Weekly Market Update for September 22, 2023
by Jim Ulland
The United Auto Workers (UAW) turned down a wage increase of 5% a year over four years and countered with 7%. Unemployment filings were lower than expected, reinforcing the tightness of the labor market. Gasoline was up again, as were estimates of GDP growth in Q3. Home insurance premiums increased, reflecting a lot of storm damage. Finally, the government debt continued to grow, and financing it at higher interest rates added to the debt obligation. It is little wonder that inflation still plagues us.
It was in this atmosphere of “inflation isn’t dead yet” that the Fed met on Tuesday and Wednesday. They decided not to raise interest rates at this meeting, but signaled they may raise rates one more time in 2023 in their efforts to slow the economy and inflation. They also reduced the number of rate cuts they expected to make in 2024 from four to two. In response, the S&P 500 declined 2.5% on Wednesday through Thursday before closing with more moderate losses on Friday. The NASDAQ was down 3.3% from Wednesday through Thursday. The market was hoping for better inflation news and for more rate declines next year. Now the rate reduction picture is less clear. The Fed will announce its next rate decision on November 1. We think from now until the end of the year will be an opportune time to lock in the high yields on preferred stock and, for the more conservative, US Treasuries.
Other trends might help tame inflation. Some spending will come out of the economy when student loan payments resume on October 1. Housing starts were weaker than expected. The federal government may have to shut down some services starting next week if Congress has not passed the budget. Lastly, the excess savings built up by households during Covid have largely been spent, thus reducing this temporary economic boost.
The market is suggesting that we will see a lot of volatility between now and the end of the year as each piece of economic data is scrutinized for its inflationary impact. Political news will stimulate more volatility as we approach the Presidential and Congressional elections. Volatility creates mispricing of securities. Mispricing creates opportunity. As a boutique, we can move quickly to take advantage of favorable relative value situations.
For the week, the S&P 500 was down -2.93% and the NASDAQ -3.62%. On Monday the S&P 500 closed at +0.07%, Tuesday -0.22%, Wednesday -0.94%, Thursday -1.64%, and Friday -0.23%. The yield on the 6-month Treasury closed at 5.54%. The 10-year Treasury was up 10bps to 4.43%.
Next week, expect the UAW strike to broaden to more plants. On a much smaller scale, we may see a settlement in the Hollywood writers’ strike. Nike and Costco report earnings. The flood of Q3 earnings reports will start in mid-October.
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 September 15, 2023
by Jim Ulland
The United Auto Workers (UAW) went on strike this week. Their last wage proposal was for a 36% increase over slightly more than four years. The Big Three auto firms are offering around a 20% increase. The strike could go on for weeks. Another test for consumer spending will be the resumption of student loan payments, which are set to resume in October. The price of gasoline, which economists view as similar in impact to a tax, went up 10.5% in August and more since. All these factors reduce consumer spending, which makes up over 60% of the economy. The Fed may finally get the slowdown it seeks to dampen inflation.
The negative consumer news seemed all the market needed to have a bad Friday, although our fixed income strategy was up modestly. It has a yield above 7% and plenty of appreciation potential, thus the attraction. For the week, the S&P 500 managed to just about break even, down only -0.16%. The NASDAQ was also negative at -0.39%. Interest rates, as reflected in the yield on 10-Yr Treasuries, increased by 7 bps to 4.33%, putting an additional headwind in front of the economy. Both 3M and Harley Davidson said they already were seeing weak growth.
The favorable multi-month decline in prices stalled out in August. The CPI was reported on Wednesday and showed an annualized rise in prices of 3.7% vs. 3.2% in July. If you take out the volatile food and energy prices, the downward trend continued. Unfortunately, energy prices might keep on rising. Both Russia and the Saudis extended their coordinated production cut until 12/31/23. At the same time, China, which has the largest share of demand growth, announced further measures to stimulate its economy. The potential additional demand from China comes during a period of low inventories in the US, thus price pressure.
Next week, the major news will be from the Fed. The press conference, announcing any interest rate change, will be on the second day of their two-day meeting, 9/20. No change is expected. The Fed has signaled it will pause rate increases for now to see if the economy and inflation slow.
During this week, the S&P 500 was up +0.67% on Monday, Tuesday -0.57%, Wednesday +0.12%, Thursday +0.84%, and Friday -1.22%. The yield on the 6-month Treasury closed unchanged at 5.52%.
Next week will be dominated by the Fed. Other market-moving news could come from an auto strike settlement, which is not expected.
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 September 8, 2023
by Jim Ulland
If you are trying to figure out why the market was down this week, look no further than the United Auto Workers (UAW) contract demand. The UAW wants a 40% wage increase over four years plus the restoration of some benefits negotiated away in previous contracts. A strike is likely on September 15 at one or more of the Big Three. Tesla is non-union and already has a cost advantage in the EV market. The Fed is worried about wage inflation as it tries to bring prices down by raising interest rates. The market fears that substantially higher wages will propel inflation upward and force the Fed to slow the economy more.
Wages were not the only issue depressing the market. Oil is up about 10% in the last two weeks, which has caused the airlines to flag this cost as a potential trigger for higher airfares. Higher oil prices, if maintained, will work their way into the economy through shipping and commuting costs. Insurance premiums are set to go up after above-average storm damage this season. Unemployment filings were below expectations, suggesting a continuing tight labor market, although Walmart did lower starting wages for some future workers.
Apple dragged down the tech sector as China banned the use of iPhones by government employees. This is a negative for Apple and there is fear that the ban will be expanded more broadly.
Next week, a significant release of inflation data will occur. The August CPI will be released on Wednesday, followed by the wholesale/input price index (PPI) on Thursday. Retail sales for August will also be released on Thursday. The market is likely to be very reactive to these reports. Lower inflation, as reflected in the two price indices, could give the market a healthy boost.
Although US Treasury yields went up this week, our preferred stock strategy (IFI) held its own. Market stability has been helpful. Reaching a peak in interest rates benefits all fixed income. This strategy has a current yield close to 7%.
During this holiday-shortened week, the S&P 500 was down -1.29%. The Nasdaq was down -1.93%. On Tuesday the S&P 500 was -0.42%, Wednesday -0.70%, Thursday -0.32%, and Friday +0.14%. The 10-Yr Treasury was up +8 bps to 4.26%, whereas the 6-month Treasury closed the week at 5.52%.
Next week will be dominated by the economic data releases noted above. Don’t let this distract you from trying to eke out the last bit 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 September 1, 2023
by Jim Ulland
Big Tech continues to be the main driver of the market’s upward movement. Here is the performance of some of those “Big Dogs” so far this year: Apple up 45%, Amazon up 63%, Google up 54%, Meta up 146%, Microsoft up 37%, Nvidia up a remarkable 233%, and the QQQ, an index of the largest 100 growth stocks (mostly Tech), up 42%.
Besides Tech, the market continues to be influenced by the thinking that bad news is good. This view suggests that if the economy slows, the Fed will not need to raise interest rates again. The week’s economic data supported this view. Today, the Jobs Report for August showed an increase in the unemployment rate from 3.5% to 3.8%. Job growth has slowed to below 200,000 new jobs per month for the third month in a row. Slower job growth takes pressure off wage increases, a key inflation component.
Manufacturing also continued to contract for the ninth straight month. Both new orders and average hourly earnings were down. There is weakness in China’s economy too, which will reduce demand for US goods and lower pressure on prices.
Our fixed income strategies, led by Intelligent Fixed Income (IFI), are benefiting from the market’s assessment that the Fed has ended its series of interest rate increases. We think now is the time to lock in today’s favorable rates which range from 6-8%. These rates can be locked in on an almost permanent basis since preferred stock does not have a maturity like bonds. The only way the high income from preferreds would stop would be for the issuing company to redeem the shares at par or for the issuer to fail. We recommend IFI to generate higher income when CDs, Treasuries, and bonds come to maturity.
During this final week of August, the S&P 500 was up +2.50%. The Nasdaq was up 3.25%. On Monday the S&P 500 was up by +0.63%, Tuesday +1.45%, Wednesday +0.38%, Thursday -0.16%, and Friday +0.18%. The 10-yr Treasury was down -6 bps to 4.18%, whereas the 6-month Treasury closed the week at 5.50%.
Next week is shortened by the Labor Day holiday on Monday. We will be closed. The coming week looks relatively quiet as families adjust from a summer schedule to one focused on school. That said, surprises are a way of life today. As a boutique firm, we can respond quickly to changing conditions. Yet, we would just as soon have a couple of weeks of calm and let the leaves change color in peace.
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