Friday, October 23, 2020

Markets fall on concerns about stimulus bill

Dow dropped 28, advancers over decliners 3-2 & NAZ was up 42.  The MLP index was even in the 121s & the REIT index went up 2+ to the 352s.  Junk bond funds hardly budged & Treasuries crawled higher in price.  Oil dropped below 40 after Libya announced it will resume shipping oil & gold was steady ay 1905 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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US business activity increased to a 20-month high in Oct, but the pace of new business growth & new orders eased slightly amid the lingering COVID-19 pandemic & caution ahead of the presidential election.  Data firm IHS Markit said its flash US Composite PMI Output Index, which tracks the manufacturing & services sectors, rose to a reading of 55.5 this month.  That was the highest since Feb 2019 & was up from 54.3 in Sep.  A reading above 50 indicates growth in private sector output.  It said some manufacturers & service industry companies noted the coronavirus crisis had weighed on demand.  The survey found other companies said a number of clients were holding back on placing orders until after the fiercely contested race for the White House.  Growth in foreign client demand also slowed “notably,” with manufacturers reporting a renewed contraction in new export orders, IHS Markit said.  Despite the reported pick-up in business activity, economists are predicting slower economic growth in Q4 after what is believed to have been a record performance in Q3, thanks to a more than $3T rescue package early this year for businesses & the unemployed.  But the fiscal stimulus is gone and new COVID-19 cases are rising around the country, which could lead to state & local gov restrictions or more people shunning establishments like restaurants & bars, & undercut consumer spending.  The survey's flash composite new orders index dipped to 54.3 this month from a reading of 54.8 in Sep.  The survey's flash services sector PMI rose to 56 this month, a 20-month high, from a reading of 54.6 in Sep.  Economists polled  had forecast a reading of 54.6 this month for the services sector, which accounts for more than 2/3 of US economic activity.  A measure of new businesses in the services sector dropped to 54.3 from a reading of 55.0 in Sep & manufacturing was steady this month.  The flash manufacturing PMI inched up to a reading of 53.3 from 53.2 in Sep.  Economists had forecast the index for the sector, which accounts for 11.3% of the economy, rising to 53.4 in Oct.  A measure of new orders received by factories increased to a reading of 54.2 from 53.6 in Sep.

US business activity hits 20-month high: IHS Markit

The US reported more than 72K new coronavirus cases, approaching a record number of daily infections set in late Jul as the outbreak takes root across the Midwest & hospitalizations rise.  Covid-19 cases are now growing “really in all parts of the country,” with particularly high transmission rates in the Midwest, Jay Butler, the CDC's deputy director for infectious diseases, said.  “Unfortunately, we are seeing a distressing trend here in the United States,” he added.  The surge is likely due to cooler temperatures as the nation enters the fall, he said, adding that “smaller, more intimate gatherings of family, friends and neighbors may be driving transmission as well, especially as they move indoors.”  Coronavirus cases grew by 5% or more over the past week in 38 states as of yesterday data from Johns Hopkins University that uses a weekly average to smooth out fluctuations in daily reporting.  The nation is now averaging roughly 61K new coronavirus cases every day.

U.S. reports more than 71,600 new Covid cases, near record highs, and hospitalizations rise

Shares of Intel (INTC), a Dow stock, were down more after the company's Q3 earnings revealed new weakness in its data center business & reaffirmed the delay of its latest-generation chips.  The Data Center Group, which derives revenue from enterprises & gov customers, saw a 7% revenue drop in the qtr.  Overall, revenue in the qtr declined 4% on an annualized basis.  INTC said in Jul it delayed its 7 nanometer processors until 2022 for computers and the following year for servers.  The company could begin relying on other companies to manufacture its chips.  “We have the decision to make about whether to build that next generation of products on Intel’s manufacturing footprint, on third party manufacturing footprint or on a mix of both. We’ve been designing our products to have the inherent flexibility to make those decisions over time,” CEO Bob Swan said   The stock sank 5.70 (11%).
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Intel stock slumps after weak data center results, chip delay

Gold futures finished with a modest gain, but posted a 2nd weekly loss in a row, with traders looking to discussions on the US coronavirus relief package in Congress, moves in the $ & the upcoming presidential election for the metal's next big catalyst.  The precious metal traded in a tight range today, moving up in early dealings, with hope for a coronavirus relief package in DC that could provide a lift to buyers of bullion hedging against growing gov budget deficits.  Prices then moved lower after readings on the IHS Markit PMI indexes for the service & manufacturing sides of the economy rose in Oct.  Dec gold edged higher (called that even) to settle at $1905 an ounce, following a 1.3% skid yesterday.  Gold logged a 2nd-weekly loss, though the most-active contract was down a tad from last Fri's settlement.  The status of coronavirus aid negotiations in Congress remains uncertain & details on the size & breadth of an additional relief package aren't known.

Gold edges up for the session, but posts back-to-back weekly declines

Oil futures settled with a loss, as rising oil exports from Libya and ongoing worries about energy demand pulled US prices below the $40 mark.  Libya's National Oil said it lifted force majeure on its shipping commitments from the Es Sider & Ras Lanuf ports, meaning that the ports can meet contractural obligations on oil exports.  Libya resumed oil exports last month after the lifting of an 8-month blockade that had halted exports.  Dec West Texas Intermediate crude fell 79¢ (1.9%) to settle at $39.85 a barrel.  Based on the front-month contract, the US benchmark contract marked its lowest finish since Oct 12 after losing 3.1% this week.

Oil futures settle lower, with U.S. prices down about 3% for the week

Markets were quiet today.  Not much going on so some traders went home early.  For the week Dow fell 270 but is up 550 month-to-date.

Dow Jones Industrials

Markets waver on lingering stimulus hopes

Dow lost 9, advancers over decliners about 2-1 & NAZ fell 4.  The MLP index was off 1 to the 121s & the REIT index added 1 to the 351s.  Junk bond funds inched higher & Treasuries were little changed.  Oil was pennies lower, but still above 40, & gold slid back 1 to 1901.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil40.49

GC=FGold   1,907.80

The job market shows “very strong trends" amid the coronavirus pandemic, Labor Secretary Eugene Scalia said.  “What we saw was the initial claims, that is the initial filings for unemployment benefits of last week were reported at a number 110,000 fewer than the reported number just a week before. That’s progress,” Scalia added.  He said that “3 million people went off” of unemployment in the month of Sep.  "What we also see is that the continuing claims -- that is people who are actually on unemployment, that number continues to drop significantly week to week," noted Scalia who added, "these are very good trends."  Scalia's comments came after the Labor Dept released the latest jobless claims figures showing that 787K workers sought assistance last week.  The number of Americans seeking jobless aid since the coronavirus shutdown was 65M, making up 40% of the nation's labor force.  Recipients of unemployment benefits dropped to 8.37M.  The jobless claims fell below 800K for the first time since public officials shut down the nation's economy due to the coronavirus pandemic in mid-Mar.  Furthermore, Scalia said that the “more significant report” has been the Bureau of Labor Statistics' (BLS) monthly employment report.  “That has shown the job market coming back so much more quickly than was being expected back in April,” Scalia said.  Scalia sees more encouraging data in the BLS Local Area Unemployment Statistics which lists 26 states “at 6.7% or below.”  Scalia went on to say while there are "a handful of very large states" with "much higher unemployment," the jobs numbers show "a very, very strong trend" along with "good economic news" including today's existing home sales report.

Job market shows 'very strong trends', US labor secretary says

American Express (AXP), a Dow stock, missed Q3 profit estimates as its customers spent less during the COVID-19 fueled economic slowdown and the financier set aside money for potential payment defaults.  The COVID-19 pandemic has triggered the worst economic downturn in decades & led to mass layoffs, resulting in more people defaulting on their bills & offering more evidence that the economic recovery from the COVID-19 recession is faltering.  The credit card issuer said consolidated loss provisions in the qtr stood at $665M, down 24% from a year earlier.  The reserve levels at the end of the qtr were generally consistent with 2nd-qtr levels.  "While credit remains strong, with delinquencies and net write-offs at the lowest levels we have seen in a few years, we remain cautious about the direction of the pandemic and its impacts on the economy, which is reflected in our reserve levels,"' CEO Stephen Squeri said.  The company reported a slump in EPS to $1.30, missing the estimate of $1.35.  Total revenue, excluding interest expense, fell 20% to $8.8B.  Net income from the global consumer services unit -- which primarily issues a wide range of proprietary consumer cards -- was down about 14% at $855M, reflecting a decline in spending & lower loan volumes.  AXP fell 3.11.
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AmEx profit lags expectations as consumer spending falters

China has vowed to retaliate if the US proceeds with the sale of advanced weaponry to Taiwan worth more than a B$.  The statement from China's defense ministry gave no specifics, but the development marks a further deterioration in ties between Beijing & DC that have hit their lowest ebb in decades.  The statement demanded the cancellation of the sale & an end to all interactions between the US & Taiwanese militaries in order to “avoid serious repercussions for relations between China and the U.S. and their armed forces and peace and stability in the Taiwan Strait.”   Failure to do so would “compel the Chinese side to fight back resolutely,” the statement said.  The State Dept on Wed announced it had greenlighted the sale of 135 precision land attack missiles, associated equipment & training to Taiwan to improve its defense capabilities.  China regards Taiwan as its own territory to be annexed by force if necessary & the US maintains only unofficial relations with Taipei in deference to Beijing.  However, US law requires the gov to ensure Taiwan can maintain a credible defense & recent years have seen an increase in both the quality & quantity of defensive arms sold to the island.

China vows retaliation if US proceeds with Taiwan arms sale

Stocks seesaw on optimism for a stimulus bill.  Hopes spring eternal although it's difficult to see on any action out of DC before the election, & maybe longer.

Dow Jones Industrials

Thursday, October 22, 2020

Markets rise as Pelosi signals progress in stimulus talks

Dow climbed 152, advancers over decliners better than 2-1 & NAZ went up 21.  The MLP index shot up 5+ to the 121s & the REIT index was steady near 351.  Junk bond funds fluctuated & Treasuries drifted lower.  Oil was higher, going over 40, while gold dropped 22 to 1906 (more on both below).

House Speaker Nancy Pelosi said that Dems & White House officials are drawing closer to striking a coronavirus relief deal, but negotiators have still not solved 2 of the most contentious issues: state & local funding & liability protections for businesses.  "They still haven't completely signed off on it," Pelosi said.  "But I think we're just about there."  After months of negotiations, both sides have indicated they would like to finalize a deal by the end of the week, although it's unclear whether it could be passed before the Nov election.  Pelosi spoke with Treasury Secretary Steve Mnuchin, the top negotiator for the Trump administration, 3 times this week & is slated to do so again today.  "I’m pleased at where we are now. If we can resolve some of these things in the next few days, it’ll take a while to write the bill," Pelosi said.  "I’d hope that we could be writing starting now, and we are putting pen to paper, sort of easier parts of the bill. It’s close."  But major obstacles remain, including aid for state & local govs, liability protections for businesses & growing dissent among Senate Reps, who have balked at passing a multitrillion-dollar aid package.  Senate Majority Leader Mitch McConnell has also emerged as a hurdle in negotiations, privately urging the White House not to settle with Pelosi before the election amid concerns it could interfere with the confirmation of Amy Coney Barrett to the Supreme Court. 

Pelosi says 'we're just about there' on coronavirus relief deal

Verizon (VZ), a Dow stock, beat estimates for 3rd-qtr profit, helped by strong demand for its phone & internet services as offices & schools continued to operate virtually amid the COVID-19 pandemic.  The health crisis has brought global economies to a halt, but the telecom sector has been relatively less affected.  With lockdowns easing, VZ gradually reopened all of its company-operated retail stores in the qtr, implementing touch-less retail, appointments & curbside pickups.  VZ added 283K postpaid phone subscribers, above the estimate of 268K.  Total operating revenue fell 4.1% to $31.54B, which the company attributed to lower customer activity & the timing of certain device launches.  Revenue in the media unit, which includes Yahoo, HuffPost & TechCrunch, declined 7.4% in the qtr to $1.7B from a year earlier as companies cut down on advertising to rein in expenses.  VZ stock rose 57¢.
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Verizon profit beats estimates on remote working boost

Coca-Cola (KO), a Dow stock & Dividend Aristocrat, reported that Q3 revenuee fell 9% as the coronavirus pandemic weighed on demand for fountain soft drinks, Powerade & Dasani.  But the company topped earnings.  EPS was 40¢, down from 60¢ a year earlier.  Excluding asset impairments, severance costs related to its restructuring plan & other items, EPS was 55¢, topping the 46¢ expected.  Net sales dropped 9% to $8.65B, beating expectations of $8.36B.  Organic sales fell 6% & unit case volume, which helps measure demand without the impact of pricing or foreign currency, declined 4%.  All 4 categories reported declines in unit case volume.  Sparkling soft drinks was the least affected, with its volume falling only 1%.  Demand for Coke Zero Sugar & trademark Coke drinks lifted the category, although overall it was hurt by the decline in the North American fountain business.  Juice, dairy & plant-based drinks saw volumes shrink by 6%, hurt by pressure in Asia Pacific & Latin America.  Unit case volume of water, enhanced water & sports drinks fell by 11%.  The company noted qtr-over-qtr improvements in demand.  While the pandemic continues to limit drink purchases at movie theaters, restaurants & office buildings, KO said at-home demand is still elevated.  Away-from-home volume fell by the mid-teens, an improvement from its nadir of 50%, helped by higher sales at fast-food restaurants & convenience stores.  As it navigates the crisis, KO is undergoing a transformation.  It is slimming its portfolio, cutting drinks like Tab that haven't sold well & don't have much opportunity for growth.  KO stock was up 67¢.
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Coca-Cola earnings top estimates, despite 9% decline in revenue

Gold settled lower, but comments from House Speaker Nancy Pelosi raised hopes for a deal on another round of coronavirus aid, prompting prices to hold ground above the key $1900-an-ounce mark.  Analysts, however, attributed overall weakness in prices for the precious metal to strength in the $ & a continued push higher in Treasury yields, which can dull the luster of gold & other commodities, which are non-yielding assets.  Gold for Dec fell $24 (1.3%) to settle at $1904 an ounce after touching an intraday low of $1894.  Prices settled at $1929 in the previous session, the highest most-active contract finish since Sep 18.

Gold settles lower, but holds above $1,900 on signs of fiscal stimulus bill progress

Oil futures ended higher, as a fall in US weekly jobless claims to a new pandemic low & progress toward a fresh coronavirus aid package boosted prospects for energy demand.  Prices also found support after Russia’s Pres Vladimir Putin said his country has not ruled out delaying production increases by OPEC & their allies that are set to be implemented in Jan.  The group of producers, collectively known as OPEC+, includes Russia.  West Texas Intermediate crude for Dec delivery rose 61¢ (1.5%) to settle at $40.64 a barrel.  Dec Brent crude, the global benchmark, added 73¢ (1.8%) at $42.46 a barrel.  Some analysts said upside for oil was likely to remain limited after an unexpected rise in US gasoline inventories in weekly data that underlined concerns over fuel demand.

Oil prices end higher as some signs point to demand recovery

Pelosi claims they are close to a deal, whatever that means.  However the 2 big issues: (1) state & local funding & (2) liability protections for businesses remain.  From the start, they have been the biggest impediments to a deal.   Negotiations drone on.

Dow Jones Industrials