by JM Hanley

It was a sleepy summer week on Wall Street. Stocks moved upward steadily if slowly. Cyclicals, and to a lesser extent value stocks, were better than growth companies after weeks of underperformance. Treasury yields rose midweek but then retreated; preferreds moved inversely. The S&P 500 finished the week up 0.7%; the Nasdaq was nearly flat. Banks, Materials, and Industrials outperformed.

Wednesday’s release of inflation data was most anticipated. It came in lower than expected. Excluding food and energy, inflation slowed down compared to the prior month. One major factor was used car prices, which decelerated sharply after months of significant increases. The cost of rent also increased less than expected. Readouts from other sources suggests the number used for rent is improbably low, possibly because of data delays. And looking past cars and businesses reopening after the pandemic, inflation remains about as fast as it was last month, about half again higher than the pre-pandemic trend.  A subsequent release Thursday (PPI, a metric favored by the Fed) told a similar story.

These takeaways were juxtaposed with rising concerns about the Delta variant, which would put a damper on demand and thus slow inflation. After the report, bond yields initially increased. Then today, one survey showed consumer confidence falling dramatically, to its lowest level since 2011, due to concerns about a covid resurgence. Yields have since largely retreated to where they started the week.

Fed members also contributed to the unsettled state of affairs. In public remarks Monday, two members urged the rest of the Fed to slow its bond-purchasing program in September, earlier than the market is currently expecting. That would drive yields up. The next day, two other Fed members refuted that view. The rising prominence of changes to Fed policy seems to have made some fixed income investors nervous, resulting in volatile trading for bonds and preferreds.

Next week will also be quiet. Tuesday will bring retail sales data and Wednesday, a number of updates on the housing market. A number of major retailers will also report second-quarter earnings next week. Home Depot and Walmart will report on Tuesday, followed by Lowe’s and Target on Wednesday.

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

90% of the largest 500 corporations have reported earnings from Q2. What are the CEOs saying on their conference calls? First, they are very happy since over 86% of them beat the earnings that analysts had forecast. In aggregate, the earnings exceeded expectations by 17%. 87% of the companies also beat revenue expectations. Many of the CEOs mentioned pricing pressures on their input costs and labor as well as supply constraints. Yet, there were few who said that cost pressures or the Delta variant had slowed order or reservation patterns. Both the NASDAQ and the SP 500 set records during the week.

One thing the Delta variant has done is to urge more to become vaccinated. Perhaps the corporate leaders expect the higher levels of vaccination to blunt the impact of the new Covid variant. Most of those being hospitalized have not been vaccinated. Corporations are struggling to manage employees during the new Delta spike. Some are requiring vaccinations or weekly tests as an alternative. This month, Pfizer expects its vaccination to go from “emergency authorization” to “approved.” Some of the hesitancy in being vaccinated is from those who view the “emergency” status as suggesting that those being vaccinated are participating in the world’s largest drug trial. Official approval should reduce this concern.

Despite the Delta variant and parts shortages, a lot more jobs were created in July, almost a million. This reduced the unemployment rate from 5.9% to 5.4%. In addition, the number of workers on unemployment declined, as did new unemployment filings. More people working increases consumer purchases, another boost to growth. The narrative from the CEOs was that growth and higher earnings will continue for the rest of the year.

As a result of the strong economic news, interest rates rose, but this only recaptured some of the recent decline. Somewhat higher rates are welcome by banks who earn very little on excess deposits when rates are low. Our Intelligent Fixed Income strategy is up between 4-4.75% so far this year and was unfazed by today’s rise.  We recommend selling corporate bonds, government bonds, and CDs, all of which pay next to nothing. Stocks can support higher prices now that strong earnings are evident. China is one of the few areas where we are reducing exposure. The new government crackdown on the technology sector has made China much less appealing.

Both the SP 500 and the Nasdaq set more than one record by Friday. For the week, the Nasdaq gained +1.11%. The SP 500 rose +0.94%. Monday the SP 500 was down -0.18%, Tuesday +0.82%, Wednesday -0.46%, Thursday +0.60%, and Friday +0.17%.

Next week there will be the last few large corporate Q2 earnings reports as well as many reports from small companies. Some headlines will be driven by the infrastructure bill which is scheduled for a vote in the US Senate, Saturday 8/7. The biggest fight will be on the following bill called a human “infrastructure” bill which contains both a lot of inflationary-loaded spending and numerous tax raises. The southern border will continue to be in the news particularly since those entering the country illegally have not been vaccinated. More fuel for the political fire.

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

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.