Friday, January 15, 2021

Markets fall as investors monitor $1.9T stimulus and weak retail sales

Dow retreated 177, decliners over advancers 2-1 & NAZ dropped 114.  The MLP index was off 2+ to the 159s & the REIT index rebounded 4+ to 370.  Junk bond funds were mixed & Treasuries saw more selling.  Oil pulled back 1+ to the 52s & gold retreated 25 to 1826 ( more on both below).

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Pres-elect Joe Biden's proposed stimulus plan is the right medicine for an economy likely to see substandard growth in H1, Boston Federal Reserve Pres Eric Rosengren said.  As the first central bank official called to publicly speak on the Biden plan, he said he was comfortable with the aggressive fiscal action despite a nearly $2T price tag that will take an already debt-laden federal gov deeper into the red.  “It’s a big package, but I think it’s appropriate,” he said.  “The economy is in a lull right now.”  The Biden plan looks to spend $1.9T on a variety of measures tied directly to the impact that the Covid-19 pandemic has had on the economy, like direct cash payments & extended unemployment benefits, as well as on items that are tangential, like raising the federal minimum wage & cash to schools.  Fed officials for months have been calling on Congress to provide more fiscal aid.  “While it’s a very big package, I do think until we get to the point where people have been vaccinated, where businesses have been bridged, and where many of the unemployed workers have come back to work, we need an expansionary fiscal policy,” Rosengren added.  “And to the extent that it targets those parts of the economy most affected by the pandemic, that is the appropriate action for fiscal policy at this time.”  Though it’s uncertain how much spending Congress will approve, the money will go to an economy that Rosengren thinks will struggle thru H1, then rebound sharply.  Still, he said fiscal & monetary policy really isn't the problem at this point, but rather that “we have the wrong pandemic policy.”  “Too many people are infected and we’re being too slow to get shots in the arm,” he said.

Fed’s Rosengren voices support for Biden stimulus proposal

Gold futures slid to end lower for the week as the $ strengthened & investors parsed Pres-elect Joe Biden's recently announced $1.9T COVID-19 relief plan.  Feb gold gave up $21 (1.2%) to settle at $1829, the lowest for a most-active contract since Dec 1.  For the week, gold ended 0.3% lower, while silver logged a 0.9% weekly advance.  Yesterday, gold found some support, moving off session lows after Federal Reserve Chair Jerome Powell said that it isn't time to consider exiting easy-money policies, as the US combats the economic crisis wrought by the COVID-19 pandemic.  “Now is not the time to be talking about exit,” Powell said.  Today, Minneapolis Federal Reserve Pres Neel Kashkari said inflation could be rising, but there isn't much risk of it getting out of control.  Over the long-run commodity analysts remain bullish on gold, particularly on the back of outsize gov spending, which could devalue $s & buttress gold prices.

Gold prices decline to post a loss for the week as U.S. dollar firms

Shares of Wells Fargo (WFC) slumped, after the bank reported a Q4mnmn profit that beat expectations for the first time in 6 qtrs, but revenue that fell more than forecast as lower interest rates weighed on net interest income.  EPS was 64¢, up from 60¢ in the same period a year ago.  The consensus was for EPS of 59¢. Total revenue fell 9.7% to $17.9B, missing the consensus of $18.1B, as all of the bank's business segments saw revenue decline.  Net interest income dropped 17% to $9.3B, below the estimate of $9.3B.  Consumer banking& lending revenue fell 5% to $8.6B, as an 8% decline in consumer & small business banking revenue & a 7% fall in credit card revenue offset a 2% increase in home lending.  "Although our financial performance improved and we earned $3.0 billion in the fourth quarter, our results continued to be impacted by the unprecedented operating environment and the required work to put our substantial legacy issues behind us," said CEO Charlie Scharf.  The stock sank 2.72 (8%).
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Wells Fargo's stock slumps after revenue falls more than forecast, but profit breaks streak of misses

Inflation could be rising but there isn’t much risk of it getting out of control, said Minneapolis Federal Reserve Pres Neel Kashkari.  “I believe we can get back to 2% inflation,” Kashkari said.  “And if inflation goes a little bit above 2% that’s absolutely fine,” he added.  But a general outbreak of inflation is unlikely, Kashkari said.  “I don’t see much risk of inflation shooting way above 2%,” he continued.  He said that if inflation does surprise to the upside, the central bank has the tools to deal with it.  During his talk, Kashkari said there has been some bad news about the pandemic & the rollout of the COVID-19 vaccine.  The vaccine rollout has been much slower than expected & people's willingness to take it seems to be lower than expected,m.  In addition, estimates of the threshold for herd immunity have been revised given some of the mutations of the virus.  As a result, Kashkari said he doubted that he would bring back all of the employees at his regional Fed building – with no masks & no social distancing – this year.  “We can see the light at the end of the tunnel…but it’s a long tunnel,” Kashkari added.  Economists are penciling in a strong H2-2021 under the assumption that the vaccines would allow the economy to return to resembling pre-pandemic norms.

Fed’s Kashkari says he’s not worried about inflation ‘shooting way above’ 2% rate

Oil futures finished sharply lower, prompting US prices to pare their gain for the week, as investors weighed fresh COVID-19 outbreaks in China, which has been an engine of demand as other major economies were slowed by the coronavirus pandemic.  China says it is now treating more than 1000 people for COVID-19 as numbers of cases surge again in the country’s north. Shijiazhuang & the cities of Xingtai & Langfang are under virtual lockdown, confining more than 20M people to their homes.  The global tally for confirmed cases of the coronavirus that causes COVID-19 climbed above 93M today, according to data aggregated by Johns Hopkins University, while the death toll rose 2M.  The US has the highest case tally in the world at 23.3M & the highest death toll at 388K.  West Texas Intermediate crude for Feb fell $1.21 (2.3%) to settle at $52.36 a barrel.  Prices based on the front-month contract ended the week with a modest gain, their 3rd in a row, after settling yesterday at their highest since Feb.  Mar Brent crude , the global benchmark, lost $1.32 (2.3%) at $55.10 a barrel for a 1.6% weekly fall.  Data from Baker Hughes, however, revealed a rise in the US oil-rig count for an 8th straight week, implying higher output ahead.

Oil settles lower as China lockdowns temper ‘euphoria’

Investors were not happy with the proposed stimulus bill & sluggish retail sales report for Dec.  Buyers returned in early trading to reduce markets losses.  Then sellers closed out the session, taking the Dow down 100 in the last hour.  Next week has the makings of a tough week for investors.

Dow Jones Industrials

Markets fall after Biden releases his coronavirus relief plan

Dow dropped 260, decliners over advancers about 3-1 & NAZ declined 139.  The MLP index fell 3+ to the 158s & the REIT index was steady at 366.  Junk bond funds slid lower & Treasuries continued to be sold.  Oil was off 1+ to 52 following its recent rally & gold sank 26 to 1825.

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GC=FGold  1,832.80



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Retail sales fell for a 3rd straight month as a surge in virus cases kept people away from stores during the holiday shopping season.  The report is another sign that the pandemic is slowing the US economy.  Last month, the country lost jobs for the first time since the spring.  And gov numbers out this week reported a spike in weekly unemployment claims, indicating that rising infections are forcing businesses to cut back & lay off workers.  The Commerce Dept said retail sales fell a seasonally adjusted 0.7% in Dec from the month before.  They also fell in Oct & Nov, even though many retailers tried to get people shopping early for their Christmas gifts by offering deals before Halloween.  Some retailers have already indicated that they had an unhappy holiday season.

US retail sales fell in December for 3rd straight month

JP MorganChase (JPM), a Dow stock & the nation's largest lender, posted higher profit than expected as trading income spiked amid volatility from the presidential election & customer borrowing increased.  EPS of $3.07, excluding the release of funds previously set aside to cover loan losses, topped the $2.62 estimate.  Total revenue climbed 3% to $30.2B, outpacing estimate of $28.7B.  Congressional action on a 2nd coronavirus-relief package & the development of vaccines to treat the deadly disease enabled the lender to free $2.9B in loan reserves, though it still retains a sizeable $30B, reflecting "significant near-term economic uncertainty," CEO Jamie Dimon said.  That "will allow us to withstand an economic environment far worse than the current base forecasts by most economists," he added.  Revenue in the trading business climbed 20% to $5.9B amid fights over the outcome of the US presidential election & Britain's exit from the EU, with gains of 15% on the bond desk & 32% in stocks.  The stock dropped 3.79.
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JPMorgan revenue spikes as COVID-19 relief soothes economic pain

Citigroup (C) posted Q4 results that beat the estimate.  EPS fell 7% to $2.08, compared with the $1.34 expected.  Companywide revenue fell 10% to $16.5B, below the estimate of $16.7B.  The bank released $1.5B in reserves for credit losses, a move that was bigger than expected.  That compared with a reserve build of $436M in Q3 & $253M a year earlier.  As a result, credit costs in the period were more than $2B less than a year earlier.  “As a sign of the strength and durability of our diversified franchise, our revenues were flat to 2019, despite the massive economic impact of COVID-19,” outgoing CEO Mike Corbat said.  Citi has said it expected Q4 trading revenues to climb 15% from a year earlier, while investment banking fees should climb by 10% to 15%.  The stock fell 3.10.
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Citigroup beats analysts’ profit estimates but revenue falls short

While retail sales disappointed, that was not a big surprise.  The economic recovery has been under a lot of pressure from gloomy data on the virus war.  And bank earnings were not pretty.  The size of Biden's package was largely in line with expectations & would be rivaled only by the $2.2T relief from the CARES Act last spring.  However it's not clear if the package will be approved.  The stock market is struggling today.

Dow Jones Industrials


Thursday, January 14, 2021

Markets pare gains ahead of Biden's proposed stimulus package

Dow went down 68 finishing under 31K with selling in the last 2 hours of trading, advancers over decliners better than 2-1 & NAZ gained 16.  The MLP index added 2+ to the 161s & the REIT index added 2+ to the 366s.  Junk bond funds crawled higher & Treasuries continued to be sold.  Oil rose to the 53s & gold was off 9 to 1845 (more on both below).

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Pres-elect Joe Biden shortly will unveil his long-awaited coronavirus stimulus proposal designed to jump-start the nation's economy amid fresh evidence that the recovery is sputtering.  The plan, which could carry a price tag of at least $1.5T, is widely expected to include a commitment for $1400 stimulus checks, an extension of supplemental unemployment benefits that are poised to expire in Mar, funding for vaccine distribution & aid for state & local govs.  The $1400 payments would be in addition to the $600 that most Americans received this month, bringing the total check amount to $2K.  Biden will introduce the aid package during an evening speech.  He has repeatedly said that passing another round of emergency aid is a priority for his administration and has pledged to "hit the ground running" on passing legislation.  On Mon, Biden asked the Senate whether the chamber could divide its schedule so that lawmakers could consider his agenda & hold an impeachment trial for Pres Trump.  “I hope that the Senate leadership will find a way to deal with their Constitutional responsibilities on impeachment while also working on the other urgent business of this nation," Biden said yesterday.  He estimated last week the bill would cost "trillions of dollars," including "billions of dollars" to speed up vaccine distribution, arguing that more spending early on could reduce the long-term damage caused by the pandemic.  "If we don't act now, things are going to get much worse, and it'll be harder to get out of the hole later," he said last week.  More than 380K people in the US have died of COVID-19 & more than 23M infected.  Lockdown measures adopted across the country to curb the spread of the virus have cost Ms of Americans their jobs.  It's unclear whether the proposal will garner bipartisan support, with deficit-weary Reps likely to balk at the proposal's price tag.  The gap between what the gov spent & what it collected hit a record $3.4T for the 2020 fiscal year.  Sen Joe Manchin, a moderate Dem, has rejected another round of stimulus checks, but Sen Marco Rubio, incoming Senate Finance Committee Chair Ron Wyden & incoming Senate Majority Leader Chuck Schumer have all endorsed upping the $600 benefit included in the $900B coronavirus relief package to $2K.

Biden to unveil new relief plan expected to include another stimulus check

Federal Reserve Chair Jerome Powell affirmed his commitment to keeping interest rates low for the foreseeable future even as he expressed hope for a strong economic recovery.  “When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon,” the central bank chief said.  Powell also spoke about how the Fed handled the challenges brought on by the Covid-19 pandemic as well as his expectations for what is ahead.  In its most recent policy statement, issued in Dec, the policymaking FOMC) said it would keep an accommodative stance until it sees “substantial further progress” towards is employment & inflation goals.  On the employment mandate, Powell stressed the Fed;s new approach to inflation in which it will not raise rates even if unemployment falls below levels that historically would have been considered a warning sign for pricing pressures ahead.  “That wouldn’t be a reason to raise interest rates, unless we start to see inflation or other imbalances that would threaten the achievement of our mandate,” he added.  One such imbalance would be inflation.  In recent days, a few Fed officials have cautioned that inflation could move up sooner than the Fed expects & might force the removal of some policy accommodation sooner than committee members have forecast. 

Powell sees no interest rate hikes on the horizon as long as inflation stays low

US automakers are suffering from the deepest sales decline in decades, the country is still politically divided & it's in the middle of a pandemic.  But if US officials can quickly rollout a Covid-19 vaccine & stabilize the nation, automotive execs & analysts have reason to hope US vehicle sales will return to some form of normalcy in 2021.  Industry execs & analysts predict strong consumer demand will continue this year & a return of commercial fleet sales as local officials roll out the Covid-19 vaccine.  Early forecasts for new vehicle sales this year range from about 15.6-16M vehicles, which would be an increase of between 7.6% & 10.3% compared to 2020.  Last year's sales were down 14.8% to 14.5M vehicles, according to Cox Automotive.

U.S. auto sales are optimistically projected to rise by as much as 10% in 2021

Gold futures finished with a modest loss, as the recent rise in US bond yields & a firmer $, as well as strength in the stock market created some headwinds for bullion buying.  US benchmark stock indexes traded higher as gold futures settled, with the Dow touching an intraday record, drawing some haven interest away from gold.  Gold futures had settled at $1835, the lowest since since early Dec.  Today, Feb gold prices fell $3 to settle at $1851 an ounce, after a 0.6% rise yesterday.  The longer-term outlook for the yellow metal among some dealers is for higher prices, amid expectations for further US gov relief to boost the economic recovery from the coronavirus pandemic.  Pres-elect Joe Biden later will outline a $2T fiscal spending package that would include more direct payments to American families & significant state & local funding.  Meanwhile, Federal Reserve Chair Jerome Powell said inflation may rise as the economy recovers from the pandemic but is unlikely to be persistent & the central bank had no plans to change monetary policy anytime soon.  Gold prices in the longer-term could rise as govs around the world use both fiscal & monetary policy to reflate their economies.

Gold prices end lower on rise in U.S. bond yields, risk-on sentiment

Johnson & Johnson's (JNJ), a Dow stock & Dividend Aristocrat, one-dose coronavirus vaccine is safe & appears to generate a promising immune response in both young & elderly volunteers, according to trial data published in the New England Journal of Medicine.  JNJ scientists randomly assigned healthy adults between the ages of 18-55 & those 65 & older to receive a high or low dose of its vaccine — called Ad26.COV2.S — or a placebo.  Some participants in the 18-55 age group were also selected to receive a 2nd dose of the vaccine.  Most of the volunteers produced detectable neutralizing antibodies, which researchers believe play an important role in defending cells against the virus, after 28 days.  By day 57, all volunteers had detectable antibodies, regardless of vaccine dose or age group, & remained stable for at least 71 days in the 18-55 age group.  The most common side effects were fever, fatigue, headache, muscle aches & pain at the injection site.  Side effects were less common in the older age group, who received only one dose of the vaccine, as well as those who received a lower dose of the vaccine.  The phase I & II clinical trial data shows a single shot of the vaccine “gives sustainable antibodies,” Dr Paul Stoffels, chief scientific officer at JNJ, said.  He added it gives the company “confidence” the vaccine will be highly effective against the virus.  The trial tested 805 volunteers. The company is expected to release results from its 45K-person phase III trial later this month.  JNJ is using the same technologies it used to develop its Ebola vaccine for its Covid-19 vaccine.  The stock rose 2.75 (2%).
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J&J’s one-shot Covid vaccine is safe and generates promising immune response in early trial

Oil futures booked gains, with US benchmark prices finishing at their highest since Feb, buoyed by the continuing COVID-19 vaccine rollout & expectations that the Biden administration's stimulus package will help improve demand for crude.  West Texas Intermediate crude for Feb rose 66 (1.3%) to settle at $53.57 a barrel.  Prices for the front-month contract settled at their highest since Feb.  Mar Brent, the global benchmark, tacked on 36¢ (0.6%) to $56.42 a barrel.  US prices have held ground above the $50 mark for more than a week.  Oil traders also eyed the pace of Chinese oil imports, global demand forecasts & declines in US crude inventories against a backdrop of surging COVID-19 cases.  China's crude imports declined to a 27-month low of 9.1M barrels a day in Dec, though total 2020 imports jumped 7% to 10.8M barrels a day.  OPEC left its forecast for world oil-demand growth in 2021 unchanged from its Dec estimate.  The cartel expects crude demand to only partially recover from the 9.8M barrel decline suffered in 2020 due to the COVID-19 pandemic.  OPEC said it expects demand growth to rise to 95.9M barrels a day this year, up 5.9M barrels a day.

Oil books gains, with U.S. prices closing at their highest in 11 months

As this is being written, negative news is bringing on selling.  Meanwhile Treasury yields & oil prices are rising.  Tomorrow has the makings of a wild day for stocks.

Dow Jones Industrials