Monday, May 23, 2022

Markets rise after weeks of selling

Dow recovered 444 advancers over decliners a relatively modest 2-1 & NAZ went up 46.  The MLP index added 2+ to 211 & the REIT index crawled up 1+ to the 422s.  Junk bond funds rose along with stocks & Treasuries were sold, raising yields (more below).  Oil was off 1 to the 109s & gold gained 10 to 1852.

AMJ (Alerian MLP index tracking fund)




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Small businesses are growing concerned about the fate of the US economy as the nation deals with high inflation, supply-chain & labor shortages, & rising interest rates.  According to a poll conducted this month by business-coaching & peer-advisory firm Vistage Worldwide, 57% of small business owners predict that the US economy will only become worse in the next year, matching the Apr 2020 mark for lowest level of confidence.  Last month, 42% of small business owners had the same grim outlook on the economy.  The poll is part of a broader confidence index that, in May, revealed its largest year-over-year drop since the COVID-19 lockdown from spring 2020.  While prices continue to rise, the number of small businesses that expect a revenue increase in the coming year dipped to 61%, a significant decline from the May 2020 level of 79%.  Data showing that small business owners have a pessimistic view of the economy relies on responses from a variety of sectors, including manufacturing & consumer products & services.  Even large corporations are feeling the impact of supply-chain holdups, rising prices & worker shortages.   Supply chains are also seeing indicators that consumers are starting to cut down on spending, particularly for discretionary purchases, amid higher prices for gas & other necessities.

Most small business owners fear US economy will worsen over next year

The IMF has warned against “geoeconomic fragmentation” as policymakers & business leaders gather at the World Economic Forum in Davos, Switzerland.  In a blog postt, IMF Managing Director Kristalina Georgieva said the global economy faces its “biggest test since the Second World War,” with Russia's invasion of Ukraine compounding the residual economic effects of Covid-19 crisis, dragging down growth & driving inflation to multi-decade highs.  Spiraling food & energy prices are squeezing households around the world, while central banks are tightening monetary policy to rein in inflation, exerting further pressure on indebted nations, companies & families.  When combined with the spike in volatility in financial markets and persistent threat from climate change, the IMF said the world faces a “potential confluence of calamities.”  “Yet our ability to respond is hampered by another consequence of the war in Ukraine—the sharply increased risk of geoeconomic fragmentation,” Georgieva added.  “Tensions over trade, technology standards, and security have been growing for many years, undermining growth—and trust in the current global economic system.”  She said that uncertainty around trade policies alone cut global GDP by almost 1% in 2019, according to IMF research, & the DC based institution's monitoring also indicates that around 30 countries have restricted trade in food, energy & other key commodities.  Georgieva warned that further disintegration would have enormous global costs, harming people across the socio-economic spectrum & said technological fragmentation alone could lead to losses of 5% of GDP for many countries.

IMF says global economy faces 'confluence of calamities' in biggest test since World War II

Treasury yields rose as concerns about inflation & economic growth remained in focus for investors.  The yield on the benchmark 10-year Treasury note climbed 3 basis points to 2.823% & the yield on the 30-year Treasury bond moved 2 basis points higher to 3.021%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  Treasury yields moved lower throughout last week, as investors looked to find a safe haven in gov bonds, amid heavy selling in stock markets.  The S&P 500 briefly dipped into bear territory on Fri, with the benchmark index falling 20%.  However, US equities were on the rise today, with investors appearing to rotate slightly out of bonds, ahead of first-qtr GDP data, due out on on Thurs.

Treasury yields rise as inflation and economic growth concerns linger

Today's advance is less than inspiring.  The advance decline ratio is weak & demand for tech shares is limited in NAZ.  The GDP data on Thurs will be telling.  There is a chance GDP growth will be negative, signalling a recession,  However there are not indications a decline would be substantial.  But any headline mentioning recession could shake investor confidence which is already very nervous.

Dow Jones Industrials


Friday, May 20, 2022

Markets fall, extending their multi year losing streaks

Dow finished up 8 (well off early lows), decliners over advancers 3-2 & NAZ lost 33.  The MLP index was up 1+ to the 207s & the REIT index gained 3 to 421.  Junk bond funds crawled higher & Treasuries saw heavy buying again.  Oil was higher in the 112s & gold fluctuated near 1812 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The hottest inflation in nearly 4 decades is inflicting financial pain on Ms of Americans as prices for everyday necessities like food & gasoline soar higher, according to a new Census Bureau survey.  More than 1/3 of households reported difficulties in paying bills from Apr 27 - May 9, according to the Census Bureau's latest household pulse survey. The share of Americans who have said it is somewhat or very difficult to pay for usual household expenses is now hovering near its 2020 peak, at the height of the COVID-19 pandemic.  In some states, the percentage of Americans struggling to pay their bills is even higher: Nearly ½ of households in Mississippi – about 45% – reported difficulties in paying for usual household expenses, while that figure was about 43.6% in Kentucky & 41.8% in West Virginia.  Close to 40% of respondents in Alabama, Oklahoma, Wyoming & California said they were struggling to cover usual expenses.  The average American is likely shelling out an extra $311 a month because of inflation according to a recent Moody's Analytics analysis.  The financial squeeze stems from the rising cost of a number of everyday goods, including cars, rent, food, gasoline & health care.  Inflation accelerated again in Apr, the Labor Dept reported last week, with the consumer price index rising by 8.3%.  While down a bit from the 41-year high notched in Mar, it was much higher than expected & underscores that inflationary pressures in the economy remain strong.  Rising inflation is eating away at strong wage gains that American workers have seen in recent months:  Real average hourly earnings decreased 0.1% in Apr from the previous month, as the inflation increase eroded the 0.3% total wage gain.  On an annual basis, real earnings actually dropped 2.6% in Apr.

As inflation soars, one-third of Americans are experiencing financial stress

The Centers for Disease Control & Prevention (CDC) this week urged older Americans to get a Covid booster shot to increase their protection against the virus amid another surge in hospitalizations, particularly among those 70 & older.  “Over the past few weeks we’ve seen a steep and substantial increase in hospitalizations for older Americans,” CDC Director Dr Rochelle Walensky told the public health agency's committee of independent vaccine experts during a public meeting.  Only 43% of people ages 65 & older have received a vaccine dose in the past 6 months & just 38% of people ages 50 to 64 have done so, Walensky said.  “This leaves about 60% of older Americans without the protection they may need to prevent severe disease, hospitalization and death,” she added.  “We know immunity wanes over time, and we need to do all we can now to protect those most vulnerable.”  Walensky said people ages 50 & older should get a 4th Covid shot & those 12 & older with weak immune systems should get a 5th shot.  In Mar, the CDC said people in those groups could get 2nd Moderna (MRNA) & Pfizer (PFE) booster doses if they want them.  The public health agency strengthened its guidance, telling people to get the shots for added protection during the current Covid wave.  Hospitalizations have increased 25% among those 70 & older over the past week, with more than 1500 in the age group admitted with Covid per day on average as of Tues.  The US is reporting more than 100K new Covid infections per day on average, an 18% increase over the week prior, as more transmissible omicron variants weep the US.

CDC urges older Americans to get Covid boosters as hospitalizations soar again

Ukrainian Pres Volodymyr Zelenskyy said Russian forces have completely destroyed the eastern Donbas region, describing the area where the Kremlin has focused its latest offensive as “hell.”  Elsewhere, Russia may have just made its first retaliatory move against Finland after lawmakers in Helsinki officially applied to join the military alliance NATO. Gasum, Finland's state-owned gas wholesaler, said that natural gas imports from Russia will be halted tomorrow.  Pres Biden says Finland & Sweden both have his “full backing” in their bids to become members of the NATO military alliance.  The EU has disbursed €600M ($635M) to Ukraine as part of a macro financial assistance program said Prime Minister Denis Shmyhal.  “Today, #EU disbursed a new tranche of €600 million under the emergency Macro-Financial Assistance Program to #Ukraine,” Shmyhal  added.  Shmyhal also said he was grateful to the European Commission & its Pres Ursula von der Leyen.  “We will win and rebuild Ukraine together,” he said. 

Finnish gas supplies from Russia to be halted

Nymex Jul WTI oil futures end at $110.28 a barrel, up 39 cents, or 0.4%

Gold futures finished steady, as investors turned to Treasuries & the $ for safety to end a turbulent week in the stock market, but gold posted the first weekly gain in a month   Gold for Jun edged $1 higher to settle at $1842 an ounce, after flipping between small gains & losses.  It jumped 1.4% yesterday for the best daily percentage rise for the most-active contract since Apr 12.  The yellow metal also booked a 1.7% weekly advance, breaking a string of 4 consecutive weekly declines, its longest stretch since Aug 2018.  Treasuries have rallied this week, pulling down yields, as a sharp selloff for equities that has left the S&P 500 index on the brink of a bear market stirred demand for safe-haven assets.  The yield on the 10-year note hit a 3½-year intraday high above 3.2% early last week, but has pulled back to around 2.79%.  Retreating bond yields can give gold some breathing room.  Rising yields raise the opportunity cost of holding nonyielding assets, but skeptics questioned whether the respite would last.

Gold ends Friday unchanged, breaks longest streak of weekly declines in four years

Oil futures erased early weakness to end with a small gain, though upside appeared to be limited by a sharp stock-market selloff.  West Texas Intermediate crude for the most active Jul rose 39¢ to close at $110.28 a barrel.  Front-month Jun gained $1.02 (0.9%) to close at $113.23 a barrel for a gain of 2.5%.  Jul Brent crude gained 51¢ to settle at $112.55 a barrel.  Crude scored weekly gains, with WTI up 2.5% and Brent rising 0.9%, based on front-month contracts.  But a turn south by equities pressured crude into negative territory and likely limited upside gains.  The downturn saw the S&P 500 trade more than 20% below its record close from early Jan, a level that would mark a bear market if losses hold.  Oil-field-services company Baker Hughes said the number of US oil rigs rose by 13 this week to 576, while one gas rig was added, bringing the total to 150; miscellaneous rigs were unchanged at 2.

Oil prices end with gains on concerns over tight supply

After being greatly oversold, optimistic traders were buying in the last hour which took the Dow barely in the black.  However the stock market is in a bear market (quibbling over details is not important).  For the week, Dow fell 900 & is down a massive 5070 YTD.   The outlook going forward remains gloomy.

Dow Jones Industrials

Markets slide as stocks head for the longest losing streak since 2001

Dow dropped 235, decliners over advancerss 2-1 & NAZ declined 128.  The MLP index went up 2+ to 209 & the REIT index was even in the 417s,  Junk bond funds crawled higher & Treasuries rose in price (more below).  Oil was fractionally higher in the 112s & gold fell 4 to 1837.

AMJ (Alerian MLP index tracking fund)




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As Congress begins formal negotiations to compromise on the details of legislation aimed at boosting the country's ability to compete with China, American manufacturers have provided their 2¢ on the matter.  The National Association of Manufacturers (NAM) sent a letter to congressional leadership as dozens of lawmakers convened for a "conference committee" to work out how to bridge the gap between the chambers' 2 separate bills: the Senate' US Innovation & Competition Act & the House's America COMPETES Act.  The trade association laid out 10 priorities that began with praise for the $52B in semiconductor manufacturing subsidies included in both pieces of legislation & support for another $45B to create a Manufacturing Security & Resilience Program as proposed in the House legislation to help ease supply chain woes.  Manufacturers also expressed support for the Ocean Shipping Reform Act aimed at increasing efficiency at US ports & for provisions that prevent counterfeiting of goods, writing that "counterfeiting, particularly from China, hits manufacturers of all shapes and sizes, but is especially devastating for small and medium-sized manufacturers fighting to protect their core products."  The NAM also called on Congress to reauthorize the Miscellaneous Tariff Bill will "full retroactivity back to Jan. 1, 2021, and without the broad and arbitrary restrictions included in the America COMPETES Act for future MTB cycles."  The organization said that since the act expired at the end of 2020, "manufacturers and other businesses have paid more than $500 million in tariffs, or $1.3 million per day, on goods that are not available in the United States, adding inflationary and anti-competitive costs."  The manufacturers also appealed to lawmakers to reverse a recent change in the tax code that now requires research & development costs to be amortized over a period of years rather than immediately deducted as the code had allowed since 1954 until this year.

Manufacturers weigh in as Congress negotiates China competition bill

Treasury yields dipped slightly, continuing a trend of falling rates this week in the face of rising recession fears.  The yield on the benchmark 10-year Treasury note fell 2 basis points to 2.83% & the yield on the 30-year Treasury bond moved 4 basis points lower to 3.03%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  The 10-year yield started the week at about 2.90%.  Stock markets have had a turbulent week, with the S&P 500 on the brink of falling into bear territory & the Dow is headed for its 8th-straight negative week as investors fear a recession is imminent.  That's led investors to seek a safe haven in Treasuries, pushing bond prices higher & yields lower.  Inflation has already weighed on investor sentiment for some time, but earnings from retailers this week has sparked concerns that pricing pressures are starting to now take a toll on consumer spending & economic growth.   However, global markets climbed in early trading today, in an attempt to recover some of the ground lost this week.

10-year Treasury yield dips slightly, continuing trend of falling rates this week

The ECB will soon hike rates for the first time in more than a decade, a member of the central bank's governing council said.  The ECB has been in the spotlight for its less aggressive stance on monetary policy compared to other central banks.  However, expectations of a rate rise have grown in recent months amid continuous increases in inflation, with market players now pointing to at least 4 rate hikes before the end of the year.  “We are on the right path,” Joachim Nagel, pres of the Germany's Bundesbank & one of the ECB's more hawkish members, said.  “In our very important meeting in March we decided to end our net asset purchases and in the June meeting, dependent on data, we will decide to stop maybe — and I say this because this data are speaking a very convincing language here — that we stop our purchases and afterwards I believe we will see rather soon the first rate hikes,” he added.  His comments indicate that the first interest rate rise could come in Jul, once the ECB has debated new economic forecasts released the prior month.  Nagel said he has been warning about higher inflation since taking on the role & is now seeing more momentum toward increasing interest rates.  “I pretty much appreciate that many colleagues now from the Governing Council are joining my position here,” he added.

European Central Bank member says to expect first rate hikes this summer

Currently the Dow is down 1200 this week & a massive 2K in May.  What is there to say?  The outlook remains dreary with an economy that is sputter while inflation along with interest rates are on the rise.  Investors need to be brave & strong.  

Dow Jones Industrials