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Weekly Market Update for November 19, 2021

by Jim Ulland

The economic recovery grinds higher partially because the largest government stimulus in history is still fueling growth. The Fed insists it will keep rates low at least until the middle of 2022. Covid infections and breakthroughs have turned up recently, however; these hopefully will decline as the New Year approaches. The SP 500 and the NASDAQ kept setting records and the market ended positive once again. Surprisingly, interest rates declined as reflected in the 10 Yr. Treasury.

Inflation is the factor that could disrupt what has been a great recovery. How can inflation be neutralized? First oil and gas prices must stabilize and then decline. Crude did fall below $80/barrel this week. The recent Covid spike will depress short-term demand. Can OPEC resist the urge to raise production? Secondly, people must get back to work. The booster shots and all-age vaccinations will allow many to do so. Third, the chip shortage needs to normalize. Several auto firms say this is happening. Fourth, supply chain bottlenecks need to lessen. After the holidays, consumer demand will decline leading to reduced imports. This should allow ports to unclog and for delivery times to improve. Finally, Congress must resist spending even more money in this inflationary environment. Monitor these issues and you will be able to predict the direction of inflation in 2022.

Some of the companies that have done well during the recovery will continue to prosper even if inflation drives interest rates higher. If inflation persists, to stay in this high-performance group, companies will have only modest debt at best. Some Tech companies are huge cash generators and can take advantage of the dislocations provided by inflation. Acquiring the weak is a quick way to grow. Banks are favored when interest rates climb since they earn more on their idle deposits. Underperforming sectors can reemerge if they have pricing power, an important characteristic for any company’s success during inflation. Healthcare and Pharma have low valuations and are in this category. Real estate and commodities tend to outperform during inflation assuming they can keep costs like interest expenses under control.

Yet, inflation may surprise us and be neutralized by the factors mentioned above. The Fed could be correct in everything but timing. “Transitory” could be the characteristic of inflation in 2022.

This week’s market closed higher. The SP 500 was up +0.32%, the NASDAQ +1.24%. Monday the SP 500 was flat +0.0%, Tuesday +0.39%, Wednesday -0.26%, Thursday +0.34%, and Friday -0.14%.

Our equity strategy Intelligent Blend is up 30% since 1/1/20, a period of 22 months. Our fixed income strategy IFI is up over 20%, remarkable for fixed income. IFI’s performance is at or near the top in the peer group. Because of this strong performance, new and current clients have pushed our assets under management (AUM) up $150 million this year to a total of $600 million. Contact us if you see a fit for these high-performance strategies.

Next week is expected to be quiet because of Thanksgiving, although the appointment or reappointment of the Fed Chair has been promised.

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

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