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Weekly Market Update for July 22, 2022

by Jim Ulland

The market is searching for a direction and “Up” might be it. The primary reason is that inflation is likely to have peaked in June. Evidence of this is the meaningful decline in crude oil and gasoline. Other commodity prices are down as well. Russia and Ukraine came to an agreement that allows Ukrainian-stored grain to be shipped. This will take some pressure off grain prices since both countries are very large producers. Russia also resumed some natural gas deliveries.

If inflation has peaked, the Fed will not have to be as aggressive in raising interest rates. We still expect a 0.75% raise on Wednesday (7/28) and two or three smaller raises before year end. By 2023, the Fed may be lowering rates to stimulate the economy. Although our fixed income strategy, Intelligent Fixed Income (IFI), continues to generate consistent and stable income, the price of the preferred stock securities has declined. As the market comes to believe the Fed will stop raising rates and then actually cut them, these prices should snap back sharply. IFI portfolios are already up over 5% since the beginning of the month.

Besides a probable peak in inflation, the Fed sees a slowing economy. First-quarter GDP was negative by an annualized 1.6%. The second quarter is forecast to be negative by a similar amount, a figure that will be released Thursday. Initial jobless claims were the highest since last November. Firms are announcing hiring freezes. All housing statistics are lower and mortgage applications are at a 22-year low. Corporate profits are lower. These factors point toward a slowdown at best, but, more likely, a recession. Either of these situations is favorable for fixed income in that market interest rates should decline, and the Fed will likely end its rate-hiking cycle by the end of the year.

What is good for fixed income is not necessarily good for stocks in the near term. Next week a flood of companies will report Q2 earnings. They will be mixed and probably disappointing. Snap, the parent of Snapchat, announced slower ad sales than expected on Thursday. When the market opened on Friday, Meta (Facebook) and Alphabet (Google) were down 5-7% since the major source of their revenue also is advertising. Major Tech names will report next week, including Google and Facebook. Also reporting are Amazon, Intel, Microsoft, and Apple. Pfizer reports and will give a look into Covid suppliers. Qualcomm reports and will indicate the health of the chip and semiconductor companies.

The S&P 500 finished this week up +2.55% while the Nasdaq rose +3.33%. The 10-yr Treasury rate fell 16 basis points to 2.77%. In addition to the Tech reports and Fed meeting, next week will bring readings of consumer confidence, home sales, and the preliminary Q2 GDP (Thursday). Markets historically have looked six months ahead when forming a direction. We think that six months from now, both stocks and fixed income at today’s prices will look cheap.

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