Wednesday, February 8, 2023

Markets drift lower after Biden's speech last night

Dow fell 108, decliners over advancers 2-1 & NAZ declined 169.  The MLP index was off fractionally to the 226s & the REIT index barely budged in the 406s.  Junk bond funds slid lower & Treasuries saw limited selling, bringing slightly higher yields.  Oil went up about 1 to 78 & gold added 3 to 1887.

AMJ (Alerian MLP Index tracking fund)


 

 




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Pres Biden delivered his State of the Union address before& touted the growth of the manufacturing sector.  Early in his speech, Biden said that the "middle class was hollowed out" for decades & that, "Too many good-paying manufacturing jobs moved overseas. Factories at home closed down."  He claimed that his administration has "already created 800,000 good-paying manufacturing jobs, the fastest growth in 40 years" & asked, "Where is it written that America can't lead the world in manufacturing again?"  Biden reiterated that talking point while speaking about the bipartisan CHIPS & Science Act, a bill he signed into law last Aug that contained $50B in subsidies for semiconductor manufacturers to build more chip fabrication plants in America.  In those remarks, Biden claimed, "We've already created 800,000 manufacturing jobs even without this law."  The bulk of the 800K figure Biden cited came from the recovery of jobs lost during the COVID-19 pandemic.  Data from the Bureau of Labor Statistics (BLS) dating back to Feb 2020, just before the pandemic-induced lockdowns began in earnest & triggered widespread layoffs, indicates that the US manufacturing sector has added a net of 214K manufacturing jobs since that time.  Those net gains put the manufacturing sector 6th place of the 14 major sectors tracked by the BLS in terms of job growth since Feb 2020.  Biden also claimed that the CHIPS Act will "create hundreds of thousands of new jobs across the country" & said that companies "have announced more than $300 billion in investments in American manufacturing in the last two years."  Among those, he cited a semiconductor factory that Intel (INTC), a Dow company, is building outside of Columbus, Ohio, which he said will 10K jobs, including 7K construction jobs & 3K jobs once the factories are finished.

Biden touts manufacturing at SOTU — and industry leaders respond

Mortgage rates continued to fall last week, & both current homeowners & potential homebuyers reacted swiftly.  Total mortgage application volume, including refinances & loans to purchase a home, jumped 7.4% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) decreased to 6.18% from 6.19%, with points falling to 0.64 from 0.65 (including the origination fee) for loans with a 20% down payment.  That rate was 3.83% the same week one year ago.  With rates at the lowest level since early Sep, refinance demand surged 18% week to week but was still 75% lower than the same week one year ago.  The refinance share of mortgage activity increased to 33.9% of total applications from 31.2% the previous week.  Mortgage applications to purchase a home rose 3% for the week & were 37% lower than the same week one year ago.  “Purchase activity that was put on hold last year due to the quick run-up in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market,” said Joel Kan, an MBA economist.  Kan added that the average loan size on a purchase application increased to $428K, the largest average since May 2022.  “This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry level housing remains undersupplied, and buyers struggle with affordability in many markets,” said Kan.  Mortgage rates bounced back dramatically to start this week, after an unexpectedly strong employment report Fri & commentary yesterday from Federal Reserve Chair Jerome Powell that the central bank could continue to raise interest rates.

Mortgage refinance demand jumps 18% as interest rates drop for the fifth straight week

A top White House economist defended tax proposals aimed at the wealthiest Americans outlined by Pres Biden during his State of the Union address.  Jared Bernstein, a member of the White House Council of Economic Advisors, said Biden's tax proposal will target big corps & the wealthiest Americans while protecting taxpayers who earn $400K a year or less from tax hikes.  “The days of the top 1% paying less than teachers and nurses ... those have got to be behind us as we inject fairness into the tax code to achieve fiscal rectitude,” Bernstein said.  Biden signed into law a 15% minimum tax on corps earning more than $1B in profits under the Inflation Reduction Act.  A 1% excise tax on the value of stock buybacks, which can enable large corps to avoid paying taxable divs, was also passed under the act.  During his address, Biden urged Congress to pass his billionaire's tax, which proposes to impose a minimum 20% tax on households with a net worth of more than $100M, a 12 percentage point increase from an average of 8% they currently pay.  Bernstein also defended the pres's tax rate on capital gains, which he initially proposed in 2021.  If enacted, the 48.6% rate with a 3.8% net investment income on long-term capital gains & qualified dividends would rate among the highest in the developed world.  The tax rate would apply to those earning over $1M.  The top 1% of earners paid 42.3% of all federal taxes in 2020, according to the Tax Foundation, which puts to question whether the wealthiest Americans pay lower taxes than teachers & firefighters.  “You called it a wealth tax on unrealized gains,” Bernstein said of the capital gains tax proposal.  “In fact, what it really is, or at least the way we see, it is a prepayment or withholding tax on future capital gains.”

White House economist Jared Bernstein defends Biden’s billionaire tax outlined in State of the Union

Biden's speech was viewed as underwhelming.  Investors will turn their attention to earnings, which are currently coming in glum, & evaluating what the Fed plans on hiking interest rates further.

Dow Jones Industrials

 






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