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Weekly Market Update for July 17, 2020

by Jim Ulland

The week started as microcosm of what investors have been experiencing for the last three months. Monday morning the market raced up more than 1% on expectations that Q2 earnings would be better than expected and that progress was being made on a vaccine for Covid-19. When the Governor of California announced he was closing bars, restaurants, fitness center and the like again due to a spike in Covid cases, the market dropped 2% and closed down 1%. The battle between opening the economy and controlling the virus continued the rest of the week.

On Tuesday and Wednesday, many of the big banks reported earnings and all, with the exception of Wells Fargo, beat expectations and took the market higher. Preferreds stocks were important beneficiaries of this renewed confidence. Wednesday got an extra boost from Moderna, one of the four prominent vaccine developers, when it said that all 45 people in its latest trial developed antibodies after taking Moderna’s vaccine. Moderna starts a 30,000 person trial soon. On Thursday, the lowest home mortgage rates in history were announced as was data from an increasingly strong housing market. Employment improved some as unemployment claims ticked down slightly and continuing claims declined by a half million workers.

The battle between reopening the economy and controlling the virus was very pointed in the debate on whether to reopen schools in September. Distance learning this spring was not very successful and parents had a negative reaction. Some parents view more distance learning this fall as an impediment for them to return to work. Students do have a low infection and spread risk, but there is great hesitancy among the governors to reopen. Unfortunately, the achievement gap is likely to widen between low income students and the rest of the student body if schools do not reopen. Look to announcements from schools as an early indicator of the pace of re-openings in the rest of the economy.

Tech stocks took a rest this week and declined 1.08% after setting new highs the prior week. Bank stocks and healthcare stocks like United Health Group helped power the SP 500 higher by +1.25%. Monday was – 1.59%, Tuesday +1.34%, Wednesday +0.91%, Thursday -0.34%, +0.28% Friday. The 10 Year Treasury yield stayed in a relatively tight band from 0.60% to 0.67%, consistent with the Fed’s goal. Volatility was low as well.

Second quarter earnings releases continue next week but the big tech names will come the following week with Apple, Google, Facebook, and Amazon. Expectations are high for these post-Covid digital economy names. Also, Biden is expected to announce his VP pick in the next two weeks. The qualifications and qualities of this person are more important this time because, if he is elected, Biden’s VP will likely to run to succeed him.

Economic news next week is not of a market moving nature although there will be plenty of housing reports, which are expected to be very positive.

Finally, a special congratulations to Nat Beebe, who runs our Intelligent Fixed Income strategy using preferreds. The strategy’s performance so far this year ranked second among preferred strategies from mutual funds and ETFs.

*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