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Weekly Market Update for February 9, 2024

by Jim Ulland

A week ago, I reported that the AI sector was erupting like that volcano in Iceland. This week, the lava continued to pour out. Last week Meta was up 21%, Nvidia 8%. Amazon was up 7%. Super Micro was up 22%. Alphabet was down 7%. This week Meta took a breather from last week’s spike up and lost 1.5%. However, other AI related stocks took up Meta’s slack: Nvidia +9%, Amazon +1.5%, Supermicro + 27.7%, and Alphabet +4.7%. Almost any company that was part of the AI phenomena moved higher. Many think, as we do, that AI is a multi-year trend. Even though these stocks seem potentially over-valued, the torrid growth rate of AI should support today’s valuations. We continue to add firms in the AI sector to our portfolios.

Large tech companies are growing rapidly and appear unaffected by the current high interest rates. However, many have announced layoffs to generate additional funds for new investments in AI products and services. The trend in interest rates over the next two years is forecast to be down, which should help mid-sized and small companies. Fed Chair Powell spoke this week and implied that there will be no rate cut in March. We feel the first rate cut will be this spring. The market is adopting this view and anticipating cuts later this year and next. Lower interest rates have propelled fixed income securities prices higher so far this year. Investors are moving to lock in the current attractive rates on a semi-permanent basis. Our Intelligent Fixed Income strategy (IFI) uses preferred stock, since these securities do not come to a maturity like bonds, thus allowing attractive rates to be locked in. Bonds have what is termed “reinvestment risk” meaning at maturity, replacement bonds that are purchased are likely to have a lower interest rate.

Inflation continues to be a concern. Good news on that front came from revisions to the December inflation report. The December inflation rate was revised lower, from +0.3% to +0.2%. January’s CPI report comes out next Tuesday and potentially will be market-moving. On the negative side for inflation was the increased disruption of shipping through the Suez Canal. Most shippers are taking the ten-day longer route around the Cape of Good Hope. The added shipping costs and delayed deliveries will work their way into higher prices.

Geopolitically, not much has changed this week, but the potential for a broadening of conflict remains. The sides in the major conflicts remain far apart. One note of interest is that Mexico has now surpassed China as the top source of imports for the US.

Corporate earnings continued with more than 65% of corporations reporting. Earning growth for 2024 is forecast to be 11%. The much-anticipated recession has yet to appear.

For the week, the S&P 500 was up 1.37% and the Nasdaq +2.31%. Monday the S&P 500 was up -0.32%. Tuesday +0.23%, Wednesday +0.82%, Thursday +0.06%, and Friday +1.07%. The 6-month Treasury closed at 5.29%, slightly higher. The 10-Year Treasury was up 15bps to 4.17%. Next week the market focus will be on Tuesday CPI release. It is important for the downward trend in prices to continue.

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