by JM Hanley

Equity markets ended another week “up and to the right.” This marks the SP500’s first four-week winning streak since late August. The major theme was falling interest rates. The yield on the 10 Year Treasury fell from 1.66% to 1.57%. Lower rates are particularly good for fixed income and growth-oriented stocks. As a result, growth stocks outperformed value, and our preferred strategy had a good week as well.

Why would interest rates go down as evidence of a “reopening” boom increases? Much of the reacceleration in economic growth was priced in earlier in the year, following good vaccine news. Furthermore, the initial Treasury auctions themselves have gone well of late. Japanese buyers who sat out winter auctions have begun buying again, and hedge funds who (successfully) sold Treasuries short earlier in the year have had to cover their position. This robust demand has kept prices up and yields under control. Additionally, news of adverse side effects from the Johnson and Johnson vaccine followed similar headlines regarding AstraZeneca’s last week. A slower rate of vaccination globally could put a damper on coordinated economic acceleration (and thus inflation).

The final factor suppressing rates is inflation itself. With interest rates low and stimulus checks landing in consumer bank accounts, investors have been closely watching inflation indicators. Data this week indicated that prices rose 1.65% last month, excluding food and energy. This was a little higher than expected, but not by much. The economy may have more time to run “hot” before the Fed is forced to raise rates.

Other economic data was positive, bolstering equity markets. Retail sales rose by much more than expected, aided by stimulus checks. So did two regional trackers of industrial production. Jobless claims fell. Consumer confidence rose, albeit less than anticipated. “Starts” on the construction of new housing have reached their highest level since 2006 as a commonly-watched survey of homebuilders climbed. The picture painted by the data is one of consumers flush with cash and ready to spend.

The stock market received a third tailwind from strong corporate earnings. Analysts now expect earnings for the SP 500 to grow 30% from last year, up from 25% at the beginning of the week. Many of the big banks reported this week. Most released reserves set aside to cover bad loans, originally for coronavirus losses that never materialized, which boosted earnings. Loan activity was weak, but should pick up this quarter with business reopenings and higher interest rates. Credit and debit card spending picked up at the end of the first quarter, along with other economic indicators.

Next week will bring earnings reports by airlines, consumer staples companies, and some regional banks. Updates from the former two could be a useful barometer of reopening as a whole.

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 JM Hanley

Stocks enjoyed a strong week after an excellent jobs report last Friday, when the market was closed. The economy added 916,000 jobs last month, almost 40% higher than expected. Previous months were revised higher as well. New jobs were added across a broad array of economic sectors. In fact, employment in sectors hit hardest by the virus – like restaurants and hotels – still appears to have plenty of “room to run.” That suggests further job growth as those sectors reopen. Of those unemployed, more reported their condition to be temporary rather than permanent, another positive sign.

Other economic data was mixed. Initial jobless claims came in higher than expected. Claims have continued to be a fly in the ointment of an otherwise recovering labor market. Data from state labor bureaus suggests this could be something of a mirage, as increased unemployment benefits have encouraged those who probably wouldn’t qualify to apply anyway. Elsewhere, PPI – which measures inflation for firms, a favorite metric of the Fed – came in higher than expected. Fed Chair Powell nonetheless stuck to his guns in a speech at the IMF, insisting the economy had far to go before the Fed would consider raising rates.

The rise in stocks masked notable dispersion. Growth stocks (like tech companies) did better than value stocks (like most industrial and energy companies) for the second week in a row. Growth has gained back some of the ground it ceded in February, when vaccines and the stimulus bill precipitated a rise in interest rates and a rotation into value.

What are the causes for the recent rebalancing? The growth-value rotation may simply have run its course. Beyond that, bad news about the AstraZeneca vaccine continues. These concerns have slowed Europe’s vaccination efforts, and could slow vaccinations in the rest of the world. A slower pace of reopening might weaken the coming economic boom and inflation. That could keep interest rates lower for longer, which would favor growth stocks.

Additionally, prospects for the Administration’s infrastructure proposal have dimmed somewhat. As proposed, it would have spent three trillion dollars over ten years on roads, broadband, public housing, climate change, and job training, partially funded by raising the corporate tax rate. This would amount to additional stimulus that contributed to near-term growth and inflation. Moderate Democrats have resisted the tax increases, suggesting the size of the package could shrink.

First-quarter earnings begin next week with the big banks. Markets anticipate 25% growth market-wide, the highest rate since the third quarter of 2018. Analysts will be tuned in to management commentary on cost increases and supply chain problems, and whether these costs can be passed along to consumers. They’ll also want to hear whether or not consumer preferences have shifted permanently as a result of the pandemic.

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 JM Hanley

Markets finished the week higher, but collectively remained somewhat directionless in this holiday-shortened week. Growth-oriented stocks, like technology firms, slightly outperformed value stocks like industrial companies. This came despite little change in interest rates – but, of course, it follows weeks of underperformance by the long-favored growth trade. The week opened with a conclusion to an episode from last week. A Japanese container ship had run aground in the Suez Canal, obstructing the 12% of global trade that flows through it. An Egyptian crew managed to refloat the ship by Monday morning, enabling traffic to resume by Monday evening with little lasting damage.

Its place was briefly taken by another incident involving the collapse of unregulated hedge fund Archegos Capital. Numerous large banks, including Nomura and Credit Suisse, had essentially lent the fund unexpectedly large sums (via instruments called swaps) to buy stocks then held by the banks. After the share price of one of the positions fell, Archegos found itself unable to service the debt, which prompted the banks to rush to sell the equity holdings. Markets and regulators had apparently been unaware of the extent of banks’ exposure to such arrangements. The sales, and the regulatory and liquidity concerns the incident raised, were a material headwind to the market early in the week.

Economic data was mixed. Consumer confidence increased considerably in March as public optimism about the vaccine rollout rises. One measure of manufacturing activity reached its highest level since 1983. With coronavirus an impediment to most travel and entertainment, a lot of discretionary spending has shifted from services to goods. Less positively, weekly jobless claims came in higher than expected. All eyes now turn to tomorrow’s March jobs report (although the market will be closed). With the Fed now more preoccupied with robust employment rather than containing inflation, payrolls have gained importance as a leading indicator of interest rates. Some economists expect a blockbuster number, citing an easing of business restrictions and bad weather. On the other hand, a March payrolls report from processor ADP was worse than expected.

Finally, late Thursday, OPEC decided to increase oil production for the next three months, as they anticipate demand will increase rapidly as the economy reopens. Such news is typically negative for the price of oil. This time, OPEC’s apparent optimism about demand this summer pushed prices up.

The race between vaccines and new coronavirus variants continues. As business restrictions continue to ease along with public behavior, cases ticked up 11% this week. However, the US vaccination rate has also gained steam, to 2.5m doses per day. The rest of the world is not doing as well, which could prove a damper on coordinated economic reacceleration.

Next week will be quiet, before first-quarter earnings reports begin the following week. Tomorrow’s jobs report could drive trading action early in the week. Next Friday will bring PPI, the Fed’s preferred measure of inflation.

Our office will be closed tomorrow in observance of Good Friday.

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 JM Hanley

Prior to this week, markets had spent much of the past month digesting four major new developments. Congress passed a stimulus bill that put plenty of cash in consumers’ pockets. The Administration also suggested its next priority will be an even larger spending package aimed at upgrading the nation’s infrastructure. In the US, the vaccine drive began to accelerate. That raised the possibility that activities currently limited – like entertainment and indoor dining – could return to normal more quickly than expected. After a year at home, consumer bank balances are healthy, and many are ready to spend. Finally, anticipating an economy flush with cash, the Federal Reserve said it was relaxed about the risk of inflation, and would remain patient about raising interest rates.

The country has not seen synchronized, expansionary fiscal and monetary policy of this magnitude in some time. Investors fretted that (despite what they might say) inflation would return and the Fed would have to raise rates. Bond yields climbed as a result. So did the stocks of banks, which benefit from higher interest rates. Airlines, industrial firms, and oil – all of which stand to benefit from reopening – outperformed. Major pandemic winners, including big technology firms, did worse.

This week, some of those trends normalized. Treasury yields came down slightly, as Chairman Powell and others insisted the risk of inflation was remote in testimony before Congress. The move in yields helped fixed income, including preferreds. The SP 500 finished finished the week up about a percent and a half, but the narrative for equities was less clearly defined. Utilities and real estate did well, aided in part by the stabilization in bond yields. Materials and industrials – beneficiaries of reopening as well as the President’s infrastructure push – also outperformed.

Energy also performed better than market as a whole. The price of oil fell early in the week, over concerns that Europe’s slow vaccination drive and renewed lockdowns could keep demand low. But then the sector got a boost from a freak accident. A quarter-mile long Japanese container ship was blown aground in the Suez Canal on Tuesday, which has blocked traffic through the waterway. The earliest the ship can be re-floated is by the middle of next week, with some estimates suggesting it could last much longer. The canal carries 12% of global trade, including plenty of oil tankers. Alternative shipping routes around the Horn of Africa are substantially longer and more expensive. Oil ended the week down less than a percent.

Economic data readouts from last month were poor, due in part to the extreme cold. Sales of new and existing homes were worse than expected. So were some metrics of consumer spending. On the other hand, initial jobless claims for this week were the lowest since the pandemic began, and consumer confidence appears to be rising.

Next Wednesday will bring the end of the first quarter, and hopefully the last one in which the economy bears the full brunt of the pandemic. Firms will begin reporting earnings by the middle of next month. In the meantime, next Friday’s jobs report is the highlight of the economic calendar.

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.