Receive Weekly Market Updates via Email

shadow

Weekly Market Update for May 27, 2022

by Jim Ulland

After eight straight weeks of market decline and headlines heralding a possible recession, why did the market go up sharply this week? Data supporting forecasts of a significant slowdown in the economy were prevalent. For instance, high mortgage rates have slowed home construction and home sales dramatically. However, the belief is that the Fed will raise interest rates less aggressively than they have indicated if the economy is slowing. As this view became more widely held during the week, interest rates did go down. The 10-yr Treasury started the week at 2.79% and ended it at 2.74%. As we expected (and hoped), our fixed income strategy, IFI, exploded higher. Our equity strategies performed equally well.

Inflation is another factor that showed signs of peaking. The Fed’s major goal is to control inflation using the tool of increasing interest rates to slow the economy. The Fed’s favorite inflation indicator, the core personal consumption expenditure price index (PCE), dropped from 5.2% (year over year) in March to 4.9% in April. This rate is still very high, but directionally favorable and possibly a peak.

Other signs that inflation may have peaked include home sale prices which are being reduced more quickly than normal from their initial listing price. April new home sales dropped 17% from twelve months ago. Target, Best Buy, and Walmart are sitting with higher inventories than planned. Naturally, this provides some relief to supply chain pressures. Netflix, Twitter, Meta (Facebook), Amazon, Uber, Salesforce, Peloton, and Carvana announced hiring freezes. Amazon also said that it was building too many distribution centers and had leased some of them out to others. Hiring freezes take pressure off wage increases. Higher wages have been a significant driver of inflation.

China is the largest country by population and is the second largest economy after the U.S. What happens there has a significant impact on our economy. Their current lockdown for Covid has disrupted world supply chains just as they were improving. Shanghai officials have promised to end its lockdown next week. Schools, which have been closed for three months, are set to reopen.

Other geopolitical news was mixed. Ukraine President Zelenskyy said he wanted to recapture all the land taken by Russia this year as well as the Crimean Peninsula, which was lost eight years ago. Ukraine trying to recapture Crimea could draw the U.S. into war with Russia. Former Secretary of State Henry Kissinger suggested that Ukraine settle for the borders as they existed before the Russian invasion and begin peace talks. Peace would be an important factor in reducing inflation in agricultural commodities and energy, not to mention reducing the human cost of war.

For the week, the SP 500 was up +6.58% and the NASDAQ +6.84%. Monday the SP 500 was up +1.86%, Tuesday -0.81%, Wednesday +0.95%, Thursday +1.99%, and Friday +2.47%.

Next week, the big news will be Friday when the new jobs number and unemployment rate for May are reported. The new jobs number will be an indicator of how fast the economy is slowing. Because of the large number of unfilled jobs, the hiring freezes may not show in the new jobs number until this summer. The Case-Shiller Home Price Index comes out on Tuesday and is likely to confirm weakness in that sector. Consumer Confidence also is set to be released on Tuesday, likely to show a further drop. As you would expect, our office will be closed for Memorial Day, enjoy.

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

shadow
 

Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464