Wednesday, November 25, 2020

Markets dip after Fed minutes show no change in asset puchase plan

Dow dropped 173, decliners over advancers 4-3 & NAZ went up 57.  The MLP index was steady in the 144s & the REIT index hardly budged in the 371s.  Junk bond funds fluctuated & Treasuries were pretty much even.  Oil rose to the mid 45s & gold was flattish at 1904 (more on both below).

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Federal Reserve officials took part in a detailed discussion about their asset purchase program during the meeting earlier this month, at which some members said they expect several changes to be enacted.  At the Nov 4-5 meeting officials voted to keep benchmark short-term borrowing rates anchored near zero.  Market participants were looking to the minutes to gauge where policymakers stand on possibly ramping up or adjusting the asset purchase program, which currently has the Fed buying $120B of Treasurie's & mortgage-backed securities a month.  The Fed could choose to increase the purchases or to lengthen the duration of those bonds.  While members said the current pace of purchases was helping keep financial conditions accommodative, they noted that changes could be enacted if necessary.  “Participants noted that the Committee could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases,” the minutes said.  “Alternatively, the Committee could provide more accommodation, if appropriate, by conducting purchases of the same pace and composition over a longer horizon.”  FOMC officials also expressed concern about the pace of the economic recovery, noting that growth was still well off the pace before the coronavirus pandemic hit in Mar.  During his post-meeting news conference, Fed Chair Jerome Powell said he feels the Fed still has plenty of policy “ammunition” and pledged that the committee is “strongly committed to using these powerful tools to support the economy.”  Since then, the Fed has learned that it start 2021 without some of the weapons in its arsenal, as Treasury Secretary Steve Mnuchin has directed the central bank to return collateral funding it received for multiple pandemic-era lending programs.  They include corp bond purchases, loans to state & municipal govs & the Main Street Lending Program for small- & medium-sized businesses.

Fed weighed adjusting bond purchases to provide more help to subpar economy, meeting minutes show

A senior Federal Reserve official said he expects the economic recovery to forge ahead despite a record increase in coronavirus cases, saying businesses have learned how to cope with the pandemic.  James Bullard, pres of the St Louis Federal Reserve Bank, said he thinks the economy is likely to expand at a steady pace in the waning months of 2020 & into early next year.  While recent economic data “has not been as strong as it’s been,” Bullard acknowledged, he said businesses have learned how to keep their workers & customers safe.  They are likely to continue to hire, produce & even invest more in anticipation of vaccines being widely available next year.  Most of the increase in coronavirus cases recently, he contended, have occurred outside the workplace, at home or other social gatherings.  At the same time, Bullard said, he expects Americans to modify their behavior again as they did last summer to slow the latest spread of the coronavirus.  For now Bullard doesn't expect a change in the Fed's aggressive approach to supporting the economy.  “I think we have a great policy right now,” said Bullard, though he remained open to additional measures if the economy needed more help.  Bullard has been one of the more relatively optimistic voices at the Fed on the current recovery.  He said the US has learned a lot during the pandemic, allowing most businesses to work toward precrisis levels of production.  “A lot of learning has already occurred,” he added.  “It seems to me there is light at the end of the tunnel in terms of seeing an end to the crisis. It’s very much a realistic view.”

Fed’s Bullard sees ‘light’ at end of coronavirus tunnel

Gold futures booked a meager gain, as the precious metal attempted to recover from a series of sharp declines that were prompted partly by progress on vaccines & treatments for the economy-disrupting coronavirus.  Dec gold added 1 to settle at $1805 an ounce.  The precious metal is on track for a weekly decline of almost 4%.  Metals trading will be closed in observance of Thanksgiving in the US. 

Gold ends slightly higher day before Thanksgiving but on track for 4% weekly skid

Consumer spending moderated in Oct, the gov said.  Spending rose 0.5% after a revised 1.2% gain in the prior month.  This is the smallest gain since Apr.  The forecast expected a 0.4% rise.  Incomes sank 0.7% in Oct as gov programs ended.  The forecast was expecting a 0.5% drop.  The PCE index, the Federal Reserve's inflation barometer slowed to a 1.2% annual rate down from a 1.4% gain in Sep.  The core measure that strips out food & energy increased at a 1.3% annual rate, down from 1.5% in the prior month.  The Fed is farther away from its 2% inflation target.  The savings rate dipped to 13.6% from 14.3%.  Wages & salaries rose 0.7% in the prior month.  The US is suffering another major wave of COVID-19 cases at the same time that gov stimulus funds are waning & consumer confidence fell to a 3-month low.

U.S. consumer spending moderates in October

Nordstrom (JWN) reported that Q3 sales picked up more than expected, suggesting it might have a stronger holiday season than some investors expected if trends continue.  CEO Erik Nordstrom said the retailer has made strides with its online business, especially since its stores were temporarily shuttered.  Digital sales were $1.6B & represented 54% of its business.  He said the company is “continuing to amplify categories that are relevant with customers during the pandemic, such as activewear & wellness products.”  He added it's also looking toward the future with the Covid-19 vaccine & anticipates “pent-up customer demand, particularly around occasions like travel or in-person social events.”  The retailer's off-price store, Nordstrom Rack, could be a major growth driver because it’s one of the few in this category with a large online presence.. EPS was 34¢, down from 81¢, down from last year.  The forecast called for a loss of 6¢.  Total revenue fell to $3.09B from $3.67B a year ago, & was lower than the $3.10B expected.  JWN was among the retailers that were forced to close their doors in the early days of the coronavirus pandemic.  Total sales were down 40% in Q1 & 53% in Q2 compared with the same period a year earlier.  In Q3, total sales were down only 16%.  That includes an approximately 10-percentage point impact from the Anniversary Sale.  CFO Anne Bramman said expects sales to decrease in the low 20-percentage range in Q4, although the company expects to deliver positive operating cash flow.  Yet she acknowledged the outlook is uncertain because of the pandemic & said that its expectations are based on stores remaining open.  The stock climbed 2.85 (12%).
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Nordstrom shares rise as retailer shows signs of recovery

Oil futures extended gains, with the US & global benchmarks ending at their highest level since Mar 5 for a 2nd straight session as investors remained cheered by optimism over progress toward COVID-19 vaccines & data that showed a fall in US crude inventories last week.  West Texas Intermediate crude for Jan rose 80¢ (1.8%) to end at $45.71 a barrel.  The global benchmark, Jan Brent crude advanced 75¢ per barrel (1.6%) to finish at $48.61 a barrel.

Oil futures rally to end at more-than-8-month high

This was a quiet day with many traders starting their holiday early.  Enjoy the holiday & keep safe & healthy.

Dow Jones Industrials








 

Markets fall as jobless claims rise

Dow was off 133, decliners over advancers about 2-1 & NAZ gained 27.  The MLP index slid back 1+ to the 142s & the REIT index fell 1+ to the 369s.  Junk bond funds did little today & Treasuries edged higher.  Oil rose above 45, another multi month high, & gold recovered 3 to 1808.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil45.30
 +0.39+0.9%







GC=FGold  1,808.90
 +4.30+0.2%










 

 




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The number of Americans applying for state unemployment benefits rose again last week as a surge in coronavirus cases across the country threatens to undermine the economy's recovery.  The latest jobless claims figures from the Labor Department, which cover the week ending Nov. 21, show that 778Kworkers sought aid last week, about 4 times the pre-crisis level.  While it's well below the peak of nearly 7M in late Mar, when states first implemented lockdown measures to curb the spread of COVID-19, it marks the 2nd consecutive week of an increase in claims.  It's a slight uptick from last week's revised figure of 748K & well above the 730K new claims forecast.  Close to 68M Americans  roughly 40% of the nation's labor force ‒ have applied for aid since the coronavirus lockdowns began in mid-Mar.  The number of people who are continuing to receive unemployment benefits fell to a little more than 6M, a decline of 299K from the previous week.  While the decline suggests that employers are calling their workers back, it may represent laid-off Americans who have used up the maximum number of payments available thru state unemployment programs (typically about 6 months) & are now receiving benefits through a separate federal program that extends the aid by 13 weeks.  Congress created the extra federal benefits earlier this year with the passage of the CARES Act.  But those key federal jobless aid programs created in Mar are slated to expire at the end of the year, leaving about 12M workers with no income on Dec 26.  Up to 4.4M workers are expected to exhaust their unemployment benefits before Dec 26, with 3.5M Americans using up the extended Pandemic Emergency Unemployment Compensation & 925K running out of the Pandemic Unemployment Assistance.  Job losses remain elevated and, as COVID-19 cases surge across the country, prompting state & local govs to implement new lockdown measures, economists are increasingly warning of a bleak winter.

Jobless claims increase as coronavirus cases rise, lockdowns return

The US economy grew at a record pace during the 3rd qtr, according to a 2nd estimate released by the Commerce Dept.  GDP increased 33.1% during the 3 months, unrevised from the first estimate & in-line with the expectations.  The initial estimate released last month showed record growth as the US economy battled back from its COVID-19-induced slowdown.  The US economy, the world's largest, contracted at a 32.9% annualized pace in the 2nd qtr as lockdowns aimed at slowing the spread of the virus caused activity to grind to a halt.  The 2nd estimate included upward revisions to nonresidential fixed investment, residential investment & exports.  Those were offset by downward revisions to state & local gov spending, private inventory investment & personal consumption expenditures.  Imports, which reduce GDP, were revised higher.  A 3rd estimate will be released on Dec 22.

US economy grows at record 33.1%, according to second estimate

The Food & Drug Administration (FDA) authorized one of the first Covid-19-19 tests that measures the amount of neutralizing antibodies produced by the body's immune system after exposure to the virus — a “new generation” of coronavirus test that is designed to tell how well someone is protected against infection.  A person's immune system produces antibodies to combat viruses & other foreign pathogens that invade the body.  When it comes to Covid-19, it remains unclear how much protection antibodies provide & how long that might last, but this test could help researchers better understand the role of Covid antibodies in immune protection.  Unlike many previously authorized antibody tests that can tell if you've had the virus or not, the COVID-SeroKlir test measures your specific levels of Covid-19 neutralizing antibodies.  The FDA has previously authorized some tests that estimate the level of antibodies, but not specifically for neutralizing antibodies.  The FDA cautioned that much remains unknown about the nature of Covid-19 neutralizing antibodies in humans & that a high level of antibodies does not necessarily guarantee immunity against the virus.  But the new test is important because it can be used by researchers to further study the relationship between Covid-19 antibodies & protection against the virus.  That's relevant for protection generated by both previous Covid-19 exposure & by a vaccine, once one is distributed, which could be next month in the US.

FDA clears a ‘new generation’ of Covid antibody test that measures level of neutralizing antibodies

While the news on jobless claims was not a great surprise, it was still disturbing & a reminder that more work will be needed to fix the economy.  Meanwhile advances on research to fight the virus are making progress & impressive.

Dow Jones Industrials

 






Tuesday, November 24, 2020

Markets soar on vaccine and stimulus hopes

Dow zoomed 454 to go over 30K, advancers over decliners 3-1 & NAZ went up 156 (over 12K).  The MLP index advanced 4+ to the 145s & the REIT index rose 2+ to the 271s.  Junk bond funds were mixed & Treasuries continued weak.  Oil gained 1+ to the high 44s & gold retreated 38 to 1901 (more on both below).

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Some Dem lawmakers opened the door this week to a smaller coronavirus relief deal as Congress faces growing pressure to pass an aid package before the end of the year.  Although House Speaker Nancy Pelosi & Senate Minority Leader Chuck Schumer, have maintained for months that at least $2.2T is needed for American workers & businesses still reeling from the pandemic, some top Dems have suggested that a smaller aid package to tide over the economy until Pres-elect Joe Biden takes office on Jan 20 would be better than nothing.  "I just hope that we can get agreement. It may not be everything that everybody wants but at least if we can get some significant relief to people," House Majority Leader Steny Hoyer said.  "And then we're going to be here next year. If we need to do other things, we'll do other things.”  Negotiations on Capitol Hill have been stalled for months despite seemingly endless meetings between Pelosi & Treasury Secretary Steve Mnuchin, & with just 8 legislative days left on their calendar, it's unclear whether lawmakers will be able to reach an agreement before year's end.  The deadlock comes at an increasingly perilous time for the nation as it teeters on the brink of another downturn: COVID-19 infections are surging, state & local govs are implementing more restriction measures, new unemployment insurance claims rose last week, & key support programs are set to expire on Dec 31.

Some Democrats open door to smaller coronavirus relief deal

Gold futures logged a 2nd straight sharp loss but held above a key level of support, as the precious metal retreated amid progress on COVID-19 vaccines that helped to send the Dow above a milestone at 30K for the first time.  Progress toward remedies for COVID-19 has reduced the need for the safe-haven metal after investors earlier this year rushed into bullion as the $ rose amid economic uncertainties created by the pandemic.  Further clarity on the US political scene, after Pres Trump said his aides would cooperate with Pres-elect Joe Biden’s transition to the White House, is also easing concerns about a drawn-out fight over the election.  The Dow surged to trade in record territory & investors were also piling into small-capitalization stocks, with the Russell 2000 index also at an all-time high for a 2nd session in a row.  Dec gold lost $33 (1.8%) to settle at $1804 an ounce, taking it to its lowest level since mid Jul.   It touched an intraday low at $1797.  Gold dealers see the metal's support level around $1800, around its 200-day moving average, after slipping beneath a key level at $1850 yesterday.  Moving averages are seen by technical analysts as potential dividing line between bullish & bearish momentum in an asset.

Gold price ends at lowest since mid July, but hangs above key support level at $1,800

The federal gov is conducting a practice run this week of its coronavirus vaccine distribution networks with some test shipments as the drugs await emergency approval from the Food & Drug Administration (FDA) in “just a few weeks.”  The dry run is part of a series of field exercises under the Trump administration's vaccine program Operation Warp Speed, Health & Human Services Secretary Alex Azar said.  The shipments, which won't contain the actual vaccine vials, will test the systems used by state health departments to order vaccine doses to “ensure that all goes smoothly,” Azar said.  “If all goes well, we could be distributing vaccine soon after December 10,” Azar added.  “We believe we can distribute vaccine to all 64 jurisdictions within 24 hours of FDA authorization.  Then we hope administration can begin as soon as the product arrives.”  The US is aiming to deliver 40M doses of Covid-19 vaccine by the end of the year.  Initial doses would be prioritized for health-care workers & people most vulnerable to serious disease.  Last week, Pfizer (PFE) announced that it had selected 4 states — Texas, New Mexico, Tennessee & Rhode Island — to operate a pilot delivery program designed to work out kinks in its distribution system.  As part of the program, the company will ship vials filled with saline solution before it starts shipping the actual vaccine, said a PFE spokeswoman.  “We’re working on this constantly,” said Gen Gustave Perna, who is leading the federal gov's effort to distribute the vaccines.  “We work rehearsals of different scenarios to make sure we’re capturing all the nuances of the delivery, but each and every week we get stronger. It’s not lost on anybody listening, we’re one week closer to distributing the vaccine.”

U.S. to test run Covid vaccine distribution networks as it awaits FDA approval in ‘just a few weeks’

Oil futures rallied sharply, pushing the US benchmark to its highest close for a most actively traded contract since Mar 5.  West Texas Intermediated crude for Jan delivery rose $1.85 (4.3%) to end at $44.91 a barrel.  Oil has been in rally mode since early Nov, rallying in step with equities as investors appeared to look past rising COVID-19 cases in the US & Europe, focusing instead on progress toward a vaccine. 

U.S. oil benchmark closes at more-than-8-month high just shy of $45 a barrel

Consumer confidence fell in Nov to a 3-month low after a record wave of coronavirus cases spurred some cities & states to reimpose restrictions & as Americans took greater precautions.  The index of consumer confidence slipped to 96.1 this month from a revised 101.4 in Oct, the Conference Board said. The forecast called for a decline to 97.3.  Confidence is still far below pre-pandemic levels.  The index stood at 132.6 before the viral outbreak in Feb.  An index that tracks how consumers feel about the economy right now dipped to 105.9 in Nov from 106.2 in Oct — a surprisingly small decline given the explosion in new COVID-19 cases.  Another gauge that assesses how Americans view the next 6 months —the future expectations index — fell more sharply.  It dropped to 89.5 from 98.2 even though coronavirus vaccines are likely to be widely available by next summer.  “Heading into 2021, consumers do not foresee the economy, nor the labor market, gaining strength,” said Lynn Franco, senior director of economic indicators at the nonprofit board.  “In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook.”  Other measures of confidence, including the consumer-sentiment survey & daily report by Morning Consult, also declined in Nov.

Consumer confidence deflates in November after record coronavirus surge

Investors are happy & bidding stocks higher.  Optimism over the imminent deployment of a COVID-19 vaccine propelled the Dow above 30K for the first time.  Meanwhile safe haven gold is down more than 10% from its recent highs above 2K.  Now traders will be paying more attention to the goings on in DC, watching for a stimulus bill by year's end.

Dow Jones Industrials