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Weekly Market Update for February 2, 2024

by Jim Ulland

“Coming in hot” is a military phrase which means coming in with guns blazing. Coming in hot was a perfect characterization for the market this week. The “big guns” of the market were blazing as their Q4 earnings were released. Meta (Facebook) earnings were 203% above last year. Amazon’s earnings were 3,000% better. Alphabet (Google) had earnings 56% above last year. Super Micro Computer’s earnings were 72% better. The stocks of these companies responded remarkably well. For the week, Meta was up 21%! Amazon was up 7%. Super Micro was up 22%. Alphabet was down 7% but up 41% last year.

The growth in large tech companies is fueled by several factors. At Meta, 20% of the staff has been laid off. They had too many remote workers who were not needed. Meta, Amazon, and Alphabet saw solid advertising growth coupled with a demand for more data processing provided by their huge data centers. The data center expansion to service the AI phenomena boosted orders for Super Micro. Its stock was up 22% for the week.

We are increasing portfolio exposure to AI. Our largest position and favorite AI stock is Nvidia. They won’t release earnings until February 21, however, that stock went up 8% for the week in sympathy with its AI compatriots. Nvidia is up 33% so far this year. As we increase AI exposure, we are reducing our natural gas positions, which were depressed by the warm winter. Also, one of our favorite fixed income issuers, NuStar, announced it was being acquired. Some of these funds will go into AI stocks.

The Fed met Wednesday and did not change interest rates. Chairman Powell implied that the first rate cut will be in late spring or early summer. This stance was reinforced with a strong new jobs report from January. In January, 353,000 net jobs were created and the jobs numbers from November and December were revised higher. Job openings were also higher than forecast. Hourly wages were up more than expected, an important component of inflation.

Geopolitically, Iran was “talking nice,” saying it did not want a war with the US. Their funding of rebel groups closing much of the Suez Canal traffic and attacks on US bases sent conflicting messages. The Israel/Hamas war too was more restrained with talks of a hostage release.

Interest rates, as represented by the 10-Year Treasury, closed lower for the week although they did bounce higher on Friday with the strong jobs report. The 10-Year Treasury ended at 4.02%, down 12 bps. We expect Treasury yields to drift lower as we near Fed rate cuts. Our preferred stock fixed income strategies had a great month in January and we see this positive tone lasting for the next two years as rates gradually come down.

Monday the S&P 500 was up +0.76%. Tuesday -0.06%, Wednesday -1.61%, Thursday +1.25%, and Friday +1.07%. The 6-month Treasury closed at 5.26%. Next week we and the markets will focus on more Q4 earnings reports.

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