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Weekly Market Update for January 17, 2020

by JM Hanley

The Dow was up on Friday, rising 50 points to close at 29,348. For the week, the Dow was up 1.8% (SP500 +2.0%) and year-to-date is now up 2.8% (SP500 +3.1%). The yield on the 10-year Treasury (an important interest-rate indicator) rose one basis point, closing at 1.83%. The price of crude oil was unchanged this week at $59 a barrel – down 4% YTD.

As promised, American and Chinese representatives signed a “Phase One” trade agreement yesterday.  The deal requires China to purchase $200 billion more in US goods, and (less tangibly) reduce intellectual property theft; other provisions make it more difficult for Beijing to copy technologies from American firms and access sensitive financial information. In exchange, the US will reduce the tariff rate on $100 billion of Chinese goods by half – though full-rate tariffs on hundreds of billions more remain.  The deal looks like a truce and some progress on trade.

Macroeconomic data was mixed.  December inflation was lower than expected, particularly in light of the Fed’s accommodative stance.  Retail sales for last quarter were revised downwards, as were business inventories and industrial production.  One survey showed consumer confidence edging lower in the first weeks of this year.  “Starts” on the construction of new housing, however, touched a fourteen-year high.

Earnings season for the last three months of 2019 got off to a mostly good start. JP Morgan was the best of the big banks. Bond trading did particularly well, but the results also provided good news for the economy as a whole.  Car and home loans were better than expected, credit card spending kept pace with last quarter, and the quality of loans on the bank’ books remained strong. Activity for corporate spending slowed, an indicator which dovetails with macroeconomic indicators that show slower capital outlays.  Goldman Sachs’ quarter was less impressive.  Goldman’s traders also did good business, but that was more than offset by higher compensation and legal fees. Bank of America’s results were similar to the others. Fixed income, currencies, and commodities trading was very lucrative, credit remained strong, and expenses grew a bit more quickly than expected. Wells Fargo was disappointing.

Outside of the banks, United Health Group’s results were better than anticipated.  The health insurer got high medical costs in its Medicaid division under control more quickly than it previously thought.  Add to this the repeal of a tax on health insurers, a government decision to permit patients with advanced kidney disease to enroll in Medicare, and the waning of more far-reaching proposals for healthcare reform and UNH finished the year on a strong note.

Earnings reports will continue next week with Johnson and Johnson, Netflix, and most major airlines.

*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.