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Archive for April, 2022

Weekly Market Update for April 29, 2022

by Jared Plotz

It was a mixed week which ended down. A Monday rally as treasury yields pared back gave way to mid-week softness. Thursday showed reprieve on the back of strong reports by Facebook and Paypal, but markets ultimately succumbed to negative sentiment on Friday with Amazon’s disappointing earnings report. The S&P 500 ended the week down 3.3%, the Nasdaq down 3.9%, and the 10-Yr up one basis point.

Earnings reports have been broadly positive but not quite as strong as prior quarters. Visa reported a “beat and raise” as cross-border volumes recovered faster than expected and the company reported no major volume impacts from recent market headwinds (inflation, supply chain, Ukraine war). Google shares declined after showing softening growth at its YouTube property. Facebook revenue missed expectations, as did guidance for Q2; however, healthy engagement metrics, reduced operating expenses and a plan to improve profitability buoyed investors’ spirits. Amazon experienced its biggest one-day drop since 2006 after reporting weaker operating margins, soft Q2 revenue guidance, and a big impairment on its investment in electric-vehicle maker Rivian.

First quarter real (inflation-adjusted) GDP contracted at a 1.4% annualized pace, the first quarterly decline since Q2-2020. This does not, however, give an honest picture of the current economy. Foreign imports surged and businesses slowed inventory accumulation after building up in prior quarters. Combined these posed a four percentage-point headwind to growth. Add in a 3% decline in government spending, and the healthy 4% expansion in private domestic demand became overshadowed. Consumer spending grew over 4%, residential investment by 2%, and looking forward the economy is expected to rebound to over 3% growth in Q2 and Q3. A recession is unlikely in 2022.

Next week brings earnings reports from some leisure travel companies – one spot in the economy seeing particularly robust demand recently – as well as more financial technology companies (SQ, SHOP, FIS). On Wednesday, the Federal Reserve’s FOMC will meet to determine the size of a May rate hike. The most likely decision is to raise the Federal Funds rate by 50 basis points. Then we will wrap the week up on Friday with the April employment report. It is forecast that nearly 400,000 jobs were added during this past month.

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 April 22, 2022

by Jared Plotz

Markets ended the week on a rough note, falling in both Thursday and Friday trading. The 10-yr Treasury pushed another 7 basis points higher on further “tightening” remarks from Federal Reserve members. While the path of least resistance for the market was lower, we are nearing a point where we question how much more “hawkish” the Fed can realistically become. If a soft landing – cooling inflation while keeping the economy in expansion – is the goal, interest rate expectations may not be able to move up too much further without risking tipping the economy into an unwanted contraction.

Investors are now expecting 50 basis point hikes at each of the May, June, July and September meetings, and then two 25 basis point hikes before the year is out. The potential for a 75 basis point hike or an emergency Fed meeting has even crept into conversation. With estimates for Q1 GDP having now fallen to 1.0-1.5%, and estimates for Q4 having fallen to 2.0-2.5%, the cushion for Fed policy has narrowed.

On the economic data front, preliminary estimates of April manufacturing activity surprised to the upside, while services activity came in below forecasts. Homebuilder confidence was the lowest since last September, as expected given the backup in rates. Ongoing home price increases, interest rates, and construction costs are not only hitting builder confidence but also sales traffic. Affordability is declining and builders are forced to shift more new construction starts to multi-family projects from single-family units.

Only 20% of the S&P 500 constituents have reported Q1 earnings thus far. Bank of America showed strong loan growth and trading activity that drove a revenue and earnings beat.  Silicon Valley Bank, a holding within both equity and fixed income strategies, reported a “beat and raise” driven by strong 7% sequential loan growth and margin expansion. Netflix (non-holding) fell 35% after the company revealed a 200,000 decline in subscribers versus expectations for a 2.5 million increase. The company noted headwinds from password sharing and streaming competition – a crackdown in password sharing may be coming.

Next week is the big tech week, with earnings reports from Amazon, Apple, Facebook, Google, and Microsoft expected. These large-cap technology companies are core holdings within our equity portfolios and also make up a large portion of the major indices. On Thursday, we will get the first estimate of Q1 GDP. The economy is expected to have grown over 4% from a year ago, but the rate of change (annualized, quarter over quarter) to have slowed to under 2%. Further housing data will also trickle in.

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 April 14, 2022

by Jared Plotz

Markets ended another week lower as elevated inflation and rising interest rates overshadowed solid earnings metrics from early reporters. Mostly, the holiday-shortened week was devoid of bullish talking points and the risk of a protracted war in Ukraine doesn’t lend to optimism either. The S&P 500 closed 2.1% lower while the NASDAQ fell 2.6% this week.

Inflation remains front and center.  The Consumer Price Index (CPI) rose 8.5% vs. the prior year in March, though 6.5% when excluding food & energy (aka Core). This is the highest since 1981. While CPI was largely as expected, the Producer Price index rose 11.2%, or 9.2% on a Core basis. This drove a further lift in interest rates, with the 10-yr Treasury rising to 2.83%.  March retail sales remained robust as pent-up demand has driven elevated spending and consumers have yet to show price sensitivity. Consumer and investor confidence remains low, with uncertainty hitting sentiment readings. Ironically, low confidence is typically viewed as a bullish signal for future market returns.

Earnings reports thus far have generally demonstrated revenue upside, albeit with softer margins. Most big banks reported better-than-expected Q1 results: beating on revenues, seeing a bump in trading activity due to heightened global volatility, and continuing to buy back shares.  Credit quality was good; however, some took markdowns due to Russia-associated counterparties or built reserves given geopolitical and market risks. Delta Airlines arguably provided the most upbeat commentary, noting a rapid recovery in travel demand (including corporate demand) post-Omicron that has offset higher fuel prices.

Next week we will get the last of the big bank reports with Bank of America on Monday.  Then the regional banks, transports, and chemical companies are next on the docket.  Economic data will be bit scant with housing data (existing sales & new housing starts) the most notable to watch.

The markets, and our offices, are closed tomorrow in observance of Good Friday.  It is snowing in Minnesota, but hopefully many of you have better weather this weekend!

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 April 8, 2022

by Jared Plotz

Both equity and fixed income markets struggled through the week as participants digested “Fedspeak,” contemplated moves in the Treasury yield curve, and questioned the impact of the worsening Covid outbreak and lockdowns in China. After three consecutive weekly gains, the S&P 500 closed 1.27% lower while the NASDAQ fell 3.86% this week.

The biggest driver of the “risk-off” positioning was hawkish (tightening) commentary from Federal Reserve officials – even from known “doves” (those who typically favor quantitative easing) – following the release of the March FOMC meeting minutes on Wednesday. Most members argued more aggressive action is needed to stem rising inflation, with likelihood of future 50 basis point rate hikes rising. The group announced they would soon begin reducing assets on the Fed balance sheet by $95 billion a month. The balance sheet has ballooned to nearly $9 trillion in the wake and aftermath of Covid, from $4 trillion pre-pandemic.

As the markets reprice the shift in Fed policy this year, interest rates have surged. The 10-yr US Treasury rose 33 bps this week and is up 120 bps this year (moving from 1.51% up to 2.71%). Even before this week’s advance, Goldman Sachs highlighted that the one-month change in rates registered a 3-standard deviation move in nominal terms. This has posed a significant year-to-date headwind to fixed income performance. In equities, the big jump in bond yields weighed on growth stocks and those with variable-rate debt. Companies with pricing power and an ability to manage wage pressure have fared better.

The impact on housing activity could be severe. While demand for homes has been very strong, supply has been tight for some time. Now with the move in the average new 30-yr mortgage rate rising above 5.00% and home prices also up considerably, the median new mortgage payment is 38% higher than a year ago. With over 90% of current existing mortgages at rates below 5.00%, refinance activity should largely grind to a halt. And who is going to want to move out of their current home only to pay a higher rate? Activity in the near-term likely slows.

As evidence of atrocities committed by Russian troops in Ukraine gathered international attention, the US Senate voted (100-0) to ban Russian oil imports and strip their trade status while the EU & Japan banned coal imports.  The Russian army seems to be refocusing their activity in the south and east regions as the fighting continues.

Next week brings the unofficial start of Q1 earnings season on Wednesday, with JPMorgan leading the big banks to report. Major economic news will include the March CPI on Tuesday, the PPI on Wednesday, retail sales and trade metrics on Thursday, and industrial data on Good Friday. The CPI will garner the most attention as inflation is expected to remain elevated but peak, at +8.4% annual growth, in March (vs. +7.9% in February).

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