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Weekly Market Update for January 14, 2022

by Jim Ulland

The first earnings of Q4 came on Friday from several of the big banks.  The story they told was one of wage inflation. Costs were up and the executives said they paid more to hire and retain employees.  Even if inflation goes down, it is very difficult for employers to reduce wages, a major driver of prices. Inflation didn’t go down last month, it continued higher, only at a slower rate.  Producer prices, which eventually show up in consumer prices, were up 9% over last year.  Consumer prices were up 7%.

Omicron put more heat under the inflation stew.  Although the variant is not life threatening, many schools have closed forcing parents to stay home rather than go to work.  Those not vaccinated might be prohibited from going to work or even fired as Citi Bank announced.  Put simply, fewer workers means less goods produced.  Fewer goods with the same consumer demand triggers higher prices. Oil is an example, government restrictions and Covid have retarded oil production.  Prices of gasoline and crude oil continue to rise.

This is not a good situation. A rapid decline in Omicron infections, as happened in London after its spike, will help the tight employment market. But normalizing after this pandemic will take time.  During this period, expect a lot of market volatility. One casualty is consumer sentiment, which declined in January.  Inflation concerns are blamed for most of the deterioration.

It was somewhat surprising to see interest rates, as represented by the 10-Yr Treasury, stay flat for the week.  You would think that real and feared inflation would drive rates higher as they did last week. The 30-Yr Treasury is an indicator of where longer-term interest rates are going.  The 30-Yr Treasury recently did not rise nearly as much as the 10-Yr Treasury.  This implies that the market thinks inflation will come down from current levels.  We hope inflation recedes because more goods have hit the shelves.  The alternative explanation is that the government’s mishandling of the economy will tip us into a recession.  Recessions normally force rates down because economic growth slows and the demand for money is less.

A flood of earnings will be reported in the next three weeks.  Many firms will report that margins have been squeezed by higher wages and component costs.  Part of this pressure on profits will be offset by strong demand.  How will the market react to earnings reports?  Bank earnings today were mixed.  The market could have been neutral, but instead bank stocks were punished.  If the market reacts negatively to mixed news, it will react very negatively to bad news and possibly neutral to good news.  The market’s attitude will be apparent soon.

For the week the SP 500 was down a modest -0.30%, the NASDAQ slightly less at -0.28%.  On Monday the SP 500 was down -0.14%, Tuesday +0.92%, Wednesday +0.28%, Thursday -1.42%, and Friday +0.08%.

The markets and our office will be closed Monday for Martin Luther King Day.  More banks will report next Tuesday, either confirming or breaking from today’s reports.  On Wednesday, United Health Group will be the first major health and insurance company to report and will give insight into that sector.  Technology companies will start to report in the following week.  Government news should be more muted now that the second major spending bill (BBB) is unlikely to pass.  We recommend that investors go on vacation, go skiing, go to Florida, and turn your phones off while doing so.  The next two weeks could be stressful.

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 7, 2022

by Jim Ulland

The market news this week revolved around twin peaks.  The first peak was the Omicron news.  Doctor and former FDA Commissioner Scott Gottlieb said Omicron infections will peak in about ten days and then rapidly decline.  New York is thought to be two weeks behind London and Gottlieb expects New York to follow London’s experience. Although we hope the infection rate drops as dramatically as it rose, there will be lingering employment issues from those deciding not to go back to work.  Lack of workers is already a problem, and this will slow the normalization of the supply chain.  A continued shortage of goods forces prices higher, typical of a demand/supply imbalance.  Fortunately, the market is not as stressed out by Omicron as it was three weeks ago.

The second and higher stress is from the spike in interest rates.  Interest rates, as represented by the 10Yr Treasury, rose from 1.51% to 1.76%.  This is a 16.5% increase in five days. Rates are still historically low, but the pace of change unsettled the market. The Fed has not raised the Fed Funds rate yet, but says it will do so by mid-year, if not sooner. Since the Fed got the whole inflation forecast wrong, there is less confidence that they will get the interest rate level right.  Higher rates slow growth.  This is clear for home buyers.  As rates go up, the cost of a mortgage increases and fewer people can afford homes.  The problem is not today’s rate, but where rates will peak and if that level is so high that the economy slows markedly.

The factor that could rescue the market’s mood is Q4 earnings reports.  They will start in earnest next Friday with the big banks.  Earnings will be good for the banks and most of those companies that report in the following weeks.  Many firms will show a 20% increase in earnings per share over what was achieved in Q4 2020.  Strong earnings will support stock prices.  Additional support can come from stock buybacks.  Covid has forced companies to streamline operations and reduce costs.  With strong demand, margins have expanded leading to greater profitability.  Companies that can raise prices will have the best results.  Companies with strong cash flow, low debt, a wide product spectrum, and pricing power will do the best.  Banks will benefit from higher rates as idle deposits are more profitably invested.

The only day the SP 500 rose was Monday. The NASDAQ had a loss every day. Europe reported its own bad news.  Inflation is not dead.  Prices for December were up 5% annualized.  The US unemployment rate declined to 3.9% in December which reflects the shortage of people willing to work.  A shortage of workers causes wages to go up.  If Omicron does peak in ten days and then steeply declines, many workers will return.  The US Supreme Court today is considering the vaccine mandate from OSHA on large employers.  The question is whether OSHA has the Congressionally given authority to impose the mandate.  If the mandate is suspended, additional workers will return, blunting the inflationary pressures of higher wages.

For the week, the SP 500 was down -1.87% and the NASDAQ -4.53%, the sharpest weekly drop since last winter. On Monday the S&P 500 was up +0.64%, Tuesday -0.06%, Wednesday -1.94%, Thursday -0.10%, and Friday -0.41%.

Even with rising interest rates in 2021, our Intelligent Fixed Income strategy, run by Nat Beebe, posted top tier returns of over 6% in what was a challenging year for most fixed income strategies.  Ranking with peers will be available soon.  We expect a continuation of this outstanding performance.

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 December 31, 2021

by Jim Ulland

The week and the year ended on a positive note as the S&P 500 booked a couple more records.  News was light on everything but Omicron.  The variant was characterized by research from South Africa as having milder symptoms and fewer hospitalizations than its predecessors. The same limited data suggests that those who have had Omicron have strengthened immunity to the Delta variant. This gave cover to government officials who, knowing the public would not tolerate another set of lockdowns, did not announce them.  Holiday sales figures came in very solid and added to a positive quarter-end.  Unemployment filings continued to bounce along a fifty-year low.  The number of workers already on unemployment fell to low, pre-pandemic levels.  For those worried about a market crash or a recession, it is improbable to have either when everyone and their dog are working, inventories are low, and eleven million jobs are unfilled.

Fourth-quarter earnings reports will start in two weeks.  They will be good, although supply chain pressures will hurt some company results.  Consumer savings are high and some of these dollars have boosted demand.  Low inventories mean fewer mark-downs and expanded margins. Expanded margins mean better profits.  Better profits result in higher dividends, additional stock buy-backs, and more valuable share prices.  If interest rates stay in check and only move higher gradually, the market should do well as 2022 starts once it shakes off the drag of Omicron.  This week the 10-Yr Treasury hovered around 1.5%, still historically low and continuing to provide a favorable tailwind.

Intelligent Fixed Income (IFI), our popular fixed income strategy, ended the year with a return solidly over 5%, remarkable in this yield-starved environment. We will have comparative rankings soon and we expect to be very near the top for performance once again.  Today’s low interest rates have put a lot of pressure on those trying to generate meaningful income from their portfolio.  If you have an acquaintance or friend in this circumstance, we are delighted to explain the IFI strategy to them.

On Monday, the S&P 500 was up +1.38%, Tuesday -0.10%, Wednesday +0.14%, Thursday -0.30%, and on Friday -0.26%.  For the year the S&P 500 was up 26.89% and the NASDAQ +21.39%.   Quite a year.

Next Tuesday we will get some important information from the ISM Manufacturing Index followed on Thursday by the ISM Non-Manufacturing Index.  On Friday, the biggest economic news of the week will come from the December jobs report.   The jobs numbers may be pressured by the Omicron impact on travel, entertainment, and food and beverage.  Another chapter will be written in the inflation story in January.  With crude oil headed back up, don’t expect any relief at the gas pump.

Warmest wishes to all in this New Year.  We appreciate and value the opportunity to work with you.

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 December 23, 2021

by Jim Ulland

On Monday, the market thought Omicron was the Black Plague.  By Tuesday, it looked more like the flu.  And that was the story of the week.  The S&P 500 overcame Monday’s loss and ended the week up a net +2.28% for a record high.  The NASDAQ did even better this week, up a net +3.19% but fell just short of a record.  Part of the turnaround news came out of South Africa where Omicron cases dropped sharply.  Their researchers suggested that the rapid spike up and now the spike down might be the pattern other countries will experience.  Pfizer provided some support to the market when its drug for the newly infected got FDA approval.  The drug can be taken at home, another advantage.

The public has no appetite for more lockdowns and school closings.  The Biden administration seemed to sense this public sentiment and encouraged schools to stay open.  Also the administration announced that new home Covid rapid test kits will be available to the public free.  Unfortunately, these were just ordered, so the delivery on this program may come well after the Holidays.

Economic news was on balance positive. Consumer confidence was higher than expect.  Unemployment filings stayed unusually low.  November existing-home sales were higher than October.  Durable goods orders were up.  November personal spending and income were both up. There was also some relief when Senator Manchin said he could not support the large spending bill Congress is considering.  His concern, shared by many, was that the spending was inflationary and would raise the deficit.  Also the bill contained an endless list of tax increases, which normally are a drag on the economy.  However, as they say in Washington, no bill is ever dead, so stay alert to this one.

Interest rates, as reflected in the 10-Yr Treasury, rose during the week, but still stayed in the 1.4-1.5% band.  There are some signs that the supply chain bottlenecks are diminishing, and that inflation may have peaked.  More data is needed to draw any hard conclusions.  30-Yr Treasury bonds are below 2%, which implies that the bond market does not anticipate runaway inflation.

Even with the rise in the 10-Yr Treasury, our fixed income strategy, Intelligent Fixed Income (IFI) was up.  With a week to go, it looks probable that the total return in our fixed income strategy will be between 4.5% and 5% for the year.  We expect these returns to be near the top of all managers of preferred stock strategies.  Our equity strategies generally were ahead of the market as well.

On Monday, the S&P 500 was down -1.14%, Tuesday +1.78%, Wednesday +1.02%, Thursday +0.62%, and on Friday the market will be closed all day.   Our office also will be closed.  We will be back on Monday for the last week of the year.  It should be quiet, but then that was supposed to happen during the tumultuous Thanksgiving week.

Warmest wishes as the year comes to close.  Give yourself a “booster” for a present.  There is little to be said for running unnecessary risks.

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