Weekly Update Archives

by JM Hanley

After touching record highs, the major indexes took a week off. Good news from the Federal Reserve and a generally strong earnings season only partly offset some weak economic data points and a few high-profile earnings disappointments. The SP 500 finished the week down 0.4%, although the Nasdaq was down over a percent. Materials, energy, and financials, which had underperformed, did best this week. Technology and other growth industries were weakest.

Economic data was largely (though not entirely) disappointing. Second-quarter GDP growth turned out to be lower than expected. “Reopening” industries did well, but they were offset by lower government spending and a decline on construction. Disappointing June readouts for core GDP components like inventories and durable goods seem to indicate this pattern continued. The Fed’s preferred inflation metric (PCE) even came in light of expectations. And this past week, new and continuing jobless claims were weaker than expected. The housing market also continues to experience turbulence. New home sales and pending home sales unexpectedly declined, even as home prices increased. Consumers nonetheless remain optimistic. Two different measures of consumer confidence rose, and personal spending rebounded in tandem.

The Federal Reserve’s meeting this Wednesday brought few surprises. Chairman Powell remains sanguine about the risks of inflation. The market is most interested in when the Fed will begin “tapering,” or slowing its purchases of Treasury bonds (and some others). This measure has been used to support the economy during the pandemic. The Fed seemed to indicate it was less likely to announce tapering at its September meeting. That news was a tailwind for markets for the rest of the week.

Major corporate earnings came in rapid succession. Medical procedures that were postponed with the virus rampant and hospitals full can now be performed. Device manufacturer Boston Scientific benefitted as a result. Revenues and earnings were good at Visa. Travel, entertainment, and restaurant card spending is approaching pre-pandemic levels. Apple reported excellent results despite the headwind posed by a worldwide shortage of computer chips. Despite already-strong uptake, demand for the new iPhone remains robust. Google also did well. Advertising for retail was particularly strong, and ads for travel have nearly returned to their pre-pandemic trend.

Facebook, the other major online advertiser, was worse than expected. Advertising revenues and profits for the past quarter were strong. However, the company said growth would slow in the second half of the year. A coming iPhone update will make it more difficult to track the owner’s online activity, which in turn will make Facebook’s ad targeting less profitable. Amazon was also a disappointment. As other activities have reopened, consumers have spent less time shopping online, and growth slowed as a result. Conversely, as corporate budgets and planning get back to normal, the cloud computing business has picked up.

Nonetheless, earnings have been strong overall. Half of companies in the SP 500 have reported, and a record number are beating analysts’ estimates. Earnings have been 18% better than expected, on average, and revenues have been 5% better. And nearly 80% of companies have increased their estimated profits for the year – the highest since at least 2012. Electronic Arts, Axon, CVS, and FIS, among others, are scheduled to report earnings next week.

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

This week’s market can be characterized as a battle between the fear of a slower recovery vs. continued robust growth. On Monday, the fear was evident that the Delta variant could cause a reimposition of restrictions somewhat like those of Covid-19. If so, unemployment would rise, many businesses would close again, and a return to normal would be delayed. The Dow, SP 500, and the NASDAQ dropped over 1%. By Tuesday, investors were buying bargains in the market. Their renewed confidence was reinforced by earnings surprises, corporations buying back their stock, excess savings viewed as destined for future spending, and interest rates staying relatively low. The expectation of continued growth was the theme for the rest of the week.

The Delta variant scare has stimulated many to get vaccinated. Both Pfizer and Moderna’s vaccinations are seen as good protection against the Delta variant. There is no talk among employers about reversing the flow of employees back to the office. United Airlines reported earnings and said they saw no sign of trip cancellations or reduced bookings from the Delta variant. Sports teams and the Olympics are managing around new Covid cases rather than quarantining entire teams or cancelling games.  Next week, the first reading of Q2 GDP will be released, and it will be strong.

On Friday, the SP 500 and the NASDAQ were back in record territory. We recommend moving cash into the market. In our view, low-yielding government bonds, munis, cash, and CDs are going to under-perform the market for the rest of the year. We recommend our Intelligent Fixed Income strategy which has 4-5% current yields and is up over 3.5% so far this year. Our equity strategies are getting returns in the teens. One of the few weak areas in the market is Chinese-based companies. The communist government has increased its control over the booming tech industry and forced changes which will reduce future growth. The government is reported to be concerned over the expanding influence of the tech sector and its CEOs. Chinese tech companies have been skillful in collecting information on their vast customer base, something the government fears and seems to envy, thus a crackdown has come. We have reduced our exposure to China as a result.

Although inflation is still an everyday experience when purchasing, it dropped out of the headlines this week. Interest rates were relatively stable at low levels, not signaling inflation-driven higher rates. OPEC helped by announcing an increase in production which immediately reduced the price of oil and gasoline.  We are somewhat skeptical that inflation can be ignored. For example, houses in Naples and LA are selling for $1000/sq ft.

Both the SP 500 and the Nasdaq set records by Friday. For the week, the Nasdaq gained +2.9%. The SP 500 rose +2.0%. Monday the SP 500 was -1.59%, Tuesday +1.52%, Wednesday +0.82%, Thursday +0.20%, and Friday +1.01%.

Next week will give another look at inflation and consumer confidence, but most of the focus will be on earnings. The following are only a small list of those companies that will report Q2 earnings: Tesla, Boston Scientific, 3M, Alphabet (Google), Apple, Visa, Lab Corp, Amazon, and Exxon. Note that we do not own all these companies in our equity strategies. Big tech powered the market this week. Expect these companies to back up their strong stock performance with good earnings.

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

Sometimes weeks like this past one happen during quarterly earnings reports. Banks were the first to report Q2 earnings, all of which were strong and beat expectations. Yet, all bank stocks went down. In fact, the whole market went down. There is a general fear that the inflation we are seeing may not be “transitory” as the Fed terms it. The CPI had the fastest monthly increase since 2008. The Producer Price Index (PPI) rose 7.3% over last year, the largest advance since twelve-month figures were first calculated in 2010. Hotter inflation could bring higher interest rates. Higher interest rates normally slow economic growth. Thus, the twin concerns of inflation and slower growth overshadowed positive earnings.

Congress dumped more fuel on inflation fears as two infrastructure bills were set for a vote next week. One of the bills is a true infrastructure bill of about $1B for roads, bridges, etc. The other is a vast list of new social programs that have little to do with the historic definition of infrastructure. Many argue that with the shortages of parts and labor and with the widespread price increases already emerging, now is not the time for a large amount of additional government deficit spending. Thus, the market spent more of the week worrying about excessive spending and inflation than it did about strong Q2 earnings.

Other market fears came from the Covid Delta variant, which is spreading. Unfortunately, J&J’s vaccine was beset by a serious side effect. Although this affected significantly less than 1% of those who had taken the vaccine, it added to the hesitancy of many who had not been vaccinated. Low vaccination rates will enable the spread of the Delta variant. A second cloud over the market was taxes. Increased government spending, if enacted, will have to be paid for.  Higher income taxes, capital gains taxes, estate taxes, and corporate taxes are in most proposals. This would be in addition to the new US and European minimum tax on multi-national companies.

The continuation of strong Q2 earnings for the rest of July and into August could replace the concern of inflation and slower growth with the expectation that the economy and the market will power through these headwinds. During the week, unemployment filings were reported at the lowest level since mid-March in 2020. June retail sales increased and were 18% over June of 2020. The Fed is still forecasting over 6% GDP growth in 2021 and 4% in 2022. We think equity investors can stay fully invested for now. Conservative investors might look to our Intelligent Fixed Income strategy as a place to park cash balances, which earn nothing in CDs or money market funds.

Both the SP500 and the Nasdaq set records on Tuesday before closing lower Friday. For the week, the Nasdaq lost -1.87%. The SP 500 fell -0.97%. Monday SP 500 was +0.35, Tuesday -0.35%, Wednesday +0.12%, Thursday -0.33%, and Friday -0.75%.

Next week look for earnings from the airlines, Netflix, Chipotle, Verizon, Twitter, Texas Instruments, and Intel. Each will provide insight into their sector.

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 surprise this week was the decline in interest rates as reflected in the 10yr Treasury. The decline was attributed to several factors. Foreign buying of US Government securities was strong. US rates are higher than those in most parts of the developed world and provide better credit quality as well. The concern that growth might be lower that the high forecasts also weighed on interest rates. This argument was supported by the cuts in auto production due to chip shortages. Labor is tight and there are general parts shortages crimping production in many other industries. The Covid drag hit the headlines with the rapidly emerging Delta variant. Although most are vaccinated, the Delta variant could have a noticeable impact on growth and thus interest rates. Lower interest rates are favorable for our preferred fixed income strategy, Intelligent Fixed Income (IFI).

Not all the factors influencing interest rates were negative. Stimulus spending continues. Job openings rose to a record high. The percentage of those vaccinated is rising, although now slowly. Cash is flowing into the stock market from more confident investors. Companies are buying back stock. And, Q2 earning are on the way starting next week. Earnings are expected to be good to excellent. There is nothing better than robust earnings to reduce the fear of slower growth.

Our view is that the interest rate decline is temporary. Thus, we are taking some profits in fixed income securities. Inflation looks real to us, although some price pressure is transitory as the Fed suggests. Labor costs are higher. Lumber costs have declined but new and existing home prices have spiked higher. Oil is higher and OPEC did not agree to raise production. Natural gas is higher. Food costs and menu prices are higher. As CEOs explain last quarter during their coming earnings conference calls, they will comment on the current conditions. Many will cite rising costs. This is likely to turn the direction of interest rates upward.

Both the SP500 and the Nasdaq set records on Wednesday, fell hard on Thursday, and recovered on Friday. For the week, the Nasdaq rose +0.43%. The SP 500 was up +0.40%. Monday SP 500 was celebrating the Fourth, Tuesday -0.20%, Wednesday +0.34%, Thursday -0.86%, and Friday +1.13%.

Next Tuesday, the Consumer Price Index for June will be released and will gauge inflation. Also on Tuesday, Small Business Optimism will be released and reflect the strength of the recovery. Thursday China will report its Q2 GDP. Chinese stocks got hit last week as regulators put more restrictions on the tech sector. This story will continue to play out in Q3. The big news for the next three weeks will be earnings reports for Q2. Goldman Sachs, JP Morgan, Wells Fargo, Morgan Stanley, United Health, Delta, Coinbase (the digital currency exchange), and Charles Schwab will lead off. Expect a lot of upside surprises. We think the market can continue to move higher.

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.