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Friday, July 31, 2020
Markets edge higher on earnings and economic fears
Dow rose 14 (well off early depressed lows), decliners over advancers better than 2-1 & NAZ shot up 157 on strong tech earnings. The MLP index gave back 1+ to 126 & the REIT index fell 2+ to the 356s. Junk bond funds slid a tad & Treasuries were a little weak. Oil went over 40 again & gold closed up 23 to 1990 (more on both below).
Consumers increased spending 5.6% in Jun but appear to have pulled back since then, restraining the economy's recovery from the
coronavirus outbreak. Americans' ability & willingness to spend will largely determine the economy's path in the coming weeks & months. Household
spending reflects 2/3 of economic demand in the US. A sharp
drop in spending -- tied to business closures & fears of the virus --
was the biggest reason the US economy contracted at a record rate in Q2. Americans reduced spending on things such as doctor visits, dining & vacations. Economists believe households boosted spending in Jun, at the end of Q2, which would mark the 2nd consecutive monthly
increase. But the growth almost certainly wasn't large enough to make up
for the sharp drop in spending earlier this spring caused by the
coronavirus pandemic. Household incomes also likely dipped last
month, as worker layoffs remained high & the effects of federal
stimulus payments faded. Extra unemployment benefits that have pumped Bs of $s a week into workers' pocketbooks will expire at the
end of Jul without action from Congress. A recent rise in virus infections in several big states led to a new round of business closures
with many people staying home, weighing on spending. One
hopeful sign: Households overall have built up savings. That
strengthens them financially & could lead to a burst in spending once a
vaccine emerges. The personal savings rate soared to 25.7% in Q2 from 9.5% in Q1, the Commerce Dept
said.
Americans grew more worried about the economy toward the end of Jul
after a fresh outbreak of coronavirus cases chipped away at the recovery & cast doubt on how quickly the US will rebound from the worst
health-care crisis in a century. The final reading of the consumer sentiment survey in July slipped to 72.5 from an initial 72.9, the Univ of Mich said. The index registered 73.2 in Jun. The level of sentiment is now barely above the pandemic low, erasing
most of the momentum gained in late May & Jun as large swaths of the
economy reopened. Consumers expressed less confidence in the current state of the
economy. An index that measures attitudes right now fell to 82.8 from
87.1. Americans also doubt the recession will end anytime soon. An
index that measures expectations for the next 6 months sank to 65.9
from 72.3 & matched a 6-year low recorded in May. Richard Curtin, the chief economist of the sentiment survey, said
massive federal aid has kept US from sinking into an even deeper
recession, but he fretted that the economy could suffer another dip
unless DC provides more financial relief. “The federal relief programs have prevented more substantial declines in
consumer finances, partially shielding consumers from the unprecedented
surge in job losses, reduced work hours, and salary cuts,” Curtin said. “The lapse of the special jobless benefits will directly hurt the most
vulnerable and spread even further by missed rent, mortgage, and other
debt payments.” The amount of confidence Americans have in the economy & their own
financial security has a good track record of predicting the future. Confidence has faltered after the recent outbreak of coronavirus cases & the reimposition of gov restrictions. High unemployment is another worry, especially with emergency federal jobless benefits on the cusp of expiring. The economy can't make big strides in recovering without more
gov aid & better success at getting the coronavirus under
control, analysts say.
Chevron (CVX), a Dow stock & Dividend Aristocrat, posted steep losses in Q2 as lower oil & gas prices sapped production gains & the decimation in global travel amid the Covid-19 pandemic crimped fuel demand. The oil giant posted Q2 loss of $8.3B ($4.44 a share) compared with a
profit of $4.3B ($2.27 a share) last year. Adjusted losses were $1.59 a share. Analysts were expecting adjusted losses of 93¢ a share. The company booked impairments & other charges of $1.8B
for the qtr to account for downward revisions in its
commodity-price outlook, severance charges of $780B & a gain of
$310M on the sale of Azerbaijan assets. CVX also impaired its $2.6B in investment in Venezuela due
to the operating environment's uncertainty. Revenue fell 65.3% to $13.5B from the year-ago period. Analysts were looking for $21.9B. "The
past few months have presented unique challenges," said CEO Michael
Wirth. "The economic impact of
the response to Covid-19 significantly reduced demand for our products
and lowered commodity prices." Production was 2.99M barrels of oil-equivalent a day, down from 3.08M a day a year earlier. Although
demand & commodity prices have shown signs of recovery, CVX said
they aren't back to pre-Covid levels. The company warned its results
could continue to be depressed thru Q3. The stock dropped 2.34.
Gold prices settled sharply higher, shaking off its first
losing day in 10 sessions yrsterday as investors, wary of growing
economic troubles around the globe, sought exposure to the perceived
safe-haven asset. Dec gold,
which is now the most-active contract, climbed $19 (1%) to
close at $1985 an ounce. For the week, bullion climbed 4.7%, while
the 10.3% gain in Jul marked the best monthly rise since Feb of
2016. Some analysts believe gold prices could be entering a period of
consolidation after a historic surge prompted at least in part by the
public-health crisis, alongside a recent bout of weakness in $ & the low yields being offered by gov debt.
Oil futures ended higher, logging a monthly gain, as
investors weighed an uncertain demand outlook and an expected rise in
supplies as major producers relax output curbs. West Texas Intermediate (WTI) crude for Sep rose 35¢ (0.9%) to close at $40.27 a barrel, while Oct Brent crude,
the global benchmark, added 27¢ (0.6%) to finish at $43.52
a barrel. WTI logged a monthly rise of
2.6%, while Brent rose more than 5% for Jul. Some analysts see scope for the rebound
in oil prices off recent lows to bring back sufficient production to cap
the potential for further price rises. Oil ends higher to log July gain, but traders brace for added supply
The Dow was up a little, but finished with a 600 gain in Jul. Meanwhile the NAZ, powered by tech & bio med stocks, is just under its recent record (with a gain of 700 in Jul). And gold bugs are having a great time, taking gold up to almost 2K. Aug could be a very wild time in the stock market. Get ready!!
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
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