Dow dropped 97, decliners barely ahead of advancers & NAZ was off 68. The MLP index fell 1 to 201 & the REIT index was little changed near 472. Junk bond funds inched higher & Treasuries saw more sellilng on fears of highher interest rates. Oil slid back 1+ to the 81s & gold retreated 4 to 1780.
AMJ (Alerian MLP index tracking fund)
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A $1.9T coronavirus relief package that Pres Biden signed into law earlier this year is likely stoking inflation, according to new research published by the Federal Reserve Bank of San Francisco this week. The latest analysis comes amid a furious debate on Capitol Hill over whether the spending package – which Dems passed without a single Rep vote – is responsible for wild surges in consumer prices. Critics say the plan, which included a 3rd round of $1400 stimulus checks, boosted unemployment benefits & a one-year expansion of the child tax credit, flooded households with poorly targeted cash & overheated the economy. Advocates say the legislation provided critical relief to families & small businesses. The San Francisco Fed paper found that the American Rescue Plan played a role in contributing to the inflation spike, but concluded the nearly $2T plan will ultimately have a modest long-term effect on it. The economists estimated the plan would add 0.3 percentage points to the Fed's preferred inflation gauge (known as the Personal Consumption Expenditures inflation index) in 2021 & "a bit more than" 0.2 percentage points in 2022. "The impact in 2023 is negligible and is not shown in the figure," the paper added. "Thus, the estimated impact of the ARP on inflation is meaningful, but it is still a far cry from the strong overheating of the 1960s." To determine the stimulus bill's effect on the economy, the Fed economists looked at a metric in the labor market known as the vacancy-to-unemployment ratio. The thinking is that inflation will be high when this measurement rises, because businesses will be forced to hike wages in order to attract new workers – & then subsequently increase the price of their goods to offset the labor costs. The researchers concluded that, based on the size of the spending package & historical evidence of how fiscal stimulus affects the labor market, the American Rescue Plan could push the vacancy-to-unemployment ratio near its historical peak in 1968, likely causing a "temporary increase" in inflation. "This minor impact is attributable to the small effect of slack on inflation and the strong historical stability of longer-run inflation expectations," the economists wrote.
Biden's stimulus plan to blame for high inflation surge, San Francisco Fed says
The number of Americans filing for unemployment benefits slipped to a pandemic-era low last week as more workers found jobs following the expiration of supplemental payments. The Labor Dept showed initial jobless claims fell by 6K to 290K, making for the lowest reading since
Mar 2020. The previous week's reading was revised higher by 3K
new filings. The forecast called for an increase
to 300K filings. Continuing claims, or the number of Americans
who are consecutively receiving unemployment benefits, fell by a
larger-than-expected 122K to a pandemic-era low of 2.48M. Economists anticipated a decline to 2.55M. About 3.28M
Americans were collecting jobless benefits for the latest week,
compared with an estimated 23.8M Americans one year prior. Jobless claims have gradually declined following the expiration of
$300 per week in supplemental unemployment benefits in early Sep & as the number of new infections caused by the COVID-19 delta variant
have eased. Still, businesses are having trouble finding workers. There
were 10.4M jobs that needed to be filled in Aug, according
to the Labor Dept's most recent Job Opening & Labor Turnover
Survey (JOLTS) that was released earlier this month. There are about
2.7M more job openings than unemployed Americans trying to find
work. The labor market is further complicated by a record-high
2.9% quit rate & sustained headwinds from supply chain bottlenecks &
inflation.
Jobless claims hit pandemic-era low
IBM (IBM), a Dow stock, missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders ahead of a spinoff next month, sending its shares lower. The lower-margin, legacy unit provides technical support to IBM's
clients & has shrunk in recent years as companies moved to the cloud,
becoming a drag on Big Blue's earnings. "As we issued the
effective date for the spin-off of our managed infrastructure business,
our clients paused all-new project activities at the end of September
and that impacted us here," CFO James Kavanaugh said. Revenue at the global technology services unit, which houses the
business set to be called Kyndryl after the spinoff, fell 4.8% to $6.15B in Q3. Kavanaugh also said
demand dropped at the systems business, home to IBM's mainframe
computers, as the end of the product cycle neared, driving a 12% fall in
the unit's revenue. The slowdown in the legacy business has prompted 110-year-old IBM to
shift focus to hybrid-cloud, an area where it sees a $1T market
opportunity, to boost growth. Revenue at the cloud & cognitive software unit was up 2.5% at $5.7B but missed estimates of $5.77B. Total revenue rose slightly to $17.6B, missing expectations of $17.77B. But IBM's revenue adjusted for the Kyndryl spinoff was 2.5% higher,
helped in part by firmer demand for its consulting services from
enterprises digitizing their operations during the COVID-19 pandemic. EPS was $2.52 on an adjusted basis, compared with estimates of $2.50. The stock sank 10.76 (8%).
If you would like to learn more about IBM, click on this link:
club.ino.com/trend/analysis/stock/IBM?a_aid=CD3289&a_bid=6ae5b6f7
IBM revenue misses on weakness in legacy infrastructure unit
Markets are hovering near record highs, hurt by IBM's report. The Fed report, blaming the inflation surge on high gov spending, adds gasoline to an already hot debate in DC about more gov spending.
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