Receive Weekly Market Updates via Email

shadow

Weekly Update Archives

Weekly Market Update for August 26, 2022

by Jim Ulland

This week, the news was all about the Fed: How high will interest rate hikes be? How long will high rates continue? How deep a recession is expected? When will the Fed lower rates? What data does the Fed look at when making rate decisions? And, finally, what will Chairman Powell say in the economic conclave at Jackson Hole today?

Only one of the questions listed above is answered. Today, Powell said, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will bring some pain to households and businesses.” Of course, everyone knows this since there is plenty of economic pain being felt. The index of service providers hit its lowest level since May 2020. The manufacturing index was the lowest since July 2020. Both lows occurred during the depths of Covid. New home sales hit the lowest level since July 2016. Gas and food prices are high. Layoffs have been selective, but that will increase soon. All financial markets are down significantly. Yes, “We feel your pain.”

Another question partially answered was what data the Fed will consider when making the next rate-raising decision on September 21. Powell said he will look at the August new jobs report released on September 2. A very low figure would indicate that higher interest rates are slowing the economy. Also, he will look at the August CPI report released on September 13. The hope is that the inflation rate will be slightly lower than the previous month, implying a downward trend.

Powell said rates will remain high, “Until the job is done.” That probably means rates will stay high until someone in your neighborhood gets laid off. When layoffs have reached the headlines, and when inflation is trending down for several months, Powell may think his job is done. However, the economy may be sitting in the middle of a worldwide recession.

Even for Econ majors, talking about the Fed is a little boring. Yet, the Fed is the main influencer of market performance currently. Sometime before the Fed starts lowering interest rates, the markets will begin a recovery. That part of Powell’s pain will end. The recovery from a recession may be protracted.

For investors, the optimal strategy is to wait it out. Interest rates will go up some more, pause, and then come down. Stocks will start to recover when they sense the Fed has concluded its hiking but has yet to reduce rates. Our Intelligent Fixed Income strategy pays investors a 6% yield while they wait. In stocks, natural gas companies continue to outperform. For those who want to stay out of the market, we can put cash in 3.2% yielding six-month government notes. Let us know how we can help.

This week the S&P 500 was down -3.28% while the Nasdaq fell -3.05%. The 10-yr Treasury was higher by 5bp to 3.05%. Monday the S&P 500 was -2.14%, Tuesday -0.22%, Wednesday +0.29%, Thursday +1.41% and Friday -3.37%.

Next week is likely to be quiet as families rush off early for the Labor Day Weekend. Some news may come from the Iranian nuclear deal negotiations, the results of which Israel and others fear. The market-moving jobs report and unemployment rate will be released Friday. A series of other reports will give an economic snapshot. That said, don’t forget to enjoy these waning days of summer.

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 August 19, 2022

by Jim Ulland

The Fed says it will be “data-dependent” when making interest rate decisions. That sounds logical and to some extent, it is. The problem is that the available data always lags the current situation. It is a little bit like looking at August temperatures to decide what to wear in September. The market is worried that the Fed will raise interest rates even more sharply than it has because there has not been a big impact on inflation from rate increases instituted so far. Fed Chairman Powell also wants to show he means business and suggested he may do so by raising interest rates higher for longer than expected. We may see this stern tone next week as Powell speaks in Jackson Hole. This will be followed by the Fed meeting on September 21-22. The interest rate increase will be announced on 9/22. Expect either 0.5% or 0.75%.

The market is worried about the Fed. There has yet to be a meaningful deterioration in corporate earnings, but that is expected soon. Housing might be the leading edge of a slowdown in the economy. Housing starts are at their lowest point in 17 months. Manufacturing put up a red flag when the Empire (New York) manufacturing index dropped to the worst level since June of 2020. China reported very low growth as well, which is significant since China holds 20% of the world population. Non-US inflation data was also grim. In Germany, the Producer Price Index rose 37% when compared to a year ago. Inflation in the UK was not as high as in Germany, but was still higher than in the US.

Data on the jobs front has yet to crack. Unemployment filings were flat this week. Unfortunately, the tight labor market is showing up in wage inflation. Railroad workers, for instance, are seeking a 14% increase, and the contract for the workers in the Port of LA just expired. They will want a big number.

Stocks are not as cheap as they were in mid-June when the P/Es had fallen to 15. Now that ratio is back to 18, a more normal level for today’s interest rates. Investors will have to hold through a lot of turbulence while the market works its way to the other side of this slowdown/recession. The same is true for fixed-income investors. Fortunately, our Intelligent Fixed Income strategy locks in a 6% yield while we wait for a calmer environment.

The S&P 500 finished the week down -1.21% while the Nasdaq fell -2.62%. Because of the concern about the Fed, the 10-yr Treasury was higher by 12.6bp to 2.976%. Monday the S&P 500 was +0.40%, Tuesday +0.19%, Wednesday -0.72%, Thursday +0.23% and Friday -1.29%.

Next week, besides Chairman Powell’s potentially market-moving remarks in Jackson Hole, there will be some corporate earnings reports: Medtronic, St Jude, and Intuit among others. In the coming economic news, new home sales will be announced Tuesday, followed on Wednesday by mortgage applications, durable goods orders, and crude oil inventories. Expect more volatility.

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 August 12, 2022

by Jared Plotz

Markets advanced for a fourth consecutive week as inflation woes tempered. The S&P 500 rose +3.26% while the NASDAQ was up +3.08%. Some investors argue that a peak in inflation will lead to a pivot by the Fed toward less aggressive tightening, thereby opening the door to a return to equity market highs. Others argue the recent move is a “bear market bounce”, and that sticky (above-normal) inflation will continue to pressure the economy. Longer-term interest rates were largely unchanged with the 10-Yr Treasury at 2.85%, though Preferred securities did rise slightly.

Stocks began the week down. On Wednesday morning, July’s Consumer Price Index inflation reading was softer than expected. The headline number rolled lower to +8.5% y/y from June’s 9.1% pace, helped by lower gas prices. Core inflation (ex-food & energy) is running at +5.0%. On Thursday, the Producer Price Index reading sang the same tune and, together with the CPI, drove a mid-week rally. While company conference calls frequently noted inflationary pressures, a New York Fed survey showed a substantial decline in consumers’ inflation expectations, and the consumer sentiment index has now inflected upwards.

One of our long-time core equity holdings, Axon Enterprise (maker of tasers and police body cameras) reported on Tuesday evening. Revenues grew over 30% versus the comparable quarter last year, with noted traction in software and cameras. New orders grew over 40% and profits topped expectations. The company’s stock rose 13% on the news.

We will hear July’s retail sales and housing market data next week. With many retailers reeling from excess inventories requiring price discounting, more companies have begun cutting jobs or freezing hiring to combat margin pressure. We also have a couple of quarterly earnings laggards from the home improvement space, with Home Depot and Lowe’s set to report mid-week. Later in August will bring the Fed’s Jackson Hole Economic Symposium.

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 August 5, 2022

by Jim Ulland

The phrase of the week was “good news is bad news.” The economy added 528,000 nonfarm jobs in July. This normally would be good for the economy and those needing work. Unfortunately, the Fed is bound and determined to slow economic growth. The fact that jobs increased goes against their efforts. They argue that slowing the economy is the primary way to reduce inflation. The Fed’s tool to slow the economy is to raise interest rates. High interest rates do slow growth, but it takes a while. Slowing the economy too much may drive it into recession (if we are not there already). The Fed Governors say that controlling inflation is their sole focus today and they will let the economy suffer with higher rates. Thus, more jobs in July drove the stock market down when this number was released Friday. Making matters “worse”, the unemployment rate also went down slightly.

At the end of last week, the market suggested it had everything figured out and concluded July with the biggest monthly rise in stocks since 2020. Fixed income securities also had a great month. Now, the market is more uncertain. Before the market opens next Wednesday, the July CPI figure will be announced. With the sharp decline in the price of oil and gasoline and as mortgage rates dip back below 5%, inflation is expected to be down in July (the rate of inflation in June was the highest in forty years). The next Fed meeting is on September 20 & 21. Before then, we will have Wednesday’s CPI report, the CPI report for August, and the August Jobs Report. The Fed’s hope is that job growth and the CPI both will be down from July levels. This will put less pressure on them when deciding the level of interest rates.

Investors think that inflation is peaking. The flow of money into bond funds and fixed income strategies was the largest since last November. The reason for the inflow was higher yields. For instance, in our fixed income strategy, Intelligent Fixed Income, investors can lock in 6% tax-advantaged yields. The UN reported that world prices fell 9% in July, supporting the view that inflation has peaked

Stocks are cheap as well. The NASDAQ, which has a lot of tech stocks, is still down 13.6% this year. As soon as inflation starts to decline in a meaningful way, stocks are likely to rise more, feeling that the Fed will stop increasing interest rates. Our favorite special situation is natural gas. The Freeport LNG (Liquified Natural Gas) plant, which exported 17% of the US total, was knocked offline because of a June fire. The plant is expected to be back online in October, sooner than expected. Natural gas prices in the EU are six times higher than in the US. The restoration of Freeport’s exports will raise US gas prices, benefitting natural gas exploration and production companies. We feel natural gas will be in a multi-year supply-demand imbalance.

The S&P 500 finished the week up +0.36% while the Nasdaq rose +2.15%. Because of the strong Jobs Report, the 10-yr Treasury was sharply higher on Friday to 2.84%. Monday the S&P 500 was -0.28%, Tuesday -0.67%, Wednesday +1.56%, Thursday -0.08%, and Friday -0.16%.

Next week, besides the Wednesday market-moving CPI report, we have the last corporate Q2 reports. 80% of the S&P 500 companies have reported.

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