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Weekly Market Update for January 10, 2020

by JM Hanley

The Dow was down on Friday, falling 133 points to close at 28,824. For the week, the Dow was up 0.7% (SP500 +0.9%) and year-to-date is now up 1.0% (SP500 +1.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose three basis points, closing at 1.82%. The price of crude oil was down 6% this week to $59 a barrel – down 3% YTD.

Progress on the trade deal continues, as the Administration has affirmed the signing of a Phase 1 deal with China.  Chinese vice premier Liu He is apparently en route to Washington for the ceremony, a more tangible indicator of success. Investor speculation has turned to the deal’s mandate that China increase its purchases of US goods by $200B. Soybeans and commercial aircraft would typically be at the top of Beijing’s list. But these look less attractive in light of a poor soy growing season, a swine epidemic that reduced China’s need for animal feed, and Boeing’s grounding of its newest commercial jet.  Electrical equipment, machinery, and industrial chemicals may take their place.  In any event, the PBOC may need to support the value of the Chinese currency as import purchases ramp up. The mandate is denominated in dollars, so a weaker yuan would end up costing Beijing more.

After a good jobs report for November, today’s release showed the labor market coming back to earth.  Payrolls growth was about 10% lower than expected, despite a major boost from better weather and calendar timing.  Prior months’ data was also revised lower. Perhaps worst of all, average hourly earnings growth fell below 3%. This additional indicator of sluggish wage growth (and thus, inflation) gives the Fed little incentive to revisit its permissive stance on interest rates. That makes the news something of a silver lining for investors. The good, if somewhat paradoxical, news in the report was that unemployment and underemployment edged lower.

A survey of managers in the non-industrial economy showed more optimism than expected, providing a spot of good news. News from the industrial economy was less positive, as factory orders dropped. Two other domestic data points – inventory growth and the trade deficit – were marginally lower than expected.  Overseas, a tracker of Chinese business activity moderated, and inflation was lower than expected.  Germany was a similarly mixed bag: its service sector surged, but factory orders dropped.

Fourth quarter earnings season will begin in earnest next week.  The big banks (JP Morgan, Goldman Sachs, Wells Fargo, Citi, and Bank of America) are at the top of the docket.  Wall Street expects SP 500 earnings in aggregate to drop about a percent from last year.  This is a slight improvement from the third quarter.

*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. Clients or prospective clients 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 clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.