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Weekly Market Update for March 4, 2022

by Jim Ulland

The horrors and tragedy of war are being shared live by the Ukrainian fighters and victims by cell phone. The ruthlessness and recklessness of Putin is evident for the world to see, most graphically in the rocket attack on the Ukrainian nuclear power plant, the largest in Europe. It is little wonder that the war dominated this week’s market.

The war was so pervasive in the news that covid ended without even a celebration. Also smothered by war reports was relatively sound economic news on the US economy. Job growth in February was 678,000 and unemployment fell to 3.8%. Average hourly earnings were flat, perhaps signaling a slowing pace of wage increases. The February manufacturing index was up as well. Interest rates, as reflected in the 10 Yr Treasury, dropped sharply. The Fed brought some definiteness to its plans to raise rates, hinting at a quarter of a percentage point hike in March. They also implied an increase for the entire year of 1%. All of this was welcome news.

What was less welcome was the consequences of the war. Wheat was up 6.6% on Friday alone, 57% so far this year. Russia and Ukraine are the first- and third-largest wheat exporters, respectively. Less developed countries, where wheat and bread are staples, could see unrest. Crude oil too was up sharply on Friday, 6.8% and 47% so far in 2022. Russia is the world’s second-largest producer with 12% of the total. The cost of going to work, going on vacation, and transporting goods will reflect these cost pressures soon.

US markets will snap back once there is a truce or an end to the conflict. However, it is very difficult to see how or when this will happen. Putin seems intent on bombing Ukraine back to the Middle Ages. He may even threaten Europe with blowing up the nuclear power plant his forces just captured unless sanctions are eased. If Russia takes all of Ukraine, it will then border Poland, a NATO member, creating ongoing tensions.

The decline in interest rates has allowed our fixed income strategy to begin a recovery. We expect considerably more. The IFI strategy currently produces a 5%+ dividend. The pullback in the equity markets and the reduced GDP expectations from a war-disrupted world should slow the Fed’s pace of interest rate hikes. This would be another benefit to the strategy. Equities are due for a powerful snapback for those investors with patience.

For the week, the SP 500 was down 1.27% and the Nasdaq -2.78%. Monday the SP 500 was down -0.24%, Tuesday -1.55%, Wednesday +1.86%, Thursday -0.53%, and Friday -0.79%.

Next week, there may be a deal with Iran to get its oil back on the market without restrictions. The US is in a weak position to protect against Iran funding terrorist organizations with the funds or accelerating its nuclear development. The last thing needed is another reckless nuclear player. On Thursday, the February CPI will be released. Although wage growth has moderated, expect the worst from other components, especially commodities.

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