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Weekly Market Update for October 4, 2019

by JM Hanley

The Dow was up on Friday, rising 373 points to close at 26,574. For the week, the Dow was down 0.9% (SP500 -0.3%) and year-to-date is now up 13.9% (SP500 +17.8%). The yield on the 10-year Treasury (an important interest-rate indicator) fell sixteen basis points, closing at 1.53%.  The price of crude oil fell 5% this week to $53 a barrel – up 16% YTD.

There was little news from the trade front this week. The Administration dismissed talk it would bar Chinese firms from listing on US exchanges. Investor are awaiting the resumption of high-level negotiations next Thursday in Washington. A more proximate source of political risk to equity prices has come closer to home. The stocks of health insurers have suffered as more liberal candidates have gained ground in the Democratic primary. Some “Medicare for All” plans propose to eliminate private health insurance. The plans face resistance from many Democrats in Congress as well as Republicans.  The financial outlook for health insurers remains otherwise healthy.

Domestic economic data pushed the market down early in the week and then reversed most of those losses later on. On Tuesday, an important tracker of manufacturing, which had been expected to rebound after a poor reading last month, declined instead. The report showed that employment, orders for new exports, and total production all went down. Two days later, the service sector equivalent was also worse than expected, and similarly showed feeble capital investment and hiring. Respondents cited concerns about tariffs, economic growth, and a lack of available labor.

Counterintuitively, this second draught of bad news had a positive impact on equity prices.  A deteriorating economic prognosis increases the odds that the Fed will cut interest rates , and could encourage trade negotiators to strike a deal with China. Today’s jobs report bolstered that line of reasoning. There were fewer new hires than expected, though payroll estimates for August were revised upwards and unemployment touched a fifty-year low of 3.5%. Wages were sluggish: hourly pay didn’t increase at all from last month, but has risen three percent since last year. The report offered reassuring news about the health of the economy but weak wage growth could placate the Fed’s concerns about inflation. The odds that the Fed will cut interest rates by a quarter point at the end of the month have risen to 78%, from 49% last week.

Monday marked the last day of the third quarter. The S&P 500 inched up 1.7% for the quarter in the face of uncertainty related to trade policy. Earnings for the index grew about 5% through the first half of the year, which was better than expected. Analysts currently expect third-quarter earnings will drop below the third quarter of last year. Earnings season will begin in earnest with the big banks the week after next.

*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.