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Weekly Market Update for September 2, 2022

by Jim Ulland

This week, the Fed Regional Presidents were on the road chastising the market for going up and the public for not feeling enough pain while shopping for school supplies. Minneapolis Fed President Kashkari said, “I certainly was not excited to see the stock market rallying after our last Federal Open Market Committee meeting.” The market, like a reprimanded child, fell five out of the next six days. Kashkari said the Fed’s goal is to reduce inflation to 2%. “People now understand the seriousness of our commitment.” That 2% goal is a long way from where inflation is today. Kashkari neglected to mention that the Fed and Congress were largely responsible for the surge in inflation.

Our view and that of many economists had been that the Fed would raise interest rates until the end of 2022, pause for several months, and then lower interest rates because of a weakened economy. Now the Fed mantra is that they will raise interest rates into 2023 and hold them at that high level through 2023 or until we eat our spinach, whichever comes first.

There are some signs that the economy is already slowing. Mortgage applications are down 25% from a year ago. Wage growth has slowed. The unemployment rate has risen slightly from 3.5% to 3.7%. August produced the lowest monthly jobs growth since April 2021. Manufacturing in our largest trading partner China contracted for a second straight month. That slowdown was compounded by the lockdown of 24 million residents of Chengdu for Covid. Apple has noted there will be a shortage of new iPhones since you cannot make phones while working remotely. Gazprom, Russia’s big energy company, has shut off natural gas transmissions in the Nord Stream pipeline indefinitely due to “technical difficulties.” Last year, Gazprom provided about 40% of the EU’s natural gas. This will slow the EU economy. The EU is expected to slow its economy further by raising interest rates as it faces record inflation at 9.1%.

The next big piece of data for the Fed’s consideration will be the August CPI released on September 13th. The decline in the price of gasoline and crude oil, in general, will dampen the inflation number some. If a downward price trend can emerge, everyone will feel a lot better.

This market is going to require a lot of patience from investors. The Fed will push interest rates up some more on September 21st. The market is unlikely to have much momentum unless it gets a lower CPI number. Barring special investment situations, there is little reason to rush funds into equities until more clarity appears. Variable rate fixed income securities provide more protection and could be used as a haven. See our IFI strategy.

This week the S&P 500 was down -3.25% while the Nasdaq fell -3.25%, both in the same magnitude as last week. The 10-yr Treasury was higher by 15bp to 3.20%. Monday the S&P 500 was -0.67%, Tuesday -1.10%, Wednesday -0.78%, Thursday +0.30% and Friday -1.07%.

Next Monday is a holiday. The rest of the week will be characterized by some remote workers returning to their offices and dusting off the furniture. Parents will send their kids back to school. Election ads will start in earnest. And the NFL will provide a distraction from a troubled world. Go Vikings.

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