Market Commentary Archives

by Jim Ulland

The pieces are falling into place for fixed income to have a strong recovery. First, the debt ceiling issue has been resolved. In addition, modest spending reductions were included in the agreement. This will dampen some of the market’s uncertainty. Second, the Fed is hinting that it will pause its rate hiking spree at its 6/14 statement following the June meeting. Third, inflation has been trending down, a trend we expect to continue in the May CPI report released on 6/13. Fourth, banks are out of the headlines. There have been no deposit runs, no bank failures, and less general angst. The most fragile banks have seen a sharp move higher in their common stock prices and the price of their preferred shares.

If the Fed does not raise rates at the June meeting, it will have time to see just how much it has slowed the economy. Slowing the economy is a very imperfect instrument to deal with inflation. Remember, it was the Fed’s very low interest rates and Congress’s unrestrained spending that triggered today’s inflation problems.

Equities, too, are feeling that the Fed may be done raising rates. So far this year, the largest 100 tech stocks, as represented by the QQQ ETF, have risen 33%. The rest of the market is basically flat on the aggregate. Companies will have to manage their way through the slowdown, but the stock market tends to look six months ahead to better times. We will see if the rest of the stocks follow the tech sector’s leadership higher.

Short-term US Treasuries, which pay over 5% (we offer a Treasury strategy) have been a prudent place to wait for the elements needed for a recovery to occur. We feel the market is at the point where a recovery is anticipated. Historically, investors have tried to position their portfolios ahead of major positive events. The continued downward trend in inflation is a critical and necessary factor for a recovery to develop. As William Prescott said at the Battle of Bunker Hill, “Don’t fire until you see the whites of their eyes.” Well, the “whites” of the recovery’s eyes are just coming into focus.

The markets closed the week higher, with the S&P 500 up +1.83% and the NASDAQ +2.04%. The market was closed on Monday for Memorial Day. The S&P 500 stayed flat on Tuesday, -0.61% Wednesday, +0.99% Thursday, and 1.45% Friday. Absent any surprises, next week should be relatively tame in the economic calendar, as there are no major economic reports scheduled.

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

by Jim Ulland

Members of Congress will not have to rush back to DC from their Memorial Day barbeques to vote on a debt ceiling and spending restraint bill, since the Treasury just announced it has enough money to last until 6/5. Apparently, every last penny will not have been spent by 6/1. I expect the negotiators will stay in DC this weekend and reach an agreement. The market could be enthusiastic next Tuesday as a result.

This week the market enthusiasm was provided by NVIDIA, a maker of complex chips, computer platforms, and other data processing units used in computer games, cloud storage, and artificial intelligence (AI). Not only was Q1 great, but the company forecast that sales would be 50% higher than analysts’ forecasts for Q2. NVIDIA stock rose 24% on the news. AI is the rage and NVIDIA is a major supplier for AI systems. They and other Tech stocks have led equities higher so far this year. The QQQ index, representing the largest 100 Tech stocks, is up 31%. The long-term out-performance of technology is one reason we tilt our equity strategies towards these growth companies.

A week cannot go by without the Fed dominating the business news. This week was no different. The Fed’s next meeting concludes on 6/14 with an announcement on interest rates. Either they will pause their rate raising and the market should spike higher, or they will raise rates by another 0.25% and the market will be disappointed. The Fed is trying to slow the economy, while most think they have done enough already. The Fed’s voting members seem to have a mixed view. Treasury Secretary Yellen says the stress in the banking sector is sufficient to restrict lending and slow the economy. She suggests that another rate hike is unnecessary. Banks are going to make fewer loans, and those they do make will have more restrictions. Fed Chair Powell seemed to agree, but left his language open to numerous interpretations. Before 6/14, we will have the May New Jobs report on 6/2 and the CPI for May on June 13, both of which will be factored into the Fed’s decision.

This past week, the financial services sector continued to heal. Banks borrowed less from the Fed. There were no deposit runs or bank failures. In fact, bank stocks and their other publicly traded securities showed some recovery. The most fragile banks had the biggest stock price increases. An interest rate pause on 6/14 should further this recovery. Other economic news was mixed, with some inflation indicators slightly higher than expected and some lower.

Next week will be all about the debt ceiling negotiations. It is only somewhat interesting that Congress seems to work the hardest when it is about to run out of money. The markets had a relatively calm week evidenced by the S&P 500 being +0.32% and the NASDAQ +2.51%. Monday the S&P 500 was +0.02%, Tuesday -1.12%, Wednesday -0.73%, Thursday +0.88%, and Friday +1.30%. The market will be closed on Monday for Memorial Day. Take a three-day break from the news, it will all be here Tuesday when we return from the 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

by Jim Ulland

The Congressional negotiations on raising the government’s debt ceiling went into a pause Friday, which dampened the market’s enthusiasm. President Biden, who is in Japan, returns to a pre-scheduled news conference on Sunday. I am sure the President would like to announce an agreement at the news conference. Time is already running short to reduce any agreement to writing and then pass it through the House and Senate, prior to the government running out of money. If an agreement is reached during the weekend, the market will likely spike higher on Monday with this uncertainty resolved.

The second major challenge facing the market involves the Federal Reserve. Will they raise interest rates at their June 14th meeting, or will they officially pause to see what economic damage they already have done? Many economists say it takes six months for a rate hike to work its way through the economy. One of the Fed Governors thinks it takes twelve months to see the full negative impact. The argument for a pause in raising rates is to give time to assess the impact of the ten raises the Fed has implemented.

The Fed says it will be influenced in its interest rate decision by economic data. There will be plenty of that next week including new home sales, several manufacturing indices, a revision to Q1’s GDP, Durable Goods Orders, and the Michigan Consumer Sentiment Index. Each release will be analyzed to see the impact on economic growth. Some of the news will be market-moving.

Lower interest rates are important to restoring stability in the financial services sector. This past week saw some stability return and the preferred stock in our Intelligent Fixed Income strategy shot higher. An interest rate pause will further this recovery. Fed data shows that bank deposit outflows have normalized. There still is some shifting of deposits from banks to US Treasuries, which are paying over 5% for 2-month, 3-month, 6-month, and 12-month maturities. Our US Treasury strategy has benefited from this flow. Treasuries give a handsome return on funds that might otherwise be lingering in cash or lower-paying CDs.

During the week, large technology companies continued to lead stocks higher. Cash can profitably be allocated to stocks which have substantially outperformed fixed income so far this year. Contact us if you would like a discussion.

Next week, there are a few remaining corporate Q1 earnings to be reported: Lowe’s, Costco, Intuit, and NVIDIA (already up more than 100% this year) are among them. The market had a calm week evidenced by the S&P 500 being +1.65% and the NASDAQ +3.04%. Monday the S&P 500 was +0.30%, Tuesday -0.64%, Wednesday +1.19%, Thursday +0.94%, and Friday -0.14%. The weekend is here. Don’t forget to plant your garden. Even in MN, we no longer expect frost.

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

by Jim Ulland On Wednesday, the Consumer Price Index (CPI) declined for the tenth straight month. After peaking at 9.1% last summer, the April rate was 4.9%. Thursday, the Producer Price Index – often viewed as the price of components that go into making finished goods – also showed a sequential deceleration. This is the trend we want to see. The Fed’s goal is to bring inflation down, and down it is coming. The Fed also wants to reduce demand by slowing the economy. The tool they are using to achieve this is interest rates. The Fed meets eight times a year and – for the tenth straight meeting – raised interest rates. The effects of higher interest rates are showing. This week, claims for unemployment hit the highest level in nineteen months. Office buildings are having trouble refinancing their debt as it comes due. The IDS Center, where we office, is having this problem. Banks are pressured since they must compete for deposits with the US Treasury. So far three large banks have not been able to adjust in time to the swift rate rise and have failed. As banks implement tighter lending standards, the economy will slow further, taking pressure off prices and wage rates. Many analysts feel the Fed, at its May 3rd press conference, implied that it has paused its rate raising effort. If so, this will be confirmed at the next Fed meeting on June 14th. As inflation comes under control, the Fed can end the pause and lower rates, which will allow the economy to resume normal growth. Interest rates could be reduced as early as year-end 2023. A substantial rise in both fixed income securities and equities should follow. Reaching agreement on the Debt Ceiling debate also would give the market a boost and restore some stability to the financial sector. A period of stability could do wonders for fixed income security prices. While this plays out, US Treasuries remain an attractive option for money sitting in checking accounts or in CDs paying little. The 6-month US Treasury has a yield of 5.1%. Contact us if this might fit your situation. Next week, we expect Congressional negotiators to announce that progress on a debt ceiling agreement is being made. This dispute has been a cloud on the market, which ended relatively flat for the week. The S&P 500 was -0.29% and NASDAQ +0.40%. Monday the S&P 500 was +0.05%, Tuesday -0.46%, Wednesday +0.45%, Thursday -0.17%, and Friday -0.16%.

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