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Weekly Market Update for July 23, 2021

by Jim Ulland

This week’s market can be characterized as a battle between the fear of a slower recovery vs. continued robust growth. On Monday, the fear was evident that the Delta variant could cause a reimposition of restrictions somewhat like those of Covid-19. If so, unemployment would rise, many businesses would close again, and a return to normal would be delayed. The Dow, SP 500, and the NASDAQ dropped over 1%. By Tuesday, investors were buying bargains in the market. Their renewed confidence was reinforced by earnings surprises, corporations buying back their stock, excess savings viewed as destined for future spending, and interest rates staying relatively low. The expectation of continued growth was the theme for the rest of the week.

The Delta variant scare has stimulated many to get vaccinated. Both Pfizer and Moderna’s vaccinations are seen as good protection against the Delta variant. There is no talk among employers about reversing the flow of employees back to the office. United Airlines reported earnings and said they saw no sign of trip cancellations or reduced bookings from the Delta variant. Sports teams and the Olympics are managing around new Covid cases rather than quarantining entire teams or cancelling games.  Next week, the first reading of Q2 GDP will be released, and it will be strong.

On Friday, the SP 500 and the NASDAQ were back in record territory. We recommend moving cash into the market. In our view, low-yielding government bonds, munis, cash, and CDs are going to under-perform the market for the rest of the year. We recommend our Intelligent Fixed Income strategy which has 4-5% current yields and is up over 3.5% so far this year. Our equity strategies are getting returns in the teens. One of the few weak areas in the market is Chinese-based companies. The communist government has increased its control over the booming tech industry and forced changes which will reduce future growth. The government is reported to be concerned over the expanding influence of the tech sector and its CEOs. Chinese tech companies have been skillful in collecting information on their vast customer base, something the government fears and seems to envy, thus a crackdown has come. We have reduced our exposure to China as a result.

Although inflation is still an everyday experience when purchasing, it dropped out of the headlines this week. Interest rates were relatively stable at low levels, not signaling inflation-driven higher rates. OPEC helped by announcing an increase in production which immediately reduced the price of oil and gasoline.  We are somewhat skeptical that inflation can be ignored. For example, houses in Naples and LA are selling for $1000/sq ft.

Both the SP 500 and the Nasdaq set records by Friday. For the week, the Nasdaq gained +2.9%. The SP 500 rose +2.0%. Monday the SP 500 was -1.59%, Tuesday +1.52%, Wednesday +0.82%, Thursday +0.20%, and Friday +1.01%.

Next week will give another look at inflation and consumer confidence, but most of the focus will be on earnings. The following are only a small list of those companies that will report Q2 earnings: Tesla, Boston Scientific, 3M, Alphabet (Google), Apple, Visa, Lab Corp, Amazon, and Exxon. Note that we do not own all these companies in our equity strategies. Big tech powered the market this week. Expect these companies to back up their strong stock performance with good earnings.

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