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Weekly Market Update for May 17, 2024

by Jim Ulland

The trend of lower inflation resumes. The market celebrates. Both the S&P 500 and the Nasdaq hit record all-time highs on Wednesday after the April CPI figures were announced. The Fed wants more confirming data, but we welcome the latest CPI numbers as positive.

There are signs that the economy is slowing, which could lead to lower inflation. April retail sales were flat to negative. Initial jobless (unemployment) claims were higher than expected. Housing starts and building permits were soft. The Philadelphia Fed manufacturing index turned negative. And many firms, during discussion of Q1 earnings, forecast slower growth in the rest of the year.

What does this mean for investors? The market realizes that a weaker economy is the price to be paid for the Fed to lower interest rates. During the last six months, the market has been very strong when inflation is in a downward trend. This tailwind is likely to continue over the next two-three years. During the last twelve months, the beginning of the tailwind produced substantial returns. Both our primary equity strategy, Intelligent Blend, and our primary fixed income strategy, Intelligent Fixed Income (IFI) substantially exceeded their comparable index.

There is little reason to hold cash after 5/28/24. On this date, cash from investment accounts will be available the day after the trade/sale is made. Cash balances previously needed for liquidity or for psychological comfort instead can be held in US Treasuries that net over 5%. Interest from US Treasuries is not taxed by the states. Money Market Funds and CDs are taxed by both the IRS and states. CDs have an additional disadvantage with serious penalties for “early withdrawals.” Our recommendation is to gather your cash balances and get them working.

Our favorite equity sector is Artificial Intelligence (AI). Nvidia has been our favorite company, which will report earnings next Wednesday. If Nvidia earnings and forecasts are above expectations, the whole sector could move sharply higher. If Nvidia does not meet expectations, it could be due to manufacturing capacity constraints. There is little doubt that demand for Nvidia chips (GPUs) is very strong. We view AI as a multi-year phenomenon, so one quarter is interesting, but the next five years are more so.

Fixed income currently has high current yields. As rates decline, fixed income securities could generate double digit returns, a combination of high current yield and appreciation. As Nike says, look at your cash and “Just Do It.”

The S&P 500 and Nasdaq are up for their fourth straight week. The S&P 500 is up +1.54% and the Nasdaq is up +2.11%. Interest rates as expressed by the 10-Year US Treasury fell 8 basis points to 4.42%. 6-month US Treasuries closed at 5.37%. Next week should be quiet except for Nvidia and friends.

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