Weekly Update Archives

by Jim Ulland

This week the market mover was an obscure index called the Personal Consumption Expenditure Price Index (PCE). The PCE is a little different from the Consumer Price Index (CPI). The Fed likes the PCE better than the CPI as an indicator of price movements, and that is the only thing the market is thinking about. Higher prices mean more inflation, which implies that the Fed will raise interest rates higher than currently expected.

Friday, the PCE was released, and the DOW dropped 500 points. The recovery in stocks and fixed income has been based on the belief that inflation is trending down. The PCE fractured that narrative, at least temporarily. The next Fed meeting is on March 20th and a 0.25% rate increase is expected.

The 10-Yr Treasury went up 12 bps to 3.94% this week and the 6-month and 12-month Treasuries are paying over 5%. We have been adding Treasuries to portfolios that have cash. This is not a bad place to wait out the storm. For those who can withstand a little more volatility, our Intelligent Fixed Income strategy is locking in yields of 6.5-7%. When the Fed stops raising rates, these securities could surge higher, as they did in January.

Although higher rates give investors the opportunity to lock in attractive fixed income yields, they really are trouble for housing. Existing home sales fell to a 12-year low. More negative economic impacts are expected from higher rates. The February Jobs Report is set to be released on March 10th. This will be another indicator of the impact of high rates. So far, it looks like high rates are causing layoffs of well-paying jobs in sectors like technology, while not affecting areas starved for employees like bars, restaurants, and lodging. The extent of the pending damage from higher rates is unknown. This makes the market’s nervousness.

This week, the S&P 500 was down -2.67% and the NASDAQ -3.33%. Monday the market was closed. Tuesday the S&P 500 was -2.00%, Wednesday -0.16%, Thursday +0.53%, and Friday -1.07%.

Next week, the news will continue its fixation on inflation with plenty of data being released. China’s peace call for the Russian/Ukrainian war will also be in the headlines.

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 recovery in stocks and fixed income is based on the belief that inflation is trending down and that the Fed will stop raising rates if the trend continues. This week, the narrative of a continuous decline in inflation was brought into question. The January CPI report on Tuesday barely continued inflation’s downward trend. The year-over-year increase in prices was 6.4% in January vs. 6.5% in December. That slight downward drift was near what the market had expected, and the market responded positively.

The doubts about a continued decline in inflation surfaced Thursday with the release of the Producer Price Index (PPI). Producer prices can be thought of as wholesale prices, whereas the CPI is like retail prices. So, if wholesale prices go up faster than retail prices, economists would expect retail prices to follow them up in the future. In other words, wholesale prices drive up retail prices. If inflation reverses its trend and goes higher, the Fed is less inclined to stop raising interest rates. That fear is what brought the market down Thursday and Friday.

One more piece of negative news solidified the market performance for the week. Two weeks ago, the January Jobs Report said a lot more jobs were filled in January than expected. Each Thursday the unemployment claims filings are announced. This Thursday, claims were very low – below 200,000. That sounds like a lot, but historically claims have not been consistently below 200,000 since 1969. Concerns on wage inflation persist.

We continue to believe that the defensive posture for this market is to reallocate some funds invested in stocks and reallocation that cash to fixed income and US Treasuries. The 6 month and 1yr Treasuries pay about 5%, and we have a new strategy to capture this unusually high yield, Intelligent Fixed Income-Gov (IFI-GOV). If you would like to make a modest reallocation or put idle cash to work in Treasuries at these attractive rates, please contact us.

For the week, the S&P 500 was down -0.23% and the NASDAQ was up +0.59%. Monday the S&P 500 was up +1.14%, Tuesday -0.03%, Wednesday +0.28%, Thursday -1.38%, and Friday -0.29%. Market interest rates, as represented by the 10-yr Treasury, increased from 3.74% to 3.82% triggered by renewed inflation fears.

Next week, Monday is Presidents’ Day. We will be closed. From Tuesday on, all eyes will search news for clues on inflation. The final Q4 corporate earnings reports will be released.

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 jobs report for January, released last Friday, brought a temporary end to the sharp market recovery. The Fed wants very slow job growth at best, rather than the robust growth of January. Higher job growth often means higher wages, which tend to drive up inflation – the Fed’s mortal enemy. Thus, this week’s market worried that the high job growth would make the Fed less inclined to stop raising interest rates. We’ll see.

Next Tuesday morning, the Consumer Price Index (CPI) for January will be released. The market hopes for a continuation of inflation’s downward trend. The market should respond very favorably if the trend continues.

This week, 95 of the S&P 500 companies reported Q4 earnings. Earnings were better than expected but the forecasts for 2023 were worse, largely because of the impact of higher interest rates. The market is nervous about earnings since lower earnings often lead to depressed stock prices.

Closer to home, the January performance for our Intelligent fixed Income strategy was remarkable. The month’s average portfolio return was over 16%, a record. The national performance ranking will come out soon and we expect to be near the top. Equity portfolio returns also were excellent, although more modest than those of our fixed income strategies. We feel equity returns will continue to lag fixed income until the Fed starts reducing interest rates, possibly near the end of the year.

For the week, the S&P 500 was down -1.11% and the NASDAQ was down -2.41%. Monday the S&P 500 was down -0.61, Tuesday +1.29%, Wednesday -1.11%, Thursday -0.88%, and Friday +0.22%. Market interest rates, as represented by the 10-yr Treasury, increased almost a quarter of a percent (21 bps) from 3.53% to 3.74% triggered by the robust jobs report. This was a headwind to fixed income security prices.

Next week, all eyes will be on Tuesday morning’s CPI report, which will set the tone for the week. More corporate Q4 earnings are also on tap. But, until then, enjoy your Super Bowl party!

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