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Weekly Market Update for January 19, 2024

by Jim Ulland

The Nasdaq closed the week with gains, again. This is the eleventh weekly gain in the last twelve weeks. It looks like the tech sector, which dominates the Nasdaq, is starting 2024 in the same fashion as 2023. For instance, so far this year Microsoft is up 6%, Meta (Facebook) 8%, Alphabet (Google) 5%, and Nvidia, the leading Artificial Intelligence (AI) chip stock, is up 20%. If you think that is impressive, look at Super Micro Computer. It was up 36% on Friday alone and 49% so far this year. Super Micro announced that its sales would be up about 71% this quarter from last quarter. The company makes a key piece of equipment for large data centers. Data centers around the world are expanding to meet the computing demand of AI. We are aggressively adding to this sector in our equity portfolios as cash permits.

Fixed income also has done particularly well to start the year, despite the recent modest increase in interest rates. One of the most widely held beliefs on Wall Street is that the Fed will cut interest rates during 2024 and continue to do so in 2025. Thus, investors are locking in the current high yields on fixed income. As the Fed reduces rates, the new rates on CDs will be lower than the rate at which they were purchased. The attractiveness of US Treasuries, CDs, and Money Market funds will diminish. One of the few securities that will hold the high current yield is preferred stock. Preferred stock is perpetual and does not come to maturity like a bond. Therefore, the high yields on preferreds are paid perpetually, avoiding the problem of bonds, CDs, Treasuries, and Money Market funds which will see their current attractive yields decline as these securities come to maturity and the funds must be reinvested. Money Market rates get reset daily in most funds.

To reduce interest rates, the Fed depends on a continuing drop in the rate of inflation. So far, this has been happening. One concern is trouble in the Red Sea trade route. 10% of world trade uses this route to go through the Suez Canal. It is the primary way goods flow between Europe, the Mideast, and Asia. 20% of all container ships and 10% of world oil are in danger of disruption. Numerous shipping companies have refused to take the risk of attack from Houthi rocket-shooting rebels in Yemen. Many ships must now sail around the Cape of Good Hope which has weather issues. Besides, the trip adds ten days for shipments to reach Europe. Shipping delays and higher shipping costs result in temporary shortages and invariably higher prices for the goods being shipped. To contain inflation, a quick resolution of this situation is needed. Unfortunately, the Houthis are disrupting shipping because they do not like Israel’s response after having been attacked by Hamas. None of this is easy to resolve, sadly. The disruption to shipping might get worse before it gets better.

For now, the market has shrugged off the Red Sea danger and moved higher. For the week, the S&P 500 was up 1.17% and the Nasdaq +2.26%. Monday was the MLK holiday. Tuesday the S&P 500 was down -0.37%, Wednesday -0.56%, Thursday +0.88%, and Friday +1.23%. The 10 Yr Treasury was up 18bps to 4.13%. Next week and the two following, the tone of the market will be set by a flurry of corporate Q4 earnings announcements.

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