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Market Commentary Archives

Weekly Market Update for May 17, 2024

by Jim Ulland

The trend of lower inflation resumes. The market celebrates. Both the S&P 500 and the Nasdaq hit record all-time highs on Wednesday after the April CPI figures were announced. The Fed wants more confirming data, but we welcome the latest CPI numbers as positive.

There are signs that the economy is slowing, which could lead to lower inflation. April retail sales were flat to negative. Initial jobless (unemployment) claims were higher than expected. Housing starts and building permits were soft. The Philadelphia Fed manufacturing index turned negative. And many firms, during discussion of Q1 earnings, forecast slower growth in the rest of the year.

What does this mean for investors? The market realizes that a weaker economy is the price to be paid for the Fed to lower interest rates. During the last six months, the market has been very strong when inflation is in a downward trend. This tailwind is likely to continue over the next two-three years. During the last twelve months, the beginning of the tailwind produced substantial returns. Both our primary equity strategy, Intelligent Blend, and our primary fixed income strategy, Intelligent Fixed Income (IFI) substantially exceeded their comparable index.

There is little reason to hold cash after 5/28/24. On this date, cash from investment accounts will be available the day after the trade/sale is made. Cash balances previously needed for liquidity or for psychological comfort instead can be held in US Treasuries that net over 5%. Interest from US Treasuries is not taxed by the states. Money Market Funds and CDs are taxed by both the IRS and states. CDs have an additional disadvantage with serious penalties for “early withdrawals.” Our recommendation is to gather your cash balances and get them working.

Our favorite equity sector is Artificial Intelligence (AI). Nvidia has been our favorite company, which will report earnings next Wednesday. If Nvidia earnings and forecasts are above expectations, the whole sector could move sharply higher. If Nvidia does not meet expectations, it could be due to manufacturing capacity constraints. There is little doubt that demand for Nvidia chips (GPUs) is very strong. We view AI as a multi-year phenomenon, so one quarter is interesting, but the next five years are more so.

Fixed income currently has high current yields. As rates decline, fixed income securities could generate double digit returns, a combination of high current yield and appreciation. As Nike says, look at your cash and “Just Do It.”

The S&P 500 and Nasdaq are up for their fourth straight week. The S&P 500 is up +1.54% and the Nasdaq is up +2.11%. Interest rates as expressed by the 10-Year US Treasury fell 8 basis points to 4.42%. 6-month US Treasuries closed at 5.37%. Next week should be quiet except for Nvidia and friends.

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 May 10, 2024

by Jim Ulland

The Fed has put itself in somewhat of a dilemma. Chairman Powell said the Fed’s interest rate decisions will be “data-dependent”. There is a lot of inflation data set to be released next week. The Producer Price Index (PPI) is scheduled for release on Tuesday. Producer prices are usually thought of as wholesale prices. This is followed the next day by the Consumer Price Index (CPI), both from April. These are big data points for the Fed, so expect a meaningful market reaction. Lower prices lead to downward trending inflation, which is the key to reduced interest rates.

One of the important inflation components is wage growth. On Thursday, unemployment filings showed an increase. This follows the lower-than-expected job growth in April. Although corporate earnings for Q1 have been good, comments by CEOs are not as optimistic for the rest of the year. Less wage pressure should soften wage increases and help inflation numbers.

AI stocks have been very responsive to Q1 earnings releases, most of which exceeded expectations. The next big AI company to release Q1 earnings is Nvidia. This release is scheduled for 5/22 after the market closes. The AI sector seems to be holding its breath for this announcement. We expect another quarter of very strong revenue and earnings growth. There is some concern that revenues will be constrained because of limited production capacity. So, the results could surprise on the upside or downside.

The week has been relatively quiet, but positive. The S&P 500 and Nasdaq were up for their third straight week. The S&P 500 was up 1.85% and the Nasdaq was up 1.14%. Interest rates, as expressed by the 10-Year US Treasury, continued to make these low-risk securities attractive. Our favorite security in our Treasury strategy is the 6-month Treasury, which nets clients over 5% on an annualized basis. Our US Treasury strategy (IFI GOV) focuses on 3 to 9-month Treasuries. We recommend limiting cash balances in checking accounts and putting this “idle” cash into our IFI GOV strategy. Treasuries have a more favorable tax treatment than CDs and cost far less if the investor must access these funds prior to maturity.

Economic news for the week included the University of Michigan consumer confidence survey, which was the lowest since November. Washington did some saber-rattling with China and threatened tariffs on EVs, car batteries, and solar cells. Interest in EVs has dropped and demand has shifted to hybrids, which can run on electricity or gasoline. The Israel/Hamas conflict could get hotter if Israel enters Rafah.

Next week should be quiet except for the CPI headlines and market reaction. Perhaps take this respite to plant your garden.

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 May 3, 2024

by Jim Ulland

As John Adams said, “Facts are stubborn things.” Since May 1st, the market has replaced feelings with facts. Large tech companies reported first quarter earnings, and they were good. Meta’s (Facebook’s) earnings were up over Q1 of 2023 by 114%. Alphabet’s (Google’s) were up 62%. Microsoft’s were up 20%. Amazon’s were up 216%. The prices of these stocks responded accordingly to these strong earnings reports (facts). Since the start of May, Meta’s stock was up 5%. Alphabet’s stock was up 3%. Amazon was up 6%. Microsoft was up 4%. Nvidia will report on 5/22/24. It seems that the much-anticipated pullback in the market was an April phenomenon. We expect additional pullbacks this year, but this one seems over for now.

Interest rates were buoyed by the good news of today’s net new jobs report. The narrative goes like this: new jobs created in April were less than expected. Unemployment rose. Wage increases were less than forecast. These facts suggest that lower inflation could come in May. Crude oil is also down from its recent high by 9%. This week the Fed said it needed lower inflation before it would cut interest rates. This week’s news speaks to that Fed concern. The resumption of a downward trend in inflation would be very beneficial to fixed income securities and our fixed income strategy Intelligent fixed Income (IFI), which currently pays about 7% in current yield.

For those still nervous about the market, US Treasuries pay an attractive return while you wait to get comfortable. The income from these securities is not taxed by the states, a big advantage for those in high tax states. Also, there is no early withdrawal penalty as many are painfully aware is inherent in CDs. There is a small amount of market risk to sell US Treasury securities before maturity, but this strategy minimizes such risk by using very short maturity Treasuries.

Other economic news from the week included a decline in consumer confidence. The ISM manufacturing index turned negative. Google announced layoffs. Several large companies announced stock buybacks. Apple’s buyback was for $110B!

For the week the NASDAQ was up +1.43% and the S&P 500 was +0.55%. Monday the S&P 500 was up +0.32%, Tuesday it was down -1.57%, Wednesday +0.91%, Thursday +0.95%, and Friday + 1.26%. The 6-month Treasury closed at 5.37%. The 10-Year Treasury was down -17bps at 4.50%. After a very busy week of economic news, next week will be light. The headlines may focus on large universities and how they handle the campus unrest. Of course, this is tied to the geopolitical tensions between Israel and Gaza, a problem which seems very difficult to resolve. More corporate earnings reports will give a view into Q2.

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 26, 2024

by Jared Plotz, Director of Research

Markets rebounded this week, overcoming recent concerns of poor economic growth amidst stubborn inflation. The S&P 500 advanced +2.7% and the Nasdaq +4.2%. Softer manufacturing data along with a tepid initial Q1 GDP estimate (+1.6% annualized) were met with a higher inflation reading (Core PCE, the Fed’s preferred metric, rose +3.7%). Fixed income securities were relatively flat on the week, even as the 10-year Treasury finished up a further 5 basis points at 4.67%.

We saw vastly different stock reactions to earnings reports from two of our core equity holdings this week. Wednesday afternoon, Meta (aka Facebook) reported robust 27% revenue growth versus the prior year, as daily users rose 7% to 3.2 billion people worldwide. Expenses rose at just a 6% clip, resulting in a big jump in profits. But the stock floundered, dropping 10% afterwards, as the company guided next quarter to “just” 18% revenue growth and revealed plans for greater artificial intelligence investments over multiple years (with unknown timing of future profits from such investments).

Google reported a day later and saw its stock climb 10% after also posting strong results. Revenues rose 15% versus the prior year, and the company noted their Search ad business is performing better than expected. Expenses rose a modest 5%, allowing profits to grow 57%. Similar to Meta, Google lifted their targeted capital investments; but unlike its peer, they may begin reaping rewards sooner than later. Given such, Google decided to initiate its first-ever dividend program and authorize an additional $70 billion buyback program.

We’d be remiss not to mention a newer holding, Vertiv. They manufacture cooling systems for data centers that house many of the most advanced AI servers. The company posted 8% y/y growth in revenue, but a 60% rise in new orders – suggesting revenue and profits should accelerate as they progress throughout the year. The stock climbed nearly 25% this week and is up 95% year to date.

Next week brings earnings reports from Amazon on Tuesday and Apple on Thursday. Investors will listen for comments regarding capital spending and AI initiatives, in addition to changes they are seeing to consumer spending. On Wednesday the Federal Reserve will meet, but is not expected to adjust rates this month. And then Friday we will hear the employment report for April. Nonfarm payrolls are expected to expand by 210,000 jobs, down from over 300,000 in March.

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