Archive for September, 2024

by Jared Plotz, Director of Research

The world’s largest central banks are not only finally moving, but suddenly going faster than markets had anticipated. The US Fed cut interest rates by a half percentage point last week, while South Africa cut for the first time in four years. The week before, the European Central Bank cut their policy rate for the second time this year, as did Denmark. This week, China cut on Tuesday, Sweden on Wednesday, and Mexico on Thursday. China not only rolled out a comprehensive set of rate cuts, but also reduced the required down payment on second homes to stimulate the key housing markets there. Lower central bank policy rates tend to accelerate global economic growth, which has been slowing since 2021.

The S&P 500 reached a new record high on Thursday. Despite some mixed economic data points – including a big drop in September consumer confidence – the S&P 500 rose +0.62% on the week and the Nasdaq +0.95%. On Monday the S&P 500 was +0.28%, Tuesday +0.25%, Wednesday -0.19%, Thursday +0.40%, and Friday -0.13%. While it’s a common investor adage to “not fight the Fed” when they are easing rates, this time around we are starting at much richer valuation multiples (the aggregate S&P 500 trades nearly 22x its forward expected earnings versus an average of 14x during the start of the last eight cutting cycles). Thus, we are cautiously optimistic, but equity markets may be choppy over the next month as we begin Q3 earnings season for companies. Not to mention, the election is less than 30 trading days away.

In fixed income land, Preferred securities continue to move favorably following the Fed’s rate move, even amidst some steepening in the interest rate curve (long-term rates moving up, short-term down). The 10-Year Treasury, a rate indicator, was up +2bps to 3.76%. The 6-month US Treasury fell -6bps to end the week at 4.38%. The tailwind we described last week continues to blow us along, and we look forward to sharing final Q3 performance numbers soon.

Next Tuesday will bring the August Jobs Openings report (JOLTS), with September nonfarm payrolls out on Friday. Markets will be on the watch given the slight uptick in the unemployment rate over the last year (4.2% in August, still low given historical averages). With the Federal Reserve’s recent shift towards rate cuts, the path forward in rate easing will continue to rely on both inflation and employment data, with the Fed trying to balance its dual mandate (keeping prices under control and aiming for maximum employment).

Have a great start to your autumn season this weekend!

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.

by Jim Ulland

The term “having the wind at your back” is used to explain excellent performance whether one is a sailor, cyclist, hiker, runner or investor. This week the Fed acknowledged that the wind direction had changed from a headwind to a tailwind for the investment world. Fixed income had to fight its way through a seemingly endless period of rising rates causing headwinds. Although fixed income securities continued to pay their expected dividends, the price of these securities was pressured. That headwind has now been replaced by a tailwind.

Since the beginning of the year, the market has expected the Fed to reduce interest rates. On Wednesday, they finally did so, by half a percentage point. It is likely that the Fed will continue to reduce rates over the next 24 months or longer. Another one and a half percentage points worth of cuts are now expected by the end of next year. Stocks were blown higher by this new tailwind. The Nasdaq was up over 2% the day after the Fed’s announcement. Our IFI strategy has had a huge move higher, which we think can continue.

When significant changes occur, it is prudent to review how your financial assets are positioned. We recommend moving out of CDs, Money Markets, and US Treasuries and into the preferred stock class of fixed income. Preferred stock is the core security type in our Intelligent Fixed Income strategy (IFI). Doing this type of reallocation will increase your yield and should allow you to benefit from the appreciation as interest rates continue to fall.

Stocks too may receive new funds. Both the S&P 500 and the Nasdaq are hovering near all-time highs. Our equity strategies remain positioned to benefit from the heavy investments in AI technology. According to Larry Ellison, the CEO of Oracle, there is no end in sight for AI demand. He forecasts that Oracle Cloud’s data center footprint will expand from ~160 today to 1,000-2,000 over time. Ellison states, “There’s no slowing down or shift coming…in an ongoing battle for technical supremacy…the race goes on forever to build a better and better neural network.”

During the week, the S&P 500 was up +1.36% and the Nasdaq +1.49%. On Monday the S&P 500 was +0.13%, Tuesday +0.03%, Wednesday -0.29%, Thursday +1.70%, and Friday -0.19%. The 10-Year Treasury, a rate indicator, was up 8bps to 3.74%. The 6-month US Treasury is a favorite of our US Treasury strategy. This week the yield ended down, at 4.46%.

Next week, the biggest economic news will be August’s reading of the Fed’s favorite inflation metric, Core PCE, on Friday. Earlier in the week we will also get additional manufacturing data, housing data, consumer confidence, and revisions to Q2 GDP. These may pique higher interest after economic bellwether FedEx cut its annual guidance today.

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.

by Vinicius d’Avila, Research Associate

Markets breathed some fresher air this week, with artificial intelligence and technology stocks bouncing back after last week’s sector rotations. During the week, the S&P 500 was up +4.02% and the Nasdaq was up +5.95%. On Monday, the S&P 500 was up +1.16%, Tuesday +0.45%, Wednesday +1.07%, Thursday +0.75%, and Friday +0.54%. The weakest-performing sectors were Energy and Financials, while Technology and Consumer Discretionary were the strongest. The 10-Year Treasury was down -5 basis points to 3.66%. The 6-Month Treasury ended the week at 4.63%.

Wednesday brought positive economic readings, with the Consumer Price Index showing inflation moderating to 2.5% in the year through August – down from 2.9% in the previous month and the lowest since February 2021. Though costs in some categories were higher than anticipated (cost of shelter, for one, rose 0.5% in August), takeaways were largely optimistic as evidence of broader inflation slowing was seen across more categories. When excluding annual changes in the cost of volatile food and energy prices (up 2.1% and down 4.0%, respectively), the resulting Core CPI was up 3.1%, 0.1% lower than in July.

On a similar note, Thursday’s Producer Price Index release showed a 1.7% annual increase in wholesale prices (which measures changes in cost of goods, transportation, warehousing), slightly below expectations of 1.8%. The PPI’s Core measure (excluding food, energy, and trade services) ticked up to 3.3%, also driven by higher shelter/guestroom rental costs (up 4.8% annually).

As the Federal Reserve meets next week, most investors are expecting a 0.25% rate reduction announcement on Wednesday – the first rate cut since the beginning of the COVID-19 pandemic. Some debate remains, however, on the case for a 0.50% rate cut, as some officials argue in favor of a stronger beginning to the easing cycle. CME’s FedWatch tool currently shows markets pricing in a 43% chance of a half-percentage point cut. Before then, committee participants will also look at August’s retail sales data on Tuesday – analysts expect sales to grow, though at a slower pace than in July.

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.