Market Commentary Archives

by Jared Plotz, Director of Research

The markets surprised to the upside in January. The S&P 500 climbed more than 6%, the Nasdaq more than 10%, and the S&P Preferred Stock Index by 12%. It was the best January performance for the Nasdaq since 2001. Preferreds have seen a remarkable recovery, clawing back more than half of what they lost in 2022. This week, the S&P 500 rose 1.62% while the Nasdaq gained 3.32%, and the 10-yr Treasury remained mostly stable, moving up 1bp to 3.53%.

Earnings season is humming along better than feared. Reports this week included 22% of the S&P 500 companies, with a focus on large Technology and Healthcare stocks. While the share of companies beating revenue and profit projections is smaller than in prior quarters, there are still more beats than misses. The aggregate 2023 earnings estimate for the S&P 500 index has declined a further 1.5% since the first companies reported this season; however, negative revisions have also been weighted towards the first half of the year, which investors are increasingly looking past. Companies have been highlighting greater expense control amidst continued labor pressures, but also an easing of supply chain constraints.

Economic data on industrial production and manufacturing orders continues to weaken, and consumer spending has also begun to slow. The latest JOLTS report showed job openings rising back to 11 million. Friday’s nonfarm payroll report indicated that US employers added 517,000 jobs in January (far more than analysts’ expectations of 185,000). Hourly earnings rose 0.3%, to an annualized rate of 4.4%. The reaction to the news was twofold, as a strong labor market adds some pressure on wage growth and inflation, while also reinforcing a “soft landing” narrative.

The Federal Reserve raised the Fed Funds Rate on Wednesday by 25bps to 4.50-4.75%, as expected. Chair Powell suggested two more small hikes are coming and then the Fed will pause. He acknowledged that though the rate of inflation has slowed (i.e. disinflation), labor market demand remains substantially above supply and is preventing Services inflation from easing as much as Goods. His committee would like to see more progress on that front before committing to a change of direction. Investors interpreted Powell’s comments as bullish, seeing a more visible path to a “soft landing” that avoids a deep recession.

Buying interest has been picking up amongst Technology stocks as the 10-yr yield has pared back 35 bps year-to-date. Lower long-term interest rates increase the value of future earnings. Facebook (aka Meta) added fuel to the Technology rally when it reported results Wednesday evening. A rebound in engagement trends and monetization led to a revenue beat. Increased focus on efficiencies led to better margins, higher earnings, and a reduction in future expense estimates. The stock popped 23% Thursday following the news and pulled its Technology peers up with it.

Earnings season continues next week with reports from companies in tech (Such as Uber and PayPal), and consumer goods and services (Disney, Pepsi, Mattel).

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 Jared Plotz, Director of Research

This week the market was messaging it doesn’t believe the Federal Reserve. While economic data points continue to weaken and earnings estimates for the major indices decline further, the market has shrugged it off. The Fed expects that the Fed Funds Rate will peak over 5% and remain there through the end of the year. Those trading around these expectations, however, think rates will peak lower, and that the Fed will actually cut rates twice before the year concludes. The Fed will meet next week, and expectations are for a 25bps hike (a slowdown from the 50bps hike in December).

Investors are looking through any potential business slowdown to better times starting in the second half of the year. The National Association for Business Economics survey and a model from JPMorgan both showed significantly lower perceived risk of a recession than their readings this past fall. While the market is always forward-looking, this risk appetite seems bolder than typically observed. This week the S&P 500 rose 2.47% and the Nasdaq rose 4.32%, while the 10-yr Treasury bond moved 4bps higher to 3.52%.

On the data front, the first release of Q4 GDP showed the economy growing at a 2.9% annual rate – above expectations of 2.6%, but down from Q3’s final 3.2% rate. Corporate investments in inventory boosted the growth reading as demand measures within the report were broadly weaker. Other data points this week showed softer durable goods orders and more corporate layoffs, though an uptick in mortgage volumes and a slowing of inflation in other parts of the world were positive signals. Consumer income and expenditures in December came in as forecast.

On the quarterly earnings front, one of our equity holdings, Visa, showed better revenues and earnings than expected. They noted a resilient consumer with recovering travel activity. Google is slated to report next week. The company faces a recent bevy of antitrust litigation from the Justice Department and states, who focus on Google’s stronghold of online advertising. Elsewhere in equities, some reports like Tesla’s were good, but others like Microsoft, Intel, and Boeing pointed to slowdowns. The battle between market bulls and bears should continue to play out over the next two quarters. Only time will tell.

Next week brings many Technology sector earnings reports (including Google/Facebook/Apple/Amazon), which will provide signals on enterprise spending. Also on the docket are drug manufacturers – like Pfizer, Eli Lilly, and Bristol-Myers Squibb – sprinkled in with some Industrial and Energy companies.  And then there’s the Fed meeting on Wednesday and January jobs report on Friday!

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 Jared Plotz, Director of Research

Last week we posited that “going forward, market moves may be driven as much by recession risks as by inflation and interest rates.” This week’s market reflected that logic. Despite the 10-yr Treasury yield inching down two basis points to 3.48% and the Producer Price Index (PPI, +6.2% y/y) slowing more than expected, economic data suggested a “hard landing.” Manufacturing activity, industrial production, and retail sales all showed steeper declines than forecast.

Adding to these negative data points were continued remarks by the Fed that more interest rate increases were coming. St. Louis’ Bullard and Cleveland’s Mester echoed the notion even after the favorable PPI data release. Corporate earnings releases and guidance were also disappointing. This suggests that the 9% slide in 2023 corporate earnings estimates (from peak) may have further to go. The end result was a skid in the S&P 500 by -0.66% and the Dow by -2.70% this week, while the NASDAQ rallied on Friday to finish up +0.55%.

All was not bad, however. What proved to be negative for equity markets couldn’t hold back the rebound happening in our Preferred strategies. Intelligent Fixed Income (IFI) now pays about 7%. By the end of this year’s third week, prices of securities in this strategy were up over 10%. We expect this rally to continue as we near the end of Fed rate hikes, possibly this spring. Locking in the current yield with appreciation potential is an unusually good opportunity in our view.

We’ve also felt a very strong client response to our new US Treasury strategy (IFI-GOV) for those with idle cash. Many clients are taking advantage of the ~4% yield in these short-term (3yrs or less) government securities today. When compared to CDs, investors get better yields and a more favorable tax treatment in Treasuries.

On the company quarterly earnings front, Morgan Stanley and many regional banks showed good results; however, Goldman posted a broad-based miss, and their new segment reporting revealed an unprofitable consumer business. Microsoft, ahead of its report next week, announced cuts to 10,000 jobs, or 5% of its global workforce. Likewise, Google said they were laying off 12,000 people, or 6% of its global workforce, amidst the slowdown in digital advertising. These follow cuts by Facebook and Amazon, among others, in recent months.

Next week will bring business results from some Tech companies (Microsoft, Tesla, IBM), Big Corporates (GE, Boeing, Comcast) and the credit card companies (Visa, Mastercard, American Express). The latter will give a good look into consumer spending and credit trends.

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 Jared Plotz, Director of Research

While Friday the 13^th may be a soft day for some businesses, it didn’t hold the markets back. All major indices advanced, with the Dow rising over 100 points. For the week, the S&P 500 rose 2.67% and the Nasdaq finished 4.82% higher. The 10-yr Treasury yield declined 6 basis points to 3.50%.

Inflation is slowing (both readings & expectations), but labor remains tight. Inflation, as measured by the December Consumer Price Index (CPI), was squarely in line with forecasts. It further cooled to +6.5% y/y from 7.1% in November on the back of durable Goods, partially offset by the rise in Services. The economy has transitioned from buying things to doing things. But according to Fed Chair Powell, over half of the Fed’s preferred inflation measure, Core PCE, is non-housing related Services. And the majority of that is labor, which remains tight and with “hot” wage inflation.

As inflation cools, will Fed rate hikes cool as well? Many argue the Fed should – pausing to gauge the cumulative impact of last year’s aggressive tightening – and will. We know inflation is coming down, albeit at a to-be-seen magnitude and ending level, but the economy has begun to slow too. Hiring plans among businesses have been weakening dramatically, and employment trends typically follow quickly.

Going forward, market moves may be driven as much by recession risks as by inflation and interest rates. Will the economy’s landing be soft, or hard? This creates outsized scrutiny on company fourth-quarter (Q4) earnings results and 2023 guidance. Investors are expecting earnings to decline in Q4 for the first time since Q3-2020. We expect outlooks to be cautious and potentially push ’23 earnings estimates even lower, a near-term headwind to equities. We have been recommending tilting portfolio weights towards fixed income now that rates are higher. The relative attractiveness of fixed income has improved.

Earnings season kicked off Friday with the first of the big banks reporting largely good results; however outlooks for 2023 were arguably downbeat. Several banks increased their provision for credit losses, suggesting a preparation/uncertainty for tougher times ahead. One of our larger equity holdings, UnitedHealth Group, beat earnings expectations, and is positioned to maintain double-digit revenue growth in what could be an otherwise muted year for corporate earnings.

Next week we get the Producer Price Index (PPI) and then readings of manufacturing and retail activity, as well as housing. PPI is another inflation measure, but excludes most of shelter costs and imports, and then has higher exposure to medical care costs and the impact of interest rates. A couple other big banks, Goldman and Morgan Stanley, will report earnings, as will many regional players. Then Healthcare and Transportation stocks round out the docket and will give further insight into 2023 corporate outlooks.

The market, and our office, will be closed on Monday in observance of Martin Luther King Jr. Day.

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