Weekly Update Archives

by Jim Ulland

The market loved Friday 10/15. One reason is that it followed a very strong Thursday with blow-out Q3 bank earnings and unexpectedly high earnings from Minneapolis based United Health Group. The market had been in a holding pattern until Thursday waiting for the first corporate earnings to be announced. Earnings started off with a bang.

On Friday, the market was propelled upward by higher-than-expected September retail sales. It had been feared that the shortage of goods and workers would dampen consumer spending. If it was dampened, it was not by much. Amazon, the world’s biggest retailer, jumped 3.3% on the news. Goldman Sachs moved the whole banking sector another notch higher with its huge earnings announcement.

Some negative issues from the week earlier were softened. Congress lifted the debt ceiling, but only for two months, allowing us to experience that crisis again. China assured the market that the default by its biggest property developer would not topple other developers. Many are not that confident. China was not as positive about electricity. Large users had curtailments which started to sound like summer in California. US interest rates were relatively calm and down for the week giving a boost to our nationally- recognized fixed income strategy’s performance.

For the week, the market over-looked the festering problem of inflation. Headline CPI was the highest since 2008. One of the leading indicators of inflation is what level of inflation consumers expect. If consumers expect higher prices soon, they buy now. Of course, that forces prices higher and makes the expectation a self-fulfilling prophecy. Social Security checks also will be increased by 5.9% reflecting the inflationary environment.

Supply chain bottlenecks persist, aggravating inflation. The Port of Los Angeles will remain open 24/7 to move the one million containers floating offshore in the sixty-plus ships. Unfortunately, there are not enough truck drivers to take all the additional containers away, nor is there available warehouse capacity. Just keeping the port operating for more hours is unlikely to solve much. Covid mandates have the unintended consequence of reducing the labor force and add to back-ups in the supply chain. Hospitals also are experiencing worker shortages and restricting admissions.

Energy prices crept even higher triggering additional price rises from energy users like truckers. Hurricanes, government restrictions on drilling, and limitations on building pipelines have crimped supply. Expect much higher natural gas prices this winter in home heating bills.

But, on Thursday and Friday the market plowed ahead, taking the “glass is half-full” mantra. For the week, the SP 500 was up +1.82% and the NASDAQ was similar at +2.18%. Monday the SP 500 was negative 0.69%, Tuesday -0.24%, Wednesday +0.30%, Thursday +1.71%, and Friday +0.75%.

Our fixed income strategy, Intelligent Fixed Income (IFI), continues to provide shelter for those worried about equity prices. YTD our IFI strategy is up about 5%. Most of the dividends are “Qualified” thus subject to lower tax rates than interest income.

Next week is all about earnings. Expect excellent earnings news. However, the CEOs are likely to warn about the negative impacts of supply chain bottlenecks and workers shortages in coming quarters.

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

After ending the month of September in the red, major market indices squeaked out a positive week to kick off October. The S&P 500 was up 0.8%, while the DOW advanced 1.2% and the NASDAQ trailed at +0.1%. Trading in technology stocks remained mixed, while energy stocks continued their move higher as WTI oil prices crossed over $80 per barrel. Financials also had a good week, benefiting from the rise in 10-yr Treasury Bonds from 1.46% to 1.60%.

There were several notable items in Friday’s employment report. The headline nonfarm payroll metric showed a gain of 194,000 jobs in September, which was below expectations of around 500,000. However, July’s strong job gains were revised even higher, as were August gains. Furthermore, the unemployment rate ticked down more than expected, falling to 4.8%, as the labor force participation rate edged lower. Average hourly earnings rose 0.6% month over month, continuing to show signs of upward wage pressure. On the whole, the report didn’t do too much to move the needle on the Fed’s tapering decisions.

On the legislative side this week, the Senate helped kick the debt-limit can down the road to December, ending a weeks-long standoff. The House is expected to pass the short-term extension as well. This saves the economy from potential fiscal crisis and indices bounced higher Thursday on the early news.

A few market risks hang in the balance though as we push further into October. For one, talk of margin issues stemming from supply chain and labor market disruptions may be front and center during earnings reporting season. Uncertainty around monetary tapering (timing/scope) likely builds as we approach the November FOMC meeting.  And despite the resolution of the immediate debt ceiling predicament, Washington dysfunction surrounding major infrastructure and reconciliation proposals continues.

Corporate third-quarter earnings begin next week, with JPMorgan getting the ball rolling on Wednesday. Most of the other big banks will follow them over the ensuing two days, and United Healthcare will report Thursday as well. Additional economic data points will also come in, including the September Producer Price Index, retail sales, and trade/business inventories.

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

September is typically the worst month of the year in the market. The historic reasons for this are not well understood.  However, during this September, it is clear why the market fell after hitting a high on September 2^nd.   China, Congress, interest rates, debt-ceiling, supply chain bottlenecks, energy, and Covid/Delta all played a role.  Here is some of the detail:

First, China is a mess.  The government is beating up the technology sector for being too successful and the CEOs for becoming too powerful.  Also, the largest property developer in China is on the verge on bankruptcy, now having missed two payments to bond holders. This could trigger additional defaults. Finally, China is trying to reduce emissions, but in the process cut electrical generation and disrupted manufacturing.  Earlier in the month we completed exiting all Chinese company stocks because of this witches’ brew.

Second, Congress is dysfunctional.  In many respects, it would be a good thing if nothing happened.  The economy simply does not need more stimulus from additional deficit spending. Higher tax rates will be a drag on the recovery.  This all-too-strong, anti-business tone pauses employers’ plans for expansion and could disrupt the recovery.

Third, interest rates on the 10Yr treasury rose from 1.3% to 1.5%.  This is a large percentage increase and it occurred in a couple of days.  The market would prefer a gradual change in rates so adjustments can be made.  The fear of a rate spike, although unlikely, is present.

Fourth, Congress always makes raising the debt ceiling a crisis.  This time the vote is interconnected with several other issues that are hard to resolve.  Congress often has these stand-offs and almost always works them out at the last minute, frazzling the market until then.

Fifth, the supply chain bottlenecks persist.  Corporate leaders are saying that this will have a negative impact on profits.  The problem shows itself in many ways including the Covid interruptions in Vietnam (a leading sports shoe and clothing center), China’s disruptions in electrical generation crimping manufacturing, chip shortages because of sold-out capacity, clogged ports, and people hesitant to go back to work.

Sixth, energy prices have spiked as hurricanes reduced production.  Oil is back to $75/barrel, a three-year high. Elevated energy prices contribute to inflation.

Seventh and finally, yes, Covid is still with us.

For the month, the S&P 500 was down -4.76% and the NASDAQ was similar at -5.31%.  Stocks were due for a pullback; however, the ultimate depth of the pullback may depend on Congress.

Our fixed income strategy, Intelligent Fixed Income, weathered this storm.  September had positive returns whereas most fixed income strategies were negative.  We continue to see 4-5% yields in preferred stock, the core security in the strategy.

Monday the S&P 500 was -0.28%, Tuesday -2.04%, Wednesday +0.16%, Thursday -1.19%, and Friday +1.15%.

Next week is all about uncertainty.  Of course, the market does not like uncertainty.  In two weeks, corporate earnings from Q3 will start to be released.  This will give a picture of how serious the above problems are.  Hang on, the ride could get bumpy.

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

China rattled the market again on Monday. The most indebted property developer in the world, Evergrande, is on the edge of bankruptcy. China has alerted local government units to prepare for a default. Fortunately, since there are burdensome restrictions on lending in China, US banks have done little. Some non-financial US companies, like hedge funds, have purchased bonds and are likely to take substantial losses. The fear that the failure of Evergrande could destabilize the Chinese banking system and roll that problem world-wide is largely discounted. However, the fear was substantial enough to make Monday the worst day for the SP 500 since May.

Other negative issues from last week have not gone away. The Delta variant is racing through school children. Supply shortages and inflation pressures persist. The Fed signaled that it would start reducing the amount of bonds they are buying in November which will put upward pressure on interest rates. The fiscal stimulus is providing less of an economic tailwind. Congress is somewhat dysfunctional and seems unable to pass a budget extension or to lift the debt ceiling.

Yet, even with these challenges to economic growth, the market had two flat days and two strong days after the Monday drop. Perhaps the market has decided to let the Congress fight it out. The recovery is continuing, and the public seems ready to treat Covid and the Delta variant like a manageable disease, not a continuing crisis. Pfizer is getting approval for more ages for their vaccine and more conditions approved for the booster. Office workers are coming back. Football stadiums are full. Q3 and Q4 corporate profit growth is still expected to be +20%.

Yields this week did tick up 10 basis points to 1.45% on the 10 Yr Treasury. Our view is that these rates will grind higher into year-end. If this is in fact a grind rather than a spike, it is manageable. Any Fed interest rate increase will be late in 2022. Our fixed income strategy, run by Nat Beebe, is up more than 5% so far this year which has made the strategy nationally popular.

The recovery is far from over. We think investors should be fully invested for now. The market’s upward direction could be halted if the $3.5T social safety net legislation is passed. The taxes this legislation contains will dampen growth and the spending could, at the same time, trigger serious inflation. Stay tuned.

The SP 500 and Nasdaq closed higher this week. The NASDAQ was up slightly +0.02% and the SP 500 by +0.51%. Monday the SP 500 was -1.70%, Tuesday -0.08%, Wednesday +0.95%, Thursday +1.21%, and Friday +0.15%.

Next week is all about Congress. The debt ceiling, the budget, and the $3.5T (or much higher according to the Wall Street Journal) social programs bill. Second level stories will be China’s Evergrande debt and the US southern border. The quarter ends Thursday as does September, which has retained its reputation as one of the weakest months of the year for market gains.

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.