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Weekly Market Update for May 14, 2021

by Jim Ulland

This week was a “heat check” in the market. Some sectors were thought to be running too hot and would cool off before attracting more investment dollars. Technology was one of those sectors, so the sector pulled back five percent by mid-week. The interesting thing is that Big Tech is hardly overvalued. Google, Facebook, and Apple have price-to-earnings ratios from 26 to 28. On next year’s earnings, all are two to four points lower. The growth rate of revenues and earnings in Big Tech is from 20-40%, although Apple’s revenue growth is lower. By the end of this week, Big Tech was back in favor.

Inflation fears also spooked the market in the first half of week. Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) reported figures substantially above expectations. The biggest price increase were in used cars, gasoline, and airfares. The Fed implied that these increases were more of an adjustment to one0time events rather than the start of a spike. Used auto prices rose because the chip shortage reduced the production of new cars. Gasoline prices rose as new supply lagged demand. Airlines tickets rose, but only to the extent that the discounts to Covid travelers largely ended. It is hard to have a lot of inflation when ten million people are still unemployed. Those who find unemployment compensation too attractive to return to work will face the reality of bonus unemployment payments already ending in some states and in all states by September. Those working parents who have had had to homeschool will see in-person learning return no late than September. Workers afraid of Covid if returning to work will find most of their work colleagues vaccinated already or soon. This worker availability should blunt wage inflation.

Interest rates jumped at the start of the week, peaked on Wednesday, and fell to slightly above where the week started. This interest rate roller coaster provided opportunities for our fixed income strategy, Intelligent Fixed Income. The government could destabilize interest rates if spending is not restrained. Already the government has injected a trillion dollars more in transfer payments into the economy than were lost due to Covid.

The market will pause several times in 2021 since the return to normal will be uneven. However, the direction of the economy is clearly upward and robust. A gradual increase in interest rates is likely. Besides actions by our government, there are a lot of festering problems around the world that could disrupt the positive forecast. Being a boutique manager, we continue to respond to changing interest rate expectations.

The SP 500 fell 1.4% this week, not much off its all-time high. The Nasdaq did not recover all its weekly loss and closed down 2.3%. Monday the SP 500 was down -1.04%, Tuesday -0.87%, Wednesday -2.14%, Thursday +1.22%, and Friday +1.49%.

Earnings releases will conclude this coming week. If you are vaccinated, take off your mask and breathe a little fresh air. We made it.

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 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.


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