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Weekly Market Update for December 20, 2019

by JM Hanley

The Dow is up today, up 121 points at 28,498. For the week, the Dow is up 1.3% (SP500 +1.7%) and year-to-date is now up 22.2% (SP500 +28.6%). The yield on the 10-year Treasury (an important interest-rate indicator) was rose ten basis points, closing at 1.92%. The price of crude oil was up 2% this week to $61 a barrel – up 36% YTD.

News from Congress was unexpectedly positive this week, as the House and Senate have proven unusually productive at year’s end. A revised version of NAFTA, the USMCA, – essentially designed to aid domestic auto manufacturing, and tighten some regulatory standards – passed the House today. Now it heads to the Senate. Healthcare stocks also rose earlier in the week after a spending bill repealed some taxes on health insurers and medical device manufacturers. And, in another boon to health insurers, a federal appeals court in Texas left most of the Affordable Care Act intact in a decision handed down Wednesday.

Economic data brought more good than bad. The final estimate of third quarter GDP was left unchanged, as higher consumption and building activity offset downward revisions to inventories. Manufacturing, a sector that’s borne most of the economic slowdown, also showed glimmers of growth. Industrial production bounced back last month, in part due to the end of a strike at General Motors. But business equipment – a category very sensitive to corporate America’s prognosis for the economy – also was stronger than expected. Renewed confidence in a trade deal with China could be trickling down.

Unfortunately, just as clouds hanging over the international trade regime seem to be lifting, the industrial economy must now contend with Boeing’s decision to totally halt production of its 737 Max model, which the FAA grounded last year after a software malfunction led to two crashes overseas. Up until now, Boeing has continued making the planes at a reduced rate and has simply put them into storage. Recertifying the planes is taking longer than expected, which makes that strategy no longer tenable. Goldman Sachs expects this decision will cost the economy 0.4% of GDP growth in the first quarter.

Existing home sales declined slightly last month, but “starts” on the construction of new housing rose and a survey of homebuilders hit a 20-year high. The discrepancy could be explained by a long-running conundrum: the country’s housing shortage increases the price of existing stock beyond the means of the average buyer, and turnover declines. But demand for new homes remains robust.

Our office will be lightly staffed next week, and will close Wednesday for Christmas. Barring unforeseen circumstances between now and the end of the year, we expect our fixed income strategy will show its highest total return in history.

*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 are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.