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Weekly Market Update for October 1, 2021

by Jim Ulland

September is typically the worst month of the year in the market. The historic reasons for this are not well understood.  However, during this September, it is clear why the market fell after hitting a high on September 2nd.   China, Congress, interest rates, debt-ceiling, supply chain bottlenecks, energy, and Covid/Delta all played a role.  Here is some of the detail:

First, China is a mess.  The government is beating up the technology sector for being too successful and the CEOs for becoming too powerful.  Also, the largest property developer in China is on the verge on bankruptcy, now having missed two payments to bond holders. This could trigger additional defaults. Finally, China is trying to reduce emissions, but in the process cut electrical generation and disrupted manufacturing.  Earlier in the month we completed exiting all Chinese company stocks because of this witches’ brew.

Second, Congress is dysfunctional.  In many respects, it would be a good thing if nothing happened.  The economy simply does not need more stimulus from additional deficit spending. Higher tax rates will be a drag on the recovery.  This all-too-strong, anti-business tone pauses employers’ plans for expansion and could disrupt the recovery.

Third, interest rates on the 10Yr treasury rose from 1.3% to 1.5%.  This is a large percentage increase and it occurred in a couple of days.  The market would prefer a gradual change in rates so adjustments can be made.  The fear of a rate spike, although unlikely, is present.

Fourth, Congress always makes raising the debt ceiling a crisis.  This time the vote is interconnected with several other issues that are hard to resolve.  Congress often has these stand-offs and almost always works them out at the last minute, frazzling the market until then.

Fifth, the supply chain bottlenecks persist.  Corporate leaders are saying that this will have a negative impact on profits.  The problem shows itself in many ways including the Covid interruptions in Vietnam (a leading sports shoe and clothing center), China’s disruptions in electrical generation crimping manufacturing, chip shortages because of sold-out capacity, clogged ports, and people hesitant to go back to work.

Sixth, energy prices have spiked as hurricanes reduced production.  Oil is back to $75/barrel, a three-year high. Elevated energy prices contribute to inflation.

Seventh and finally, yes, Covid is still with us.

For the month, the S&P 500 was down -4.76% and the NASDAQ was similar at -5.31%.  Stocks were due for a pullback; however, the ultimate depth of the pullback may depend on Congress.

Our fixed income strategy, Intelligent Fixed Income, weathered this storm.  September had positive returns whereas most fixed income strategies were negative.  We continue to see 4-5% yields in preferred stock, the core security in the strategy.

Monday the S&P 500 was -0.28%, Tuesday -2.04%, Wednesday +0.16%, Thursday -1.19%, and Friday +1.15%.

Next week is all about uncertainty.  Of course, the market does not like uncertainty.  In two weeks, corporate earnings from Q3 will start to be released.  This will give a picture of how serious the above problems are.  Hang on, the ride could get bumpy.

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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