Weekly Market Update for August 11, 2023

by Jim Ulland

Q2 earnings season is coming to an end, and results were better than expected. One of our favorite companies, AXON, which makes police body cameras and squad car cameras as well as the less-lethal Taser weapon, had “blowout” revenues and profits. This triggered a 14% rise in the stock price the next day. Most companies seem to have managed around higher interest rates. One factor helping the economy stay positive has been consumer spending. It held up better than expected. A portion of the spending wound up on credit cards, which is not ideal since credit card debt topped $1 trillion for the first time in history. Credit card interest rates are high and painful, so this source of spending is hard to sustain.

Inflation continues to trend down as evidenced by the CPI report on 8/10/23. July prices were up from June by only 0.2%, (as expected). This represents a 3.2% increase over the last twelve months. Airline fares dropped 8.1%. Used car prices fell 1.6% for the month and 11.6% since last year. There is a price war among Electric Vehicle (EV) manufacturers, which is having a favorable price impact.

The inflation fight is not over, however. Several Fed Governors said during the week that they feel the Fed can pause its interest rate increases to see the impact from higher rates.

Under the current set of circumstances, we feel investors should redeploy cash in one or more ways. US Treasuries still pay over 5% and we have a strategy to capture that. Preferred stock pays a dividend from 6.5%-8% with the potential for appreciation. Although the prices of these securities fluctuate, the dividends are highly predictable and drive meaningful income. We capture this income in our IFI strategy. Finally, stocks have had a solid recovery, but more is expected. We favor large companies over small companies since large companies have more products, sell in more geographies, and have better access to credit, which generally means lower risk.

Important problems persist. Crude oil prices and gasoline are up, fueling inflation but boosting energy stocks. Mortgages are near 7%, which continues to restrain housing. There is the war, rising government debt, souring relations with China, and the possible return of Covid. We try to stay flexible, positive, creative, and analytical during these complicated times.

During this quiet summer week, the S&P 500 was down -0.31% and the Nasdaq -1.90%. Monday the S&P 500 was +0.90%. Tuesday -0.42%, Wednesday -0.70%, Thursday +0.03%, and Friday -0.11%. The 10-Yr Treasury was up +10 bps to 4.16%, whereas the 6-month Treasury closed the week at 5.48%.

Next week, look for earnings from Target, Walmart, and Home Depot. Lowes will be in the following week.

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.

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