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Archive for February, 2022

Weekly Market Update for February 25, 2022

by Jim Ulland

By Monday of this coming week, both Covid and Russia’s war on Ukraine could be over.

Covid restrictions are ending because the politicians and government leaders understand political science better than “science science”. Most US citizens are exhausted by the Covid restrictions and are willing to accept the now diminished risk of infection so that life can return to normal. Mask mandates are being repealed or withdrawn incredibly quickly. By the time the CDC makes its new recommendations, there will be hardly any mask mandates left, except possibly in New York City where they just removed the mask mandate for school children playing outside but not inside. They must have missed the studies that showed how detrimental remote learning and masked learning have been.

The Russian invasion of Ukraine could end by Monday. One likely outcome is for Russia to capture the President of Ukraine and replace him with a Putin-selected president, who would sign a “peace treaty.” The peace treaty is likely to ensure that Ukraine will never join NATO or have any military weapons in the country. Russia will be their “protector.” The sanctions that have been placed on Russia will be slightly disruptive to the world economy and a little more so to Russia itself. Russia is the world’s largest oil and gas producer, and this is their primary source of foreign exchange. There were no sanctions on these exports. Ukrainian grain and farm products will find the way into world markets if the ports aren’t destroyed.

Covid and the Russian invasion have been a storm cloud over the market. Once completely lifted, the market should take another leg up. The economic news remains solid. Unemployment filings were very low last week and less than expected. Durable goods orders came in strong. Personal spending was up and above expectations. Consumer confidence rose. Only pending home sales dropped and that was attributed to lack of inventory rather than a reduced number of buyers.

Interest rates, as reflected in the 10 Yr Treasury, were surprisingly flat for the third week. Some uncertainty will persist since the Russian invasion could trigger a conflict with Europe and/or the US outside of Ukraine. Although this is unlikely, the Fed may moderate the pace of interest rate hikes because of it. We still expect hikes to start in March with a quarter of a percent rise.

During the first two days of the week, the market reflected a world of uncertainties, and the SP 500 was down almost 3%. The last two days of this four-day week, the SP 500 surged almost 4% as did the NASDAQ. The fixed income market showed the same resilience. Patient investors are being rewarded.

For the week, the SP 500 was up +0.82% and the NASDAQ +1.08%. Tuesday the SP 500 was -1.01%, Wednesday -1.84%, Thursday +1.50%, and Friday +2.24%.

Next week an important manufacturing index for February will be released on Tuesday. That evening is the President’s State of the Union address. Fed Chair Powell testifies before Congress on Wednesday and Thursday. Friday will be the important new jobs data for February. And sadly, during the week look for the capitulation of Ukraine.

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 February 18, 2022

by Jim Ulland

The year started with a sharp pullback. Fortunately, this pullback is not caused by weak credit conditions and business failures like 2008/2009. Nor is the economy caught with excess inventories and a resultant economic slowdown. Rather, the market is confronting with other issues: Ukraine v Russia conflict, inflation, rising interest rates, Covid disrupted supply chains, and a shortage of workers. Several of these issues should be resolved by mid-year. Russia either will or will not invade Ukraine. The impact of whatever Russia does should be over relatively soon except for fallout over the sanctions, which are likely to raise the price of oil. The rate of inflation should be reduced as the year goes on. The wait time for ships trying to unload on the West Coast is being reduced. Retailers are rebuilding inventories, filling empty shelves. And auto firms say the chip shortage is abating. Inflation is the issue that could persist the longest. Producer prices were up more than consumer prices during 2021.

Last week, interest rates, as reflected in the 10 Yr Treasury, were surprisingly flat. This week they were down. The 30 Yr government bonds still has very low rates signaling the possibility of an economic slowdown. A slowdown could make the Fed less eager to raise rates. Covid also is on the way to becoming managed, like the flu. Masks are coming off school children and more parents can return to work. Those who had been fearful of contracting Covid at work also are returning. More workers will reduce inflationary wage pressures and increase the supply of goods and services. Watch governors race to lift mask and vaccination card restrictions on public spaces. The public’s tolerance of restrictions on daily life is exhausted. One can see this exhaustion playing out in Canada.

The current situation calls for investor patience in our view. Tactically, we are adding some positions that will benefit from rising rates like Silicon Valley Bank, which has a high percentage of deposits that pay the depositor no interest. These deposits are worth a lot more when they can be reinvested at somewhat higher interest rates. We added a little more to the energy sector oil and gas, carbon credits, and pipelines. By late-summer, equities should recover much of the downturn. Fixed income started a snapback this week. The sector was so oversold, investors returned to preferred stock to lock in 5+% long-term income streams. We expect the fixed income recovery to continue next week.

Today, the market faced a three-day weekend. Some were selling to protect against a Russian invasion during this period. Next week, the market should try and recapture some of this week’s losses. For the week, the SP 500 was down -1.58% and the NASDAQ -1.76%. Monday the SP 500 was down -0.38%, Tuesday +1.58%, Wednesday +0.09%, Thursday -2.12%, and Friday -0.72%.

The majority of corporate Q4 earnings came to an end this week with good numbers from Walmart. Home Depot and Lowes will report next week. The market and our office will be closed Monday for the holiday. We all need a break from the stress of volatility.

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 February 11, 2022

by Jim Ulland

The market sure did not like that inflation report on Thursday. The expected annual inflation rate of 7.3% was exceeded when inflation was reported at 7.5% over the last twelve months. The worry is that the Fed will raise interest rates so high to control inflation that it will push the economy into a recession. The irony is that higher interest rates may not solve the inflation problem. If inflation is primarily from a shortage of goods because of Covid and supply chain bottlenecks, higher interest rates will do little to address those two problems.

Stocks fell on the fear of recession and the potential disruption of a conflict between Russia and Ukraine. When President Biden today insisted that US citizens leave Ukraine and that trouble was imminent, oil went up $3 per barrel, almost 4%. You will see that at the gas pump soon. This equity market decline came on the heels of continued strong corporate earnings. For the last four quarters, earnings have been up about 20% each quarter over the prior year. Corporate CEOs during their conference calls have been citing strong demand, a tight labor market, and continued supply chain bottlenecks.

The fixed income market was hit hard, not so much by the amount of increase in interest rates, but by the short timeframe over which this occurred. A more gradual increase in rates would have been accommodated by the market. However, the rapid rise triggered a lot of selling as a response. Fixed income markets are down almost as much as equity markets as a result. We expect both to snap back once the trading normalizes. If the 10 Yr Treasury stays around Thursday’s panic level of 2% for a couple of weeks, calm will return. It was surprising that the interest rate on the 10 Yr Treasury was flat for the week with the big rise Thursday offset by a sharp decline on Friday.

The week seemed more terrible than it was. The NASDAQ was down -2.18% and the SP 500 down -1.82%. Unemployment filings were low and less than expected. The waiting time for ships to unload in the ports of LA and Long Beach shortened. Mayors and Governors were rushing to announce reductions in Covid restrictions as the public seemed far more willing to live with low levels of infection as opposed to the negative impact restrictions have had on school children, small businesses, and the enjoyment of life. As one of the Canadian Provincial Premiers put it, the restrictions have become so divisive that they are causing more harm than good. It is better they be terminated. Many of the other Premiers did just that. Prime Minister Trudeau may grit his teeth and follow their lead.

Most economic news is good, except for inflation. Everything is up and the Fed is looking a little foolish for calling inflation “transitory.” It hurt the Fed’s credibility and now brings into question their management of interest rates. A couple of weeks of calm markets and flat interest rates will do a lot to address the financial pain of the year so far. We expect a snap back from oversold conditions. It would be nice to have it sooner rather than later.

Monday the SP 500 was down -0.37%, Tuesday +0.84%, Wednesday +1.45%, Thursday -1.81%, and Friday -1.90%.

Corporate Q4 earnings wind down next week with the most notable report coming from Walmart. Watch for more announcements from government officials that Covid restrictions are being lifted and a few whispers that “Covid is Over.”

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 February 4, 2022

by Jim Ulland

The last week in January was the first positive week of the last four. This week also was positive with the NASDAQ +2.38% and the SP 500 up +1.55%. The market seemed to be bouncing along a bottom, and a rough bottom it was. Facebook fell over 25% after its earnings announcement and a weak forecast for 2022. Google was the exact opposite with a 32% increase in advertising revenue, a 45% increase in Cloud revenue, and a 7.5% increase in stock price. Amazon summed up the market this week by falling over 7% the day earnings were to be announced after the close and then rising 13% the next day. Amazon stock price was helped by a price rise of $20 per month on Prime and big revenue from Cloud services. Expect more volatility. Omicron, inflation, and rising interest rates are still market headwinds.

New cases of Omicron were down 45% in the last two weeks. Governments are starting to talk about relaxing restrictions. One report suggested that lockdowns had very little impact on controlling the spread of the virus. January was not as detrimental to employment as feared. The Jobs Report on Friday showed 467,000 new jobs created. Unemployment was at 4%, generally considered full employment. Hopefully, the steep drop in Omicron cases will allow more to return to work.

The fixed income market was hoping for more muted job growth. It was argued that slow job growth would keep the Fed from raising interest rates as fast as feared. After the solid jobs report, interest rates, as represented by the 10 Yr. Treasury, rose sharply. This caused more disruption in the fixed income market. We expect prices to stabilize next week and rebound by the end of the quarter. We can buy preferred stock paying over 5% because of this pullback. Since 5% is the highest current yield in the market, investors will be attracted to preferreds once markets settle. Last year the fixed income market started the year with a pullback and ended the year up 5+%. Those who took advantage of the dip were rewarded.

Next Thursday, the January CPI number will be released showing just how hot inflation has been. Crude oil topped $90 per barrel this week. Omicron kept many supply chain workers home, which caused more shortages of goods. This will end soon. A normalized supply chain will dampen inflation.

The biggest news this week was from the rating agency Morningstar. They reviewed the three-year performance of our Intelligent Fixed Income strategy run by Nat Beebe and gave it a Five Star ranking. Congratulations to Nat for this great work. We are seeing a strong inflow of funds seeking to take advantage of Nat’s expertise and the market dip.

Monday the SP 500 was up +1.89%, Tuesday +0.69%, Wednesday +0.94%, Thursday -2.44%, and Friday +0.52%.

Corporate Q4 earnings continue next week with smaller companies. Earnings so far have exceeded expectations. The Thursday CPI report will be market moving. No controversial legislation is expected to pass in the next month because one US Senator had a stroke. We wish him well. Everyone needs a break from the rather nasty political battles.

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