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Weekly Market Update for January 20, 2023

by Jared Plotz, Director of Research

Last week we posited that “going forward, market moves may be driven as much by recession risks as by inflation and interest rates.” This week’s market reflected that logic. Despite the 10-yr Treasury yield inching down two basis points to 3.48% and the Producer Price Index (PPI, +6.2% y/y) slowing more than expected, economic data suggested a “hard landing.” Manufacturing activity, industrial production, and retail sales all showed steeper declines than forecast.

Adding to these negative data points were continued remarks by the Fed that more interest rate increases were coming. St. Louis’ Bullard and Cleveland’s Mester echoed the notion even after the favorable PPI data release. Corporate earnings releases and guidance were also disappointing. This suggests that the 9% slide in 2023 corporate earnings estimates (from peak) may have further to go. The end result was a skid in the S&P 500 by -0.66% and the Dow by -2.70% this week, while the NASDAQ rallied on Friday to finish up +0.55%.

All was not bad, however. What proved to be negative for equity markets couldn’t hold back the rebound happening in our Preferred strategies. Intelligent Fixed Income (IFI) now pays about 7%. By the end of this year’s third week, prices of securities in this strategy were up over 10%. We expect this rally to continue as we near the end of Fed rate hikes, possibly this spring. Locking in the current yield with appreciation potential is an unusually good opportunity in our view.

We’ve also felt a very strong client response to our new US Treasury strategy (IFI-GOV) for those with idle cash. Many clients are taking advantage of the ~4% yield in these short-term (3yrs or less) government securities today. When compared to CDs, investors get better yields and a more favorable tax treatment in Treasuries.

On the company quarterly earnings front, Morgan Stanley and many regional banks showed good results; however, Goldman posted a broad-based miss, and their new segment reporting revealed an unprofitable consumer business. Microsoft, ahead of its report next week, announced cuts to 10,000 jobs, or 5% of its global workforce. Likewise, Google said they were laying off 12,000 people, or 6% of its global workforce, amidst the slowdown in digital advertising. These follow cuts by Facebook and Amazon, among others, in recent months.

Next week will bring business results from some Tech companies (Microsoft, Tesla, IBM), Big Corporates (GE, Boeing, Comcast) and the credit card companies (Visa, Mastercard, American Express). The latter will give a good look into consumer spending and credit trends.

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