Archive for February, 2025

In lieu of our regular weekly market update, this week’s post features the Quarterly Client Letter:

Reflecting upon another prosperous year for the markets and our strategies, we’d be remiss not to say our office is still grieving. Jim was a shining light to those who knew him – always a glass half full. He will continue to be deeply missed. In case you missed it, please see our website for our Tribute to Jim, as well as the Minnesota Star Tribune’s feature on Jim’s life.

The economy remains in good shape. Fourth-quarter real U.S. GDP (preliminary) suggested economic activity grew for an eleventh-consecutive quarter, at a 2.3% annualized pace. Full-year 2024 appears to have grown by 2.8%, compared to 2.9% in 2023. This latest reading is in line with expectations for growth to decelerate to 2.1% in 2025. Meanwhile, the labor market is healthy, including steady job and wage growth with low unemployment near 4%. The Federal Reserve will remain data-dependent with regard to how quickly it may further reduce benchmark rates, but they do plan to continue lowering rates, a benefit for major markets.

For the equity side of portfolios, the fourth quarter saw the S&P 500 rise 2.1% and the Nasdaq climb 6.2%, even as the 10-year Treasury yield jumped 77 bps to 4.58%. A healthy economy and labor market are leading economists to pencil in earnings growth of 10-15% for the S&P 500 over this coming year. Consumer, business, and investor confidence remains high. Throw in the potential for lower taxes, less regulation, and a growth-friendly business environment, and one can paint a favorable picture for what the next year could bring to equities. But risks are always present.

One risk is that the AI leaders have been very large contributors to overall market performance. The AI impact on the real economy is still in the early stages, with potential for significant productivity gains across a wide swath of industries. Yet January brought more than one hiccup to this space. If additional challenges present themselves, it’s possible CEOs may rein in data center spending. A second risk is valuations – the price investors are willing to pay for an earnings stream – which are historically high. A third concern is inflation, particularly the unknown effect of future policy actions. Tariffs and fiscal deficits have the potential to be inflationary – a concern the Federal Reserve noted in their most recent meeting minutes.

When the dust finally settled in 2024, our Intelligent Fixed Income (IFI) strategy was near the top of nearly all U.S. Fixed Income choices. Buoyed by an improving economic backdrop and recovering security prices, the strategy posted solid double-digit total return gains for clients. This compares to paltry returns in the Bloomberg Aggregate Bond index (+1.25% in 2024).

Intelligent Fixed Income is off to a strong start here in 2025. We have seen a flurry of new issues in the preferred market, including several big bank preferreds. For example, JP Morgan (6.50% Fixed-to-Float), Goldman Sachs (6.85% Fixed-to-Float) and Citigroup (6.95% Fixed-to-Float) all issued preferreds. One major benefit of a boutique like Ulland Investment Advisors is our ability to quickly add a new issue to a portfolio in a meaningful way. Our goal is to make sure our clients achieve the desired allocation without compromising price or liquidity.

With the current IFI strategy income rate around 6.50%, and potential price appreciation if interest rates fall, we expect another solid year on the fixed income side. We still anticipate further rate cuts by the Federal Reserve in 2025 and 2026. Over the next 24 months we expect the Fed to land close to their neutral rate, which we estimate to be around 3.50%. We expect the 10-year Treasury to move closer to 4.25% by the end of 2025. As always, we will have both hands on the wheel if things materially change with regard to this outlook.

Intelligent Fixed Income GOV remains an attractive choice for clients with idle cash. This strategy uses primarily 3–12-month U.S. Treasuries to generate a meaningful return with minimal volatility. We are targeting a 4% return in this strategy and, as a reminder, the income is exempt from state income tax. We have seen strong interest from investors looking for higher returns than low-yielding bank choices and better state income tax treatment than CDs.

Despite the economic and political uncertainties we remain optimistic about both equities and fixed income. The economy remains strong, company earnings estimates have been rising, sentiment remains favorable, and policymakers seem intent on being supportive. We will continue monitoring risks and have been shifting portfolio weights in the new year, incorporating some hedged products that participate on the upside but reduce the downside magnitude. While markets may prove choppy, we see reasons to cautiously position for further growth.

As always, please reach out with any questions you may have.

Nat Beebe, CFA

Jared Plotz, CFA

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 at 612.312.1400 or visiting www.ullandinvestment.com.

by Jared Plotz, Director of Research

The Nasdaq Composite Index closed above a notable threshold of 20,000 this week – quite the climb from its 6,860 close during the March 2020 Covid-induced lows! What does this tell us? Markets can climb much higher for much longer than may seem likely at any point in time. And oftentimes opportunities are at their best when the environment feels the worst. Currently, the economy and investor confidence are robust, but risks are always present, and we keep our ears tuned to shifts in the narrative.

AI-related stocks continued to recoup losses from their January selloff. The S&P 500 rose +1.5% this week, while the Nasdaq gained +2.6%. Portfolio holding Meta (Facebook) has strung together 20 consecutive days of positive stock gains, possibly the record for an S&P 500 company. The 10-Year Treasury yield, an interest rate indicator, closed at 4.48%, down -1 basis point from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, ended up +2 bps at 4.35%. Our Preferred securities were up.

Tariffs and inflation remained the market’s topic du jour this week. The president’s administration announced plans for “reciprocal tariffs” on countries that tax or limit markets for US goods this week. European countries that utilize value-added taxes could be subject, as well as countries utilizing subsidies, currency manipulation or other tariff equivalents. The Commerce Secretary is said to be looking at actions on a country-by-country basis, with tariffs possibly being implemented in April. The delay for studies to be conducted, as well as an opening for impacted countries to negotiate, was a relief to investors.

Recent inflation readings came a bit “hotter,” with core CPI rising at a 3.3% rate in January and PPI rising by 3.6%. These remain above the Federal Reserve’s goal of 2%, seeing headwinds from shelter and travel. A silver lining was more muted impact from categories that feed into the PCE index – the Fed’s preferred measure of inflation, that will next be released on February 28. Semi-annual testimony on monetary policy from Fed Chair Powell suggested the rate-setting group is not in a hurry to adjust, and thus will hold rates steady until inflation takes another meaningful step lower. He also highlighted it is too soon to consider the impact of tariff changes.

Next week, Monday is Presidents’ Day. The markets and our office will be closed. The holiday-shortened week will be quieter on the economic front while the steady flow of quarterly earnings reports continues. We will see some housing data, including the latest building permits, housing starts, and existing home sales. Walmart and Medtronic are amongst those companies on the earnings docket, while portfolio names Nvidia, Axon, and Intuit come the following week.

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 Jared Plotz, Director of Research

Another sideways move for the markets left the major indices roughly unchanged versus a week ago. The S&P 500 declined -0.2% this week, while the Nasdaq fell -0.5%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.49%, down -6 bps from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, ended up +3 bps at 4.33%. The recent reversal in longer-dated Treasury yields has helped fixed income securities, including Preferreds.

Uncertainty surrounding tariffs remains a key unknown for the markets and economists. Stocks fell a week ago after news that tariffs on Canada, Mexico, and China could take effect within days. Then early this week such tariffs on Canada and Mexico were delayed for a month, leading the markets to sigh in relief. The additional 10% tariff on Chinese goods went ahead as planned.

Job openings (JOLTS) for January came in at 7.6 million, a decline from over 8 million in December. Similarly, the employment report for January undershot the prior month. Employers hired a fewer-than-expected 143,000 workers; however, previous months were revised higher and the unemployment rate ticked down to 4.0%. Labor remains strong, with tight supply.

Earnings reports from the big technology companies continued this week. Equity portfolio holdings Google and Amazon announced higher-than-expected profits for Q4. Both companies told investors that they plan to spend heavily in 2025 to expand their data center businesses – with Google estimating investments of $75 billion and Amazon expecting $100 billion. The high values took some investors by surprise, though both companies noted that demand currently exceeds supply.

Next week brings quarterly results from a hodgepodge of companies, including McDonald’s, Humana, CVS Health, Deere, and Palo Alto Networks. On Monday, China’s retaliatory tariffs on some US goods should take effect, including tariffs on coal, LNG, oil, and larger machinery/cars. The NFIB Small Business Index is released Tuesday, CPI inflation on Wednesday, PPI inflation on Thursday, and retail sales for December on Friday. Declining inflation is hoped for by both stock and bond investors, as well as consumers.

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.