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Weekly Market Update for September 11, 2020

by Jim Ulland

Many read Waiting for Godot while in college.  There are some similarities with waiting for the next stimulus package.  It too might never come.  Politics has emerged as a market force and little is expected from Congress until after the election. It was predictable that, as the election approached, market uncertainty would increase and so it has.  The uncertainty was aggravated by the fact that many of the market indices hit new highs ten days ago with the S&P positive for the year and the Nasdaq still up more than 20% as this week ends. (The indices for mid-sized and small companies remain negative for the year). This remarkable recovery from the March lows is built on the expectation of both a vaccine and a treatment for Covid-19 being developed by year end.  Also, there is an expectation that the economy will be reopened and that workers will return to their downtown offices from their home offices and students will go back to in-person classrooms. Finally, it is assumed that the election will not totally disrupt the current economic and tax structure.  The market may be realizing that it was a bit hasty in making the totality of these assumptions.

Covid news was good. Hospitalizations declined again in all regions including the hot spots of CA, TX, AZ, NV, FL.  Some, primarily small states with low hospitalizations, had a modest increase like WV, MT, SD, IN, and KY.  The trend is our friend. Schools, restaurants, bars, airlines, lodging, and smaller retail stores are trying to find procedures that work for customers and allow more normal business conditions to return.

The big economic news during the week was JP Morgan’s estimate for Q3 GDP: 29% annualized growth.  Remember that before Covid, the economy was growing around 3%, which was thought to be strong growth.  The recovery is happening. Unemployment filings stayed below one million, better than expected.  Twenty states are including an additional weekly $300 in unemployment checks.

Our fixed income strategy, Intelligent Fixed Income (IFI), run by Nat Beebe, maintained its strong performance by defending the large gains in August while common stocks dropped. Interest rates on the 10 Yr Treasury dropped modestly. Low interest rates translate into low mortgage rates.  The housing market stayed remarkably robust as people moved from troubled downtowns to suburbs and exurbs.  Home building is a strong sector of the economy pushing lumber prices higher.

Equity markets didn’t set any records this week.  The NASDAQ is down 10% from its high. For the week, the Nasdaq was down -4.06%.  The S&P 500 was down -2.5%, back to August 12 levels. Volatility spiked as reflected in the daily S&P returns:  Monday (Labor Day), Tuesday -2.8%, Wednesday 2.0%, Thursday -1.8%, Friday +0.1%. Economist Jim Paulsen encouraged investors to stay invested since he expects the high rate of Q3 GDP growth to provide a floor under stock prices.  That said, a lot of money flowed out of stocks and into fixed income during the week as many felt stock prices were high and in an uncertain environment.

We expect volatility to continue and for common stocks to have trouble moving higher.  Money should continue to flow to fixed income – especially where investors can find performance.

Publicly Traded Peer Group Requirements: Minimum $150 million in ETF/Fund; Excludes low-duration funds; Excludes closed-end funds; Includes share class with largest AUMs; Excludes real estate preferred funds; Minimum 3-year track record

*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/prospective clients 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 strategies 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.


Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464