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Archive for August, 2022

Weekly Market Update for August 12, 2022

by Jared Plotz

Markets advanced for a fourth consecutive week as inflation woes tempered. The S&P 500 rose +3.26% while the NASDAQ was up +3.08%. Some investors argue that a peak in inflation will lead to a pivot by the Fed toward less aggressive tightening, thereby opening the door to a return to equity market highs. Others argue the recent move is a “bear market bounce”, and that sticky (above-normal) inflation will continue to pressure the economy. Longer-term interest rates were largely unchanged with the 10-Yr Treasury at 2.85%, though Preferred securities did rise slightly.

Stocks began the week down. On Wednesday morning, July’s Consumer Price Index inflation reading was softer than expected. The headline number rolled lower to +8.5% y/y from June’s 9.1% pace, helped by lower gas prices. Core inflation (ex-food & energy) is running at +5.0%. On Thursday, the Producer Price Index reading sang the same tune and, together with the CPI, drove a mid-week rally. While company conference calls frequently noted inflationary pressures, a New York Fed survey showed a substantial decline in consumers’ inflation expectations, and the consumer sentiment index has now inflected upwards.

One of our long-time core equity holdings, Axon Enterprise (maker of tasers and police body cameras) reported on Tuesday evening. Revenues grew over 30% versus the comparable quarter last year, with noted traction in software and cameras. New orders grew over 40% and profits topped expectations. The company’s stock rose 13% on the news.

We will hear July’s retail sales and housing market data next week. With many retailers reeling from excess inventories requiring price discounting, more companies have begun cutting jobs or freezing hiring to combat margin pressure. We also have a couple of quarterly earnings laggards from the home improvement space, with Home Depot and Lowe’s set to report mid-week. Later in August will bring the Fed’s Jackson Hole Economic Symposium.

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 5, 2022

by Jim Ulland

The phrase of the week was “good news is bad news.” The economy added 528,000 nonfarm jobs in July. This normally would be good for the economy and those needing work. Unfortunately, the Fed is bound and determined to slow economic growth. The fact that jobs increased goes against their efforts. They argue that slowing the economy is the primary way to reduce inflation. The Fed’s tool to slow the economy is to raise interest rates. High interest rates do slow growth, but it takes a while. Slowing the economy too much may drive it into recession (if we are not there already). The Fed Governors say that controlling inflation is their sole focus today and they will let the economy suffer with higher rates. Thus, more jobs in July drove the stock market down when this number was released Friday. Making matters “worse”, the unemployment rate also went down slightly.

At the end of last week, the market suggested it had everything figured out and concluded July with the biggest monthly rise in stocks since 2020. Fixed income securities also had a great month. Now, the market is more uncertain. Before the market opens next Wednesday, the July CPI figure will be announced. With the sharp decline in the price of oil and gasoline and as mortgage rates dip back below 5%, inflation is expected to be down in July (the rate of inflation in June was the highest in forty years). The next Fed meeting is on September 20 & 21. Before then, we will have Wednesday’s CPI report, the CPI report for August, and the August Jobs Report. The Fed’s hope is that job growth and the CPI both will be down from July levels. This will put less pressure on them when deciding the level of interest rates.

Investors think that inflation is peaking. The flow of money into bond funds and fixed income strategies was the largest since last November. The reason for the inflow was higher yields. For instance, in our fixed income strategy, Intelligent Fixed Income, investors can lock in 6% tax-advantaged yields. The UN reported that world prices fell 9% in July, supporting the view that inflation has peaked

Stocks are cheap as well. The NASDAQ, which has a lot of tech stocks, is still down 13.6% this year. As soon as inflation starts to decline in a meaningful way, stocks are likely to rise more, feeling that the Fed will stop increasing interest rates. Our favorite special situation is natural gas. The Freeport LNG (Liquified Natural Gas) plant, which exported 17% of the US total, was knocked offline because of a June fire. The plant is expected to be back online in October, sooner than expected. Natural gas prices in the EU are six times higher than in the US. The restoration of Freeport’s exports will raise US gas prices, benefitting natural gas exploration and production companies. We feel natural gas will be in a multi-year supply-demand imbalance.

The S&P 500 finished the week up +0.36% while the Nasdaq rose +2.15%. Because of the strong Jobs Report, the 10-yr Treasury was sharply higher on Friday to 2.84%. Monday the S&P 500 was -0.28%, Tuesday -0.67%, Wednesday +1.56%, Thursday -0.08%, and Friday -0.16%.

Next week, besides the Wednesday market-moving CPI report, we have the last corporate Q2 reports. 80% of the S&P 500 companies have reported.

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