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Weekly Market Update for January 3, 2020

by JM Hanley

The Dow was down on Friday, falling 234 points to close at 28,635 (SP500 -0.7%). The Dow finished 2019 up 22% and the S&P finished up 31%, assuming the reinvestment of dividends. The yield on the 10-year Treasury (an important interest-rate indicator) was down nine basis points, closing at 1.79%.

The price of crude oil was up 2% this week to $63 a barrel. Prices were actually down before the US killed a top Iranian general in Baghdad yesterday evening. The attack worsens an already strained relationship between the two countries. Investors, like everyone else, are uncertain about what will happen next.  The rise in the price of oil, and the accompanying pullback in the broader equity market, are actually modest in light of the potential regional conflagration. Iranian retaliation could threaten oil production in Iraq and Saudi Arabia, while tightened sanctions could further constrain Iran’s own lackluster production.

The modest market pullback may forecast that little will come of the latest flare-up. Markets reacted more dramatically when an Iranian attack crippled Saudi oil production last fall. But they quickly recovered when it became clear neither side had an appetite for further escalation.

Economic news this week was otherwise limited.  Pending home sales rose last month, but by less than expected.  The same was true of home prices.  The lack of affordable starter homes, a longstanding trend, continues to constrain the housing market’s momentum, even with interest rates low, household formation high, and the employment outlook robust. Additional data points were similarly unencouraging. An important survey of manufacturers touched a post-Recession low; employment, new orders, and total production have all fallen.  Consumer confidence also edged lower after a strong reading in December.  The trade deficit for goods declined last month, but the reasons were murky. It would be good news if consumption of domestic goods has risen instead, bad news if importers have slowed their buildup of inventory (a component of GDP).

Data from China also was mixed.  Two surveys of manufacturers indicated the sector is at, or slightly below expectations. The only exception was rising prices, which indicates the impact of the government’s fiscal stimulus. Yesterday the PBOC (the Chinese central bank) followed through on anticipated monetary stimulus, an interest rate cut of half a percentage point.

Fourth quarter earnings and earning outlooks for 2020 will start to be released in two weeks.  These results and forecasts are likely to move the market.

*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.