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Market Commentary Archives

Weekly Market Update for January 26, 2024

by Jared Plotz, Director of Research

The S&P 500 index climbed to an all-time high this week, closing in on the 4,900 level (up 1.1% on the week). It may have taken two whole years to surpass the prior peak reached in January 2022, but large-capitalization companies have been leading the stock market on a tear. While the Nasdaq has not quite achieved the same feat yet, it has been pacing the equity indices over the past year, benefiting from its high exposure to the technology sector.

Seven mega-cap companies now make up 30% of the S&P 500’s overall weight, and those companies rose over 75% as a group in 2023. Our outsized exposure to large-cap companies, particularly technology stocks, has driven strong growth in equity portfolios. Though we still like the growth prospects and valuations of many of these holdings, we have shifted some weight into small- and medium-sized entities in anticipation of some performance “catch up” in 2024 as interest rates decline.

Economic data threaded the needle. The initial gov’t estimate of Q4 US GDP showed the economy growing at a robust 3.3% annualized rate, down from Q3 but well ahead of expectations closer to 2.0%. Consumer spending was a big driver, along with exports and private investment. However, better growth didn’t lead to hotter inflation, with the PCE price index up a reasonable 2.0%. This is a favorable setup, as markets have shown a tendency to follow consumer sentiment in the post-pandemic period, notably when inflationary pressures are subsiding.

A number of notable companies reported their earnings this week. 3M declined 11% on Tuesday after organic sales fell more than expected and their forward guidance was weak. United Health declined after competitor Humana suggested the margin headwinds stemming from greater patient utilization would be a headwind for longer. Tesla declined 12% on Thursday after noting that not only had volume growth slowed, but price cuts amidst greater competition remained a headwind. IBM rose 9% on stronger revenue, with their generative AI business doubling in just three months. Credit card networks Visa & AmEx continued their double-digit EPS growth.

Things will be very busy next week: Consumer confidence for January is released Tuesday; the Federal Reserve will host a conference call on Wednesday; some manufacturing data will come Thursday; and then the January jobs report will round out Friday. But what may move markets even more is major tech company earnings, including Amazon, Apple, Meta (Facebook), Google, and Microsoft. With how much these stock prices have moved recently, the bar for revenue and earnings growth is high. Investors will also be tuned in to hear how each have been advancing their efforts around opportunities in artificial intelligence.

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 January 19, 2024

by Jim Ulland

The Nasdaq closed the week with gains, again. This is the eleventh weekly gain in the last twelve weeks. It looks like the tech sector, which dominates the Nasdaq, is starting 2024 in the same fashion as 2023. For instance, so far this year Microsoft is up 6%, Meta (Facebook) 8%, Alphabet (Google) 5%, and Nvidia, the leading Artificial Intelligence (AI) chip stock, is up 20%. If you think that is impressive, look at Super Micro Computer. It was up 36% on Friday alone and 49% so far this year. Super Micro announced that its sales would be up about 71% this quarter from last quarter. The company makes a key piece of equipment for large data centers. Data centers around the world are expanding to meet the computing demand of AI. We are aggressively adding to this sector in our equity portfolios as cash permits.

Fixed income also has done particularly well to start the year, despite the recent modest increase in interest rates. One of the most widely held beliefs on Wall Street is that the Fed will cut interest rates during 2024 and continue to do so in 2025. Thus, investors are locking in the current high yields on fixed income. As the Fed reduces rates, the new rates on CDs will be lower than the rate at which they were purchased. The attractiveness of US Treasuries, CDs, and Money Market funds will diminish. One of the few securities that will hold the high current yield is preferred stock. Preferred stock is perpetual and does not come to maturity like a bond. Therefore, the high yields on preferreds are paid perpetually, avoiding the problem of bonds, CDs, Treasuries, and Money Market funds which will see their current attractive yields decline as these securities come to maturity and the funds must be reinvested. Money Market rates get reset daily in most funds.

To reduce interest rates, the Fed depends on a continuing drop in the rate of inflation. So far, this has been happening. One concern is trouble in the Red Sea trade route. 10% of world trade uses this route to go through the Suez Canal. It is the primary way goods flow between Europe, the Mideast, and Asia. 20% of all container ships and 10% of world oil are in danger of disruption. Numerous shipping companies have refused to take the risk of attack from Houthi rocket-shooting rebels in Yemen. Many ships must now sail around the Cape of Good Hope which has weather issues. Besides, the trip adds ten days for shipments to reach Europe. Shipping delays and higher shipping costs result in temporary shortages and invariably higher prices for the goods being shipped. To contain inflation, a quick resolution of this situation is needed. Unfortunately, the Houthis are disrupting shipping because they do not like Israel’s response after having been attacked by Hamas. None of this is easy to resolve, sadly. The disruption to shipping might get worse before it gets better.

For now, the market has shrugged off the Red Sea danger and moved higher. For the week, the S&P 500 was up 1.17% and the Nasdaq +2.26%. Monday was the MLK holiday. Tuesday the S&P 500 was down -0.37%, Wednesday -0.56%, Thursday +0.88%, and Friday +1.23%. The 10 Yr Treasury was up 18bps to 4.13%. Next week and the two following, the tone of the market will be set by a flurry of corporate Q4 earnings announcements.

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 January 12, 2024

by Jim Ulland

The market is more focused on inflation than any other economic variable. This week, both the Consumer Price Index (CPI) and the wholesale price index (PPI) for December were released. The market reaction was slightly favorable. For instance, the PPI was up only 1% from a year ago. The Fed’s target inflation rate is 2%. The CPI was up a bit, but most attribute this to the lagging impact of the price of housing, which is lower today than the data used in the index. The downward trend in inflation is continuing, which is reflected in a current NY Fed survey on consumer expectations on inflation. Consumer expectation for inflation was the lowest in three years. This is very positive for both fixed income and stocks.

Geopolitical events could disrupt the downward trending inflation. Rebels in Yemen, who are shooting rockets at vessels going to the Suez Canal, have caused several shipping companies to reroute around Africa. This adds ten days’ sailing time to Europe and raises shipping costs. If the war in Gaza draws in Iran, crude oil supplies could be disrupted resulting in a price spike. China’s exports came in higher than expected putting further pressure on energy prices. Of course, there is the Russia-Ukraine war too. But geopolitical tensions are always with us. It will take a surprisingly large event to stop the downward drift of inflation, in our view.

Interest rates, as represented by the 10 yr Treasury, closed lower for the week and ended at 3.94%, a decline of 10bps. This decline gave fixed income an additional boost. Lower Treasury rates drove mortgage rates down, causing mortgage applications to jump 5.5% from the prior week. Retail sales numbers from December are forecast to be positive, suggesting that the consumer is still spending. In short, the economy is holding relatively steady through all the turmoil.

Our preferred stock fixed Income strategies continue to attract a lot of interest as investors try to lock in the high income from these securities (7-8% current yields). Over the next 24 months, as the Fed lowers interest rates, fixed income securities also should appreciate giving a compelling total return.

Corporate earnings will set the tone of next week’s market. A few of the big banks reported today with results that were generally expected and positive. During the next three weeks, many companies will report on Q4 and the CEOs will comment on expectations for 2024. A modest upbeat tone is likely.

Monday the S&P 500 was up +1.41%. Tuesday -0.15%, Wednesday +0.57%, Thursday -0.07%, and Friday +0.08%. The 6-month Treasury was up 7bps to 5.19%. Treasury income is taxed at a lower rate that income from Money Market funds or CDs.

Next week we and the markets will be closed on Monday in observance of MLK Day. Stay warm this weekend, it is going to be a cold one.

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

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