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Weekly Market Update for September 24, 2021

by Jim Ulland

China rattled the market again on Monday. The most indebted property developer in the world, Evergrande, is on the edge of bankruptcy. China has alerted local government units to prepare for a default. Fortunately, since there are burdensome restrictions on lending in China, US banks have done little. Some non-financial US companies, like hedge funds, have purchased bonds and are likely to take substantial losses. The fear that the failure of Evergrande could destabilize the Chinese banking system and roll that problem world-wide is largely discounted. However, the fear was substantial enough to make Monday the worst day for the SP 500 since May.

Other negative issues from last week have not gone away. The Delta variant is racing through school children. Supply shortages and inflation pressures persist. The Fed signaled that it would start reducing the amount of bonds they are buying in November which will put upward pressure on interest rates. The fiscal stimulus is providing less of an economic tailwind. Congress is somewhat dysfunctional and seems unable to pass a budget extension or to lift the debt ceiling.

Yet, even with these challenges to economic growth, the market had two flat days and two strong days after the Monday drop. Perhaps the market has decided to let the Congress fight it out. The recovery is continuing, and the public seems ready to treat Covid and the Delta variant like a manageable disease, not a continuing crisis. Pfizer is getting approval for more ages for their vaccine and more conditions approved for the booster. Office workers are coming back. Football stadiums are full. Q3 and Q4 corporate profit growth is still expected to be +20%.

Yields this week did tick up 10 basis points to 1.45% on the 10 Yr Treasury. Our view is that these rates will grind higher into year-end. If this is in fact a grind rather than a spike, it is manageable. Any Fed interest rate increase will be late in 2022. Our fixed income strategy, run by Nat Beebe, is up more than 5% so far this year which has made the strategy nationally popular.

The recovery is far from over. We think investors should be fully invested for now. The market’s upward direction could be halted if the $3.5T social safety net legislation is passed. The taxes this legislation contains will dampen growth and the spending could, at the same time, trigger serious inflation. Stay tuned.

The SP 500 and Nasdaq closed higher this week. The NASDAQ was up slightly +0.02% and the SP 500 by +0.51%. Monday the SP 500 was -1.70%, Tuesday -0.08%, Wednesday +0.95%, Thursday +1.21%, and Friday +0.15%.

Next week is all about Congress. The debt ceiling, the budget, and the $3.5T (or much higher according to the Wall Street Journal) social programs bill. Second level stories will be China’s Evergrande debt and the US southern border. The quarter ends Thursday as does September, which has retained its reputation as one of the weakest months of the year for market gains.

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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