SP 500 was down each of the five days. That negative tone continued this week with the SP 500 down three out of five days. Headlines turned from optimistic at the start of the month to being negative. The negative narrative sounds something like this: the Delta variant is going to cause people to isolate and slow growth. Corporate profits will be under pressure from supply shortages and inflation pressures. The Fed will start reducing the amount of bonds they are buying which will put upward pressure on interest rates. The fiscal stimulus is ending. China’s largest property developer is on the verge of bankruptcy. Energy prices are higher. And, if that wasn’t enough, stock valuations are stretched.

The above is relatively true. Yet, when you take the issues one by one, the picture is far less gloomy. For instance, former FDA Commissioner Scott Gotlieb says that the Delta variant will soon be over. 75% of adults now have at least one shot and 10-15% of adults have had Covid and developed natural immunity. Corporate profits are under some pressure, but 20% profit growth is still expected for 2021.

Yes, the Fed is likely to reduce its bond buying, but this has been expected. There is a big foreign demand for US government bonds so less buying by the Fed may not have more than a small impact on interest rates. The fiscal stimulus is ending but some part of the $3.5T social program conglomerate may pass as might the $1.5T infrastructure package. The Chinese government may bailout its largest developer, but the company owes about $300B. This is the one issue that could surprise and cascade into a very serious problem. Crude oil prices are high, but some of this is driven by hurricane disruption. Finally, valuations are a bit stretched. This is no surprise and may result in a rather flat market going into the end of the year.

In just a few weeks, third quarter profits will start to be released. They will be strong. GDP is expected to average 6% in 2021 and 4% in 2022. There is plenty of recovery left. We think investors should be fully invested for now. The market may have a pause, which would be normal after such big gains last year and this year, but the pause will be short before the upward trend resumes. What could derail the market would be passage on the large tax increase proposals combined with increased deficit spending triggering the smoldering inflation.

For those who want to be more conservative than equities, we have seen large inflows into our fixed income strategy, run by Nat Beebe. The Intelligent Fixed Income (IFI) strategy continues to have record setting performance, netting about 5% so far this year. With cash and money markets paying nothing and corporate bonds only paying about 2%, you can see why IFI is popular. If you are concerned about a stock market correction, taking shelter in a lower risk strategy with meaningful yield is a good option.

The SP 500 and Nasdaq lost ground this week. The NASDAQ was off -0.47% and the SP 500 by -0.57%. Monday the SP 500 was +0.23, Tuesday -0.57%, Wednesday +0.85%, Thursday -0.16%, and Friday -0.91%.

Next week, attention may return to the open-to-all southern border. Thousands are flooding across from as far away as Haiti. The situation can not persist much longer. Another government problem is the debt ceiling. The Congress periodically raises the amount of bonds the government can issue, permitting several decades of deficit spending to continue. Congress has not yet agreed to raise this borrowing limit and the market may reflect this stress. At some point in October, Uncle Sam’s check book will hit zero. But, Congress can spend its weekend on this issue while we recommend everyone else enjoy the lingering beauty of this summer.

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 September 10, 2021

by Jim Ulland

Following the poor new jobs report on Friday 9/3, the market declined every day thereafter including this Friday. Ironically, the relatively low number of new jobs filled was contrasted with 10.9 million open positions, a record. It seems many are reluctant to go back to work. Perhaps this will correct now that the bonus unemployment checks have ended, the vaccination rate is higher, and schools have reopened for in-person teaching allowing many parents to go back to work.

One thing the Delta variant has done is to urge more to become vaccinated. The one-shot vaccination rate is up to 75% for adults. On Thursday, the President announced a new mandate for employers of over one hundred workers. They are to require employees to be vaccinated. Dr. Scott Gottlieb, the former FDA Commissioner and frequent commentator on CNBC, said that this requirement is likely to take so long to implement that the Delta wave will be over. He noted that OSHA, the agency charged with implementation, would have to develop rules. This process is lengthy, and even more so on an issue with high controversy. Dr. Gottlieb said that the current voluntary system is working and even a mandate is unlikely to bring the vaccination rate over 90%. Others suggest that there will be a constitutional challenge, further delaying the mandate. As an aside, our office is 100% voluntarily vaccinated.

The Delta variant drag on the economy was only one of this week’s negative factors. Inflation is still with us. The Producer Price Index came in “hot” at an annualized increase of 8.3%, the highest in the index’s history. China continued to penalize its large technology companies, many of which are traded on US exchanges. The fiscal stimulus is coming to an end. There might be one more burst of spending from the proposed $3.5T “infrastructure” bill, but passage is far from assured. Should it pass, it will fuel worries about inflation and an economic drag from the large number of tax increases.

All was not doom and gloom. Corporations continued to buy back their stock. Consumers are still sitting on high levels of savings. Interest rates remained historically low and stayed fairly flat for the week. GDP estimates were revised slightly lower, but only to 6%, still two to three times higher than normal. There seems to be plenty of recovery left.

We are keeping client portfolios fully invested for now. Our view is that the recovery has twelve months to go before headwinds increase. There is too much power in the recovery to move to cash or government bonds, neither of which pay anything. Naturally, as a boutique, we can change this view quickly as economic signals warrant.

Both the SP 500 and the Nasdaq lost ground this week. The NASDAQ was off -1.61% and the SP 500 by -1.69%. Tuesday the SP 500 was -0.34%, Wednesday -0.13%, Thursday -0.46%, and Friday -0.77%.

Next week the political fires may heat up. The Recall vote on CA Governor Newson will be held. He is leading in the polls. The CPI number will be released probably confirming more inflation concerns. Afghanistan is likely to stay in the news, but no hurricanes are scheduled. Looks like a beautiful weekend in MN, enjoy.

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 September 3, 2021

by JM Hanley

The market as a whole drifted upward again this week. That masked significant dispersion, as growth stocks significantly outperformed cyclical companies that benefit most from reopening. Rising concerns about the Delta variant’s affect on growth have weighed upon the latter. Industrials, energy firms, and banks (which benefit from higher interest rates) underperformed the most. Large tech companies like Google, which tend to grow no matter the state of the economy, led the market higher. The SP 500 finished the week up 0.6%; the Dow was down 0.2% and the tech-heavy Nasdaq was up 1.6%.

Today’s jobs report was the marquee release of the week, and it sent mixed signals. Many fewer jobs were created last month than expected as the Delta variant spread across the US. On the other hand, the unemployment rate went down, as much as it has in every month of 2021 so far. Wages continue to increase, albeit not as fast as inflation. E Employees are also working more hours than they were before the pandemic. Job openings, and people quitting their jobs, also increased. The number of available jobs per unemployed worker is at a record high.

In other words, the Delta variant has caused some of those without a job to put off looking for work for longer. Labor force participation has decreased. The expiration of high pandemic unemployment benefits next week may change their calculus. The economy will benefit if they find their way back sooner rather than later. The long-term unemployed typically find it hardest to return to the workforce. Overall, the economy remains seven million jobs short of where it ought to have been before the pandemic.

Because the poor report was due to fewer people looking for work – rather than economic growth slowing – it’s unlikely to change the Fed’s behavior. The Fed will probably reduce bond purchases, one of its two support mechanisms to prop up the pandemic economy, at its December meeting. That minimized the report’s impact on the market.

Next week seems to be relatively light on news. Wednesday will bring data on job openings, while one indicator of August inflation will come on Friday. Our office will be closed Monday for the Labor Day holiday.

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