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Weekly Market Update for February 18, 2022

by Jim Ulland

The year started with a sharp pullback. Fortunately, this pullback is not caused by weak credit conditions and business failures like 2008/2009. Nor is the economy caught with excess inventories and a resultant economic slowdown. Rather, the market is confronting with other issues: Ukraine v Russia conflict, inflation, rising interest rates, Covid disrupted supply chains, and a shortage of workers. Several of these issues should be resolved by mid-year. Russia either will or will not invade Ukraine. The impact of whatever Russia does should be over relatively soon except for fallout over the sanctions, which are likely to raise the price of oil. The rate of inflation should be reduced as the year goes on. The wait time for ships trying to unload on the West Coast is being reduced. Retailers are rebuilding inventories, filling empty shelves. And auto firms say the chip shortage is abating. Inflation is the issue that could persist the longest. Producer prices were up more than consumer prices during 2021.

Last week, interest rates, as reflected in the 10 Yr Treasury, were surprisingly flat. This week they were down. The 30 Yr government bonds still has very low rates signaling the possibility of an economic slowdown. A slowdown could make the Fed less eager to raise rates. Covid also is on the way to becoming managed, like the flu. Masks are coming off school children and more parents can return to work. Those who had been fearful of contracting Covid at work also are returning. More workers will reduce inflationary wage pressures and increase the supply of goods and services. Watch governors race to lift mask and vaccination card restrictions on public spaces. The public’s tolerance of restrictions on daily life is exhausted. One can see this exhaustion playing out in Canada.

The current situation calls for investor patience in our view. Tactically, we are adding some positions that will benefit from rising rates like Silicon Valley Bank, which has a high percentage of deposits that pay the depositor no interest. These deposits are worth a lot more when they can be reinvested at somewhat higher interest rates. We added a little more to the energy sector oil and gas, carbon credits, and pipelines. By late-summer, equities should recover much of the downturn. Fixed income started a snapback this week. The sector was so oversold, investors returned to preferred stock to lock in 5+% long-term income streams. We expect the fixed income recovery to continue next week.

Today, the market faced a three-day weekend. Some were selling to protect against a Russian invasion during this period. Next week, the market should try and recapture some of this week’s losses. For the week, the SP 500 was down -1.58% and the NASDAQ -1.76%. Monday the SP 500 was down -0.38%, Tuesday +1.58%, Wednesday +0.09%, Thursday -2.12%, and Friday -0.72%.

The majority of corporate Q4 earnings came to an end this week with good numbers from Walmart. Home Depot and Lowes will report next week. The market and our office will be closed Monday for the holiday. We all need a break from the stress of volatility.

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

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Ulland Investment Advisors

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