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Weekly Market Update for November 23, 2022

by Jim Ulland

My Market Update is out today since Thanksgiving is tomorrow. The market will close at noon on Friday (as will our office). You’d expect the market to be quiet on this holiday-dominated week and it has been.

The news of the week came from the Fed. Through speeches by the members of the Fed Board and the minutes of the last meeting, which were released Wednesday, the Fed seemed to be signaling that the size of the interest rate increases would diminish. The market also hopes that the Fed to stop increasing rates sometime in the spring of 2023. For the Fed to stop raising rates, there must be a continuous flow of data showing inflation is coming down. The data so far is encouraging, but only represents the last few months. On December 13, the CPI will be released. This announcement will be critical to maintaining the downward trend for inflation. The report on 12/2 showing new jobs created in November will also move the market and influence the Fed. Unemployment filings this week were the highest since mid-August, perhaps foreshadowing a weak new jobs report. Weaker numbers of new jobs are expected to dampen wage increases, a major factor in higher prices of goods and services.

Those with the gloomiest view on the economy are concerned that the Fed will wait too long to pause rate increases. Since the impact of rate increases takes months to filter into the economy, the full negative impact of higher rates is not known. That problem is coupled with the fact that the Fed has not been great at timing rate changes in the past. For instance, the Fed left interest rates too low for too long and is partially responsible for our current rate of inflation. Other gloomy factors include corporate earnings. As the economy slows, so will corporate earnings. If earnings trend down, as expected, the stock market will have a headwind.

A slowing economy is beneficial for fixed income. Interest rates normally fall during economically slow periods. Lower rates usually trigger a recovery in the price of bonds and preferred stocks. We expect this recovery to accelerate and be particularly strong in 2023.

For the first three days of the week, the 10-yr Treasury was down 12bp to 3.70%. Monday the S&P 500 was -0.39%, Tuesday +1.36%, Wednesday +0.60%, and Thursday will be Thanksgiving. For the first three days of the week, the S&P 500 was +1.57% and the NASDAQ +1.25%.

Next week will be all about the report on jobs created in November. A low number will show the Fed’s rate increases are having an impact. This would support slowing rate hikes. Unfortunately, “bad news is good news” for the jobs report. All the Best during Thanksgiving. We certainly are thankful for our clients and their trust in us to help manage their investments during these complicated times.

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 November 18, 2022

by Jim Ulland

Last week’s news was dominated by the election, the October CPI data, and China. This week was Part 2 of each of those stories.

Last week we had the election. This week we have the results. It is a “divided government.” In this case, a divided government means the Republicans control the House of Representatives and the Democrats control the Senate and the Presidency. The reason the market likes a divided government is that major changes require the agreement of both parties. Although not much legislation will be passed, what does pass should look more centrist.

Last week the CPI showed a surprising reduction in the pace of inflation. The market rose dramatically. This week the Producer Price Index (PPI) was released. These numbers too were better than expected, although the market rallied only 1% that day vs. 5.5% following the prior week’s CPI announcement. The importance of the PPI is that it reports on the prices companies pay for input costs such as parts, materials, shipping, and all those factors needed to put a finished product on retail shelves. PPI tends to be an early indicator of future inflation trends. The PPI report triggered several Federal Reserve Board members to talk about a slower pace of interest rate increases than those of this summer and fall. The speakers implied a 0.50% increase in rates at the December Fed meeting. The first meetings in 2023 are on 2/1/23 and 3/22/23. A pause in the Fed’s rate increases could be signaled after the March meeting. Naturally, a decline in the inflation rate, as expressed in the CPI and PPI, is necessary for this result.

Part 2 of the China story (the world’s most populous country) was that China and the US engaged in civilized discussions at the G20 meeting. Our two countries are very interdependent as trading partners, so it is in both countries’ interest to behave like adults rather than using reckless language to inflame the other. Expect more signals that China will reopen from Covid soon, no later than spring.

Market movement will be influenced by the direction of the CPI. If the CPI continues to trend down, at some point the Fed will stop raising rates. Then it will pause, maybe for six months, before reducing rates. Between now and the pause, fixed income investors should lock in the attractive yields of today’s market. For instance, the current yield on our Intelligent Fixed Income strategy is nearly 7%. Stocks will also start their recovery, but the pace of this recovery may lag fixed income since corporate earnings must be rebuilt from the impact of the slowdown. For those who are in cash and waiting to reinvest, we offer a US Treasury strategy currently paying 4%.

For the week, the 10-yr Treasury was unchanged at 3.82%. Monday the S&P 500 was -0.89%, Tuesday +0.87%, Wednesday -0.83%, Thursday -0.31% and Friday +0.48%. For the week, the market was able to retain most of last week’s gain. The S&P 500 was down -0.69% on the week, with the NASDAQ down -1.56%.

Next week will be slow because of the Thanksgiving holiday. Remember, while gathering around the Thanksgiving table, that almost every subject is touchy these days. Tread carefully but enjoy.

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 November 11, 2022

by Jim Ulland

The Caribou Coffee company slogan is “Life’s short, stay awake for it.” This week, three major events kept everyone awake: the election, the October CPI data, and China.

The election is over, but no one knows how it came out. In the House, either the Republicans will have ten more votes than the Democrats or vice versa. The Senate majority will be decided by the races in Arizona and Nevada or by the runoff election in Georgia on December 6. Gridlock in DC is a “safe space” for the market. Gridlock means changes happen more slowly and most often require the agreement of both parties. The market needs a break from uncertainty and from proposals far outside the mainstream. We could use a lot more civility too. The day after the election, the market went down 2%.

Before the market opened on Thursday, the Consumer Price Index for October was announced. It showed a rise of 7.7%, markedly below what was expected. The market viewed this decline in inflation as the beginning of a multi-month trend. It was hoped that each subsequent month, the CPI report would show a further decline in the rate of inflation. This signal is what the market was waiting for; the S&P 500 rose 5.5% and the NASDAQ rose 7.35% on Thursday, followed by more celebration on Friday. Fixed income also spiked higher by approximately 4%. The coast is not all clear, because future CPI figures are unknown. However, other factors point to a slowing in the rate of future inflation. For instance, October pending home sales were down 35%, layoffs are in the headlines (Meta/Facebook laid off 11,000), consumer confidence dropped, new rents were lower, used car prices fell, and wage growth was modest. Abroad, the UK economy turned negative in Q3.

China, as the second largest economy in the world, made its own news. The Covid lockdowns were eased and the BioNtech vaccine was approved for foreigners, implying that approval for the general population may soon follow. Oil prices surged, anticipating a return of energy demand from China. That said, the reopening in China is expected to be slow.

The psychology of the market has improved. Headwinds will remain in announcements of reduced corporate earnings forecasts and more rate increase chatter from the Fed. Although a rate increase of 0.50% in December is likely, the Fed could be near the end of rate hikes. There will be a lot of bad economic news between the Fed’s December meeting and the next one in February.

For the week, the 10-yr Treasury was down by 35bps to 3.82%. Monday the S&P 500 was +0.96%, Tuesday +0.56%, Wednesday -2.08%, Thursday +5.54% and Friday +0.93%. For the week, the CPI managed to restore value for investors, who hope the trend will continue. The weekly S&P 500 was up +5.90% and +8.09% for the NASDAQ.

Next week, we should know which party will have the majority in the House. The Senate majority may have to wait until December 6. Other market-moving news will include the EU’s CPI report on Wednesday, November 16. Finally, we all deserve this break from the deluge of election ads. Enjoy.

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 November 4, 2022

by Jim Ulland

The Fed raised interest rates by 0.75% as expected for the fourth straight meeting on Wednesday. Initially, the market took the news in stride. But, by the close on Wednesday, the market was down substantially. While high interest rates slow economic activity, there was little evidence that high rates were slowing inflation here or in the EU, where inflation surged to a record high of 10.7% for October. The Fed hinted that it was going to incorporate the lag effect that high interest rates have on the next twelve months. This is the time it takes for the full impact of higher interest rates to be reflected in slower economic activity. The Fed did imply that we are unlikely to see another 0.75% hike in December, perhaps 0.50%.

Corporate Q3 earnings news has been relatively positive, but forecasts for Q4 and 2023 are not. CEOs spoke of continued supply chain problems, and macro uncertainty (Ukraine, North Korea, the diesel shortage in the US, inflation and wage pressure, the lack of pricing power in some sectors, and oil and gas shortages triggered by Russia). The US manufacturing index was down (as was the new orders index), supporting some of this negative news.

Although Twitter laid off up to half of its workforce today, the number of jobs that are open increased by 437,000 in October. Initial jobless claims were lower than expected. And, on Friday, US non-farm payrolls increased more than expected – although below the September increase. The Fed would like to see fewer jobs created so wage pressures decrease. The unemployment rate did kick up to 3.7%, trending more in sympathy with the Fed’s goal.

The October CPI will be released next week, and it will give us the latest reading on inflation. The Fed must see a drop in this index before it pauses interest rate increases. Don’t look for any help from crude oil or gasoline, which have recovered some during the week and spiked on Friday with the possibility of China reopening its economy.

We feel it is still too early to add equities, except for oil and gas companies. Equities need the Fed to be near a pause in interest rate hikes before a recovery in stocks starts. Fixed Income and our Intelligent Fixed Income strategy is another story. Investors can lock in 7% current yields permanently. Some remember the Jimmy Carter Presidency, when rates hit the low teens and investors could lock in rates over 10%. This is a similar time. Rates may go a little higher, but investors will be pretty pleased a year from now having locked in rates at 7% this quarter.

For the week, the 10-yr Treasury was up by 17bps to 4.17%. Monday the S&P 500 was -0.75%, Tuesday -0.41%, Wednesday -2.50%, Thursday -1.06% and Friday +1.36%. For the week, the Fed managed to destroy some buying power by causing the weekly decline in the S&P 500 of -3.35% and-5.65% for the NASDAQ.

Next week, besides the CPI number on Thursday, all eyes will be focused on Tuesday’s election results. Many results will not be known until late in the evening, especially with Alaska going to ranked-choice voting. In Georgia, the winning candidate must get 50% of the vote. If not, a runoff election will be held on December 1st. We wish all winners a good-spirited 2023.

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