Market Commentary Archives

by Jim Ulland

Finally, interest rates have dropped sharply. This is the signal the market and we have been awaiting. The commonly used interest indicator, the 10-year US Treasury, dropped from a high on 11/19/23 of 5.0% to a close this week at 4.22%, a decline of 15.7%. During November, this decline triggered a substantial increase in the price of preferred stock in our IFI strategy. We feel there is a lot more room for further appreciation in preferred shares. Investors are actively locking in the high yields and anticipating meaningful appreciation over the next 24 months.

Favorable news on inflation drove part of the interest rate decrease. Fed Governor Waller said that if inflation goes down, there is no reason to insist rates remain “really high” and the Fed policy response should be to lower the policy rate. Take oil as a recent example of reduced inflationary pressures. Crude oil dropped 7.5% in November; this was after OPEC announced production cuts for 2024. Adding supportive data to the falling inflation story was the PCE (Personal Consumption Expenditure Price Index). This report is very similar to the CPI (Consumer Price Index). The PCE showed that prices were up only 3.0% annually in October vs. 3.4% in September.

The favorable interest rate news came before the Fed started to reduce the Fed Funds rate. Thus, there is more positive news to come, and the market is sensing how beneficial this will be for fixed income.

Market enthusiasm was not limited to fixed income. Both the DOW and the S&P 500 reached their highest point of the year on Friday. For the week, the S&P 500 was up +0.77% and the Nasdaq + 0.38%. Both increases were more modest than that of fixed income but continued an upward trend. We are adding more Artificial Intelligence (AI) exposure to portfolios and feel AI will be a decade-long growth driver.

Next week another substantial inflation indicator will be released, the November Jobs Report. Here the important factor will be the rate of growth in wages. Wages are an important component of inflation. The number of new jobs created will be informative in understanding if the economy is slowing, a goal of the Fed.

During the week, equity performance was positive but more subdued than fixed income. That said, our equity portfolios have been up very substantially so far this year. Monday the S&P 500 was -0.20%, Tuesday +0.10%, Wednesday -0.09%, Thursday +0.38%, and Friday +0.59%. The 10-year Treasury dropped -26bps to 4.21%. The 6 Month Treasury (our favorite) dropped to 5.36%. Strategically, we are reducing US Treasury positions and moving some of those funds to preferred stock during December.

Next week, watch for the Jobs Report on Friday, and prepare for the November CPI Report to be released on 12/12.

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 Vinicius d’Avila, Research Associate

The market had a relatively quiet week with no major economic reports. Exchanges were closed on Thursday and operated on reduced hours today for the Thanksgiving holiday. The S&P 500 closed the week with a gain of 1.00% and the Nasdaq composite was up 0.89%. The news of the week came from NVIDIA, which announced that revenues grew by 206% (with earnings up by 1,274%), reflecting the strength in new AI investments.

The Personal Consumption Expenditures (PCE) report for October will be issued next Thursday, November 30^th, and will be the last inflation measure released in advance of the next Federal Reserve meeting, which is set to take place on December 12^th and 13^th. The November CPI and PPI reports will also be announced on December 12^th and 13^th. While the headline PCE has been stable (3.4%) for the last three reports, the Core component (which excludes food and energy) has declined from 4.3% in July to 3.7% in September. We expect to see this downward trend continue into next year, which should help lower interest rates.

With the expectation of lower interest rates in 2024 in mind (as the market currently expects at least two rate cuts by July), it might be worth considering locking in current interest rates to get their maximum benefit. Data cited by the Financial Times showed more than $16B have flowed into corporate bond funds in the month to last Monday. This is more than in any full month since July 2020 and signals a more optimistic sentiment as investors take advantage of higher yields.

Our office will return to normal hours next week following the Thanksgiving 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 market celebrated the October CPI Report released Tuesday, which was followed the next day by an even more favorable wholesale price report (PPI). It is not quite this simple, but as inflation goes down, interest rates go down. This more favorable environment lifts stock prices and triggers broad purchases of fixed income to lock in the high current yields. For instance, our fixed income strategy (IFI) currently pays a 7%+ current yield. The Fed has raised rates to a 22-year high, allowing these favorable yields to develop. A Bank of America survey showed that investor cash levels are down to the lowest in two years as idle funds are redeployed into these opportunities. By the end of the week, the S&P 500 was up 2.24% and the NASDAQ +2.37%. This was the third week in a row of substantial gains. Thanksgiving came early.

Two weeks ago, the Jobs Report reflected a slowing pace of job growth, a favorable factor for wage inflation. This week, the slowing pace was reflected in unemployment filings, which were higher than expected. Walmart warned of increasing stress on the US consumer. They saw a sharp falloff in sales during the last two weeks of October and commented that prices were coming down. Oil helped to support inflation’s downward trend as the price of crude oil fell 1.8% during the week. The yield on the 10-year Treasury, which is used as an indicator for the direction of interest rates, also showed a meaningful decline, reflecting lower inflation and a slightly weaker economy.

The upward trend in interest rates and inflation in 2022 and the first half of 2023 has been a headwind for preferred stock prices and for most common stocks. The headwind is now becoming a tailwind. We expect the tailwind to move stock and fixed income prices higher well into 2024.

The yield on our US Treasury strategy currently is 5.4%, a safe waiting spot for those who want assurance that inflation will continue to fall before investing additional funds in stocks or fixed income.

Generally good Q3 corporate earnings have concluded with Target beating earnings expectations by 40%. On Monday the S&P 500 was -0.08%, Tuesday +1.91%, Wednesday +0.16%, Thursday +0.12%, and Friday +0.13%. The yield on the 6-month Treasury closed at 5.42%. The 10-year Treasury finished down -20bps to 4.44%.

Next week, AI chip maker Nvidia reports on Tuesday. Locally-based Best Buy and Medtronic also report, although neither are in our portfolios. The week will be slow because of the Thanksgiving holiday. No major economic news is expected. The market is open until noon the Friday after Thanksgiving. We will be open until noon, but lightly staffed. Remember, don’t talk politics over the Thanksgiving table… no sense ruining a feast.

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

A November rebound is underway in the markets. Following October’s decline, equity indices have risen 9 of the past 10 trading days, pushing the S&P 500 up over 7% from its Oct. 27^th bottom (with the Nasdaq up over 9%). While fears were building the better part of last month, they appeared to stall out by month-end, then began to dissipate last week. Even geopolitical risk premiums have fallen, reflected in the prices of oil and gold. As market fears subside, money flows into equities resume, and the pace of corporate buybacks picks back up.

Fixed income markets have benefited from the Fed’s pause in rate hikes. We have not only seen the 10-year Treasury move down (by 17bps in November), but also shorter-term Treasury Bills and home mortgage rates. Fed Chairman Powell was decidedly hawkish this Thursday, stating that the downtrend in inflation has produced feints in the past, and therefore the Fed is not yet confident enough to rule out further tightening – but the markets presume hikes are over and cuts will begin by the middle of next year. Both fixed income securities and stocks tend to rally after the final rate hike of a tightening cycle; thus, the market’s upward shot to a 7-week high isn’t too surprising.

This isn’t all to say that we’re in the clear. Risks remain, including a potential US government shutdown, escalating geopolitical conflict, and weakening consumer sentiment. But if economic growth is stable, corporate earnings continue to rise, and the Fed is done hiking, we’d look for markets to continue their grind higher, even if the path remains bumpy.

News flow should pick up next week. How much might October’s CPI report Tuesday morning show the pace of inflation declining? Will President Biden and Chinese President Xi improve the relationship between the two countries when they meet for the first time in a year on Wednesday? Will the US government make progress on at least a stopgap spending bill to avert an 11/18 shutdown? We will see – stay tuned!

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