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Weekly Market Update for August 7, 2020

by Jim Ulland

This week was spent waiting for Congress to agree on the next recovery package, which they were unable to do, and for the Friday report on new jobs created in July. Even with the spike of Covid-19, employment increased. The additional 1.8 million people working was ahead of expectations and dropped the unemployment rate from 11.1% to 10.2%. Weekly unemployment filings were the lowest since March, suggesting more good news for August jobs.

Other encouraging reports came from Covid-19 hospitalizations. Hospitalizations are one of the best indicators of the severity of the problem. The highly reported spike in hospitalizations has turned down except in CA and NV and several Southeastern states. Positive news on the virus was not soon enough for many large public school systems, which decided on a lot of remote teaching. Addressing the virus more fully depends on the approval of a vaccine. Data on the vaccine trials is not expected until late fall.

Corporate earnings continued to be reported for Q2 and a high percentage were above expectations.  Company revenues were down, but by less than expected, except in the digital economy stocks and some in healthcare, which showed strong gains. The ongoing dispute with China depressed the stock prices of two of our favorite Chinese stocks: Alibaba and Tencent. Ironically, Facebook was helped by the bad blood when it announced a competitive product to the very popular Chinese app TikTok, which is in a forced sale to Microsoft.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, made some headlines as it produced the top performance vs. publicly traded preferred stock strategies per Morningstar Direct. IFI was #1 for three-year, two-year, one-year, and YTD performance among mutual funds and ETF peers. (See the disclaimer and graph below). IFI was up 4.7% (Gross) YTD through July, remarkable during this difficult market. Preferred stocks continued to have strong performance in August as investors became increasingly comfortable with big banks, who are the primary issuers. Preferreds pay almost ten times more than 10 Yr. Treasuries.

Tech stocks faltered on Friday but ended the week +2.47%. The SP 500 was up +2.45%. Monday was +0.72%, Tuesday +0.36%, Wednesday +0.64%, Thursday +0.64%, Friday +0.06%. The 10 Year Treasury yield fluctuated between 0.6% and 0.5%. Apple, Facebook, and the NASQAQ made new highs.

Next week expect earnings reports from the stragglers. Market-moving economic news will come on Friday with reports on July retail sales, productivity, unit labor costs, industrial production, and consumer sentiment.  GDP forecasts also will start coming out. JP Morgan estimates a huge 20% annualized GDP growth in Q3. Finally, on Tuesday, Minnesota will get to test its system for voting by mail in preparation for a bigger challenge on Election Day in November.

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. Clients or prospective clients 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 clients/prospective clients 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 strategies 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.