Monday, April 12, 2021

Markets edge lower ahead of key inflation data tomorrow

Dow dropped 55 after a 100 rise in the last ½ hour reduced the daly loss, decliners barely ahead of advancers & NAZ lost 50.  The MLP index fell fractionally to the 167s & the REIT index rose 2+ to the 411s.  Junk bond funds inched higher & Treasuries were weak.  Oil crawled higher in the 59s & gold was off 13 to 1731 (more on both below). 

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The US budget deficit skyrocketed in Mar after the gov approved a $1.9T coronavirus-relief package that included $1400 stimulus checks for most Americans.  The budget gap more than doubled to $659B in Mar from Feb.  It was the 3rd highest monthly deficit ever recorded.  Federal spending surged to $927B last month, a number only exceeded by record increase in outlays last spring at the onset of the pandemic.  The gov shelled out hundreds of Bs of $s in stimulus checks, higher unemployment benefits & other social-welfare policies to help Americans get thru the pandemic.  The most recent bill was the 3rd federal package since last year.  Tax revenues, meanwhile, totaled $267B in Mar.  They rose 13% from the same month a year earlier, pointing to an ongoing recovery in the economy.  The deficit in the first 6 months of the current fiscal year of 2021 climbed to $1.7T.   Before the pandemic struck in 2020, the US never ran an annual deficit that reached that high.  The US is likely to run huge deficits for at least the next few years as it copes with the fallout from the coronavirus.  A Biden White House plan to spend $2.3T on infrastructure & other initiatives would add to the national debt.

U.S. budget deficit soars to $660 billion in March after stimulus checks are sent out

Inflation is the #1 worry in the economy, but the picture about price pressure will be cloudy for most of this year, a top Federal Reserve official said.  “We’re in a period of a lot of uncertainty around inflation. The dust has to settle a little bit before we’ll find out where inflation really is and that probably happens later this year,” St Louis Fed Pres James Bullard said.  Bullard said there are anecdotal reports about supply chain bottlenecks & certain prices are rising fast.  The Labor Dept will release its consumer price index for Mar tomorrow.  Last week, the producer price index had the largest annual gain since 2011.  The CPI is expected to see a large gain because any increase in inflation last month is compared with the drop in prices a year ago when the pandemic struck the economy.  “It’s going to be hard to interpret it no matter how you cut it,” Bullard added.  Fed Chair Jerome Powell has said any spike in inflation this year is likely to be “transitory.”

Fed’s Bullard says inflation risks won’t be clear until later this year

Gold ended lowe, with strength in Treasury yields dulling demand for the precious metal & helping to push prices to their lowest finish in a week.  The US consumer-price index reading due tomorrow could spark a fresh move in gold, which is viewed as a hedge against rising prices.  Jun gold fell $12 (0.7%) to settle at $1732 an ounce — the lowest finish for a most-active contract since Apr 5.  Prices finished about 1% higher for the weekly period Fri.   Analysts expect gold prices to trade in the $1650-1800 range over the 2nd qtr, with prices potentially correcting lower to a range of $1550-1650 by the end of the year.  Gold investors also eyed news out of China. During a symposium last week, Chinese Premier Li Keqiang asked to strengthen market regulation of raw materials to ease the cost pressure of companies reported by the Xinhua News Agency.

Gold prices post lowest finish in a week

Oil futures finished higher, as reports that Yemen's Iran-backed Houthi rebels attacked a Saudi oil facility lifted tensions in the oil-rich Middle East.  The Houthi movement said that it fired drones & ballistic missiles at targets in Saudi Arabia, including some Saudi Aramco facilities, but there was no confirmation from the Saudis.  Oil also saw support from sizable progress in European efforts to vaccinate against COVID-19 & optimism surrounding a recovery in the US economy, which offset some pressure from a global rise in cases of the virus.  Upbeat comments on the economy from Federal Reserve Chair Jerome Powell, meanwhile, boosted prospects for a rise in US demand for energy.   Powell described the US's current recovery from COVID as being at an “inflection point” & projected a strong rebound in coming months.  Oil prices climbed, but settled below the day's best levels.  West Texas Intermediate (WTI) crude for May rose 38¢ (0.6%) to settle at $59.70 a barrel.  It had touched an intraday high of $60.77.  Global benchmark Jun Brent crude climbed by 33¢ to reach $63.28 a barrel, a gain of 0.5%, the highest front-month settlement since Apr 1.  Last week, WTI fell 3.5% & Brent marked a weekly loss of 2.9%.  On Fri, oil prices fell amid concerns about growing supply & weakening appetite for energy, as global cases of COVID rose in Europe, Brazil & India in particular, prompting prices to post a loss for the week.  India reported more than 168K new cases over a 24-hour period today, with that surge nudging the country past Brazil as the 2nd-worst country infected by COVID, according to public data.  On top of that, Germany, Europe's largest economy, said it was preparing new legislation enabling the country to impose national COVID restrictions without regional gov approval.

Oil settles higher on vaccine progress and reports of attack on Saudi oil facilities

There was significant buying in the last ½ hour of trading, but not enough to bring it back into the black.  Just when it looks the fight against the virus is going well, it keeps popping up in other areas of the globe.  The inflation data will get a lot of attention tomorrow & that will be followed by Q1 earnings.  Meanwhile the popular stock averages remain at or very close to record highs.

Dow Jones Industrials








Markets slide lower while waiting for earnings

Dow dropped 77, decliners over advancers 4-3 & NAZ was off 74.  The MLP index drifted lower to the 167s & the REIT index fell  2 to the 407s.  Junk bond funds fluctuated & Treasuries were hit with limited selling.  Oil jumped 1+ to go over 60 & gold was off 13 to 1731.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil60.50
 +1.18+2.0%












GC=FGold   1,732.70
-12.10 -0.7%











 

 




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The US reported 4.6M vaccine doses administered Sat, a new single-day record, & another 3.6M shots given on Sun.  That brings the daily average of doses administered over the past week to 3.1M.  At the same time, the country is reporting 70K new coronavirus cases per day, according to data from Johns Hopkins University, a level in line with the summer 2020 surge when average case counts peaked at 67K in late Jul.  No state is recording more daily infections on a per capita basis than Michigan, with daily case counts & hospitalizations nearing the state's prior peaks & Covid-19 deaths there on the rise.  Average daily case counts have increased by 5% or more compared to a week ago in 29 states.  The US has reported 981 daily Covid-19 deaths on average over the past week.  The latest US trend in coronavirus deaths is being obscured by a bulk data release of about 1800 deaths from Oklahoma.  These deaths are all currently being reported for Apr 7, despite having occurred in weeks or months prior.  The Oklahoma State Dept of Health said that the state is in the process of transitioning to data reporting guidelines in line with Centers for Disease Control & Prevention requirements, which is the cause for this increase.  Prior to this reporting anomaly, the daily Covid death toll in the US had been trending downward from the record levels seen in Jan.

U.S. hits daily vaccination record over the weekend as case counts reach summer peaks

Federal Reserve Chair  Jerome Powell said in an interview that the US economy is at an "inflection point" due to widespread vaccinations & strong monetary support.  Powell believes the economy will begin to grow "much more quickly" along with job creation.  He warned that the greatest risk for the economy is a resurgent COVID-19 outbreak, but added cases across the country have been slowly increasing, which he called "troubling."  "It’s going to be smart if people can continue to socially distance and wear masks," he said.  Overall, Powell struck an optimistic tone.  He pointed to forecasters who predict a GDP growth of up to 7%, which could be the largest increase in 3 decades.  Powell noted that roughly 1M jobs were added in Mar when revisions to jobs data in Jan & Feb are included.  The unemployment rate fell to 6% from 6.2%.  "We would like to see a string of months like that," he continued.  "That is certainly in the range of possibility."  Still, there are about 8.4M fewer jobs than before the pandemic & he acknowledged that he regularly sees a homeless encampment near the Fed's headquarters in DC.  "There’s a lot of suffering out there still," he said.  "And I think it’s important that, just as a country, we stay and help those people. The economy that we’re going back to is going to be different from the one that we had."

Powell says COVID-19 remains top risk for economy, but strikes optimistic tone

Senate Reps are warning that Pres Biden's proposed $2.7T infrastructure plan will undermine jobs & ultimately crush taxpayers – the very opposite of what the bill proposes to accomplish.   In a memo, senate members chastised this infrastructure plan – or "job-crushing slush fund," as they called it – for spending "just 5% of the $2.7 trillion on roads and bridges."  They called the rest of the bill a "wish list of non-infrastructure spending" on failed Obama-era policy proposals & Dem pet projects with no "accountability or transparency."   They said the rest of the bill contains "a dog’s breakfast of slush funds," "expensive green energy mandates on Americans," "a ban on the right to work," & a "flurry of tax hikes that will drive companies out of the U.S.," thus supposedly giving China & Russia a say in US tax laws.  The GOP Senate estimated that Biden's infrastructure plan would, in the end, eliminate at least 1M jobs in the US.  Biden & his team, meanwhile, have performed rhetorical gymnastics to make almost everything in the package sound infrastructure-ish.

GOP warns Biden’s $2.7T infrastructure plan will ultimately crush Americans

Traders are twiddling their thumbs waiting for earnings.  Expectations are running very high.  Additionally, there is major push-back in DC on the bloated spending package being pushed.

Dow Jones Industrials

 






Friday, April 9, 2021

Markets climb on hopes for earnings reports next week

Dow climbed 297 to a new record with buying in the last hour, advancers slightly ahead of decliners & NAZ went up 70.  The MLP index fell 2+ to the 168s & the REIT index was even in the 409s.  Junk bond funds fluctuated & Treasuries continued to experience selling.  Oil dipped in the 39s & gold pulled back 14 to 1743 (more on both below).

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Live 24 hours gold chart [Kitco Inc.]




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Inflation data around the end of this year will be key to whether the expected uptick in inflation in coming months is transitory or long-lasting, said Fed Vice Chair Richard Clarida.  Fed Chair Jerome Powell has said that inflation could pick up this year due to bottlenecks but that this price pressure would not persist.  Clarida said the Fed's forecast is that inflation will move above 2% for a time this year and “for inflation to return later this year to around 2%.”  “We would expect those to be transitory and as the year progresses and we go into next year, if they’re not, then we’ll have to take that into account certainly,” Clarida added.

Fed’s Clarida says fourth-quarter inflation data will be key

Gold futures retreated a day after the biggest daily gain of the month, weighed down by a rise in bond yields & a strengthening $.  For the week, however, gold booked a weekly advance, with investors wading into precious metals with some eye toward protecting themselves against choppiness in the stock market, as the global economy attempts to stage a fuller recovery from the COVID pandemic.  Jun gold fell $13 (0.8%) to settle at $1744 an ounce.  It ended 1% higher yesterday to mark the highest finish for a most-active contract since Feb 25 & largest one-day $ & % climb since Mar 31.  In economic news, the Labor Dept reported that the producer price index (PPI) rose 1% in Mar & the rate of wholesale inflation over the past 12 months climbed to 4.2% that month, the highest since 2011.  Gold prices fell toward the session lows after the PPI data, then pared some of those declines.

Gold prices end lower, but tally a gain for the week

The latest wave of market enthusiasm has brought with it a stunning rush of money, in which more investor cash has gone to stock-based funds in the last 5 months than the previous 12 years combined.  That statistic, from Bank of America (BAC), reflects a period in which the Dow has risen more than 26%.  At the same time, the market has undergone some wild trends that included a massive influx to meme stocks.  Trading volume rose 40% in Q1 from the previous 3 months, with investors snapping up sectors that performed poorly last year amid hopes for a pronounced economic rebound from the Covid-induced slide in 2020.  Amid the frenzy, some $569B has gone to global equity funds since Nov, compared with $452B in the previous 12 years that go back to the beginning of the longest bull market run in history.  Those numbers easily could exacerbate ongoing worries about financial market bubbles as valuations are around the same levels as just before the dot-com bubble popped in 2000.  But these are not ordinary times.  Q1 earnings season kicks into gear next week & sentiment is running high.  Year-over-year profits are expected to expand by 23.8%, which by itself would be the best growth rate since Q3-2018.  However, what’s even more remarkable is that analysts continue to ratchet up expectations as the profit reports near, which is the opposite of what usually happens.  Analysts generally trim outlooks the closer they get to the report date.  Thru the qtr, earnings estimates have risen 6% to $39.86 for the S&P 500 as a whole.  That’s the largest percentage gain in a qtr since tracking the metric began in 2002.  At the same time, expectations are running high for economic growth.  GDP is projected to rise 6.2% in Q1, according to the Atlanta Fed.  For the year, central bank officials expect growth of 6.5%, which would be the fastest annualized gain since 1984.  The S&P 500 is trading at 20.4 times forward earnings, which is actually below the 22.8 multiple at the close of 2020 but still around levels associated with the dot-com bubble.  Yet, more than ½ of global stocks are still trading below their record highs.

Investors have put more money into stocks in the last 5 months than the previous 12 years combined

Small business closures across the US & the world are creeping back toward their pandemic peaks, according to a report from Facebook (FB) & the Small Business Roundtable.  It continues to be a very painful time for small businesses,” John Stanford, co-exec director of the Small Business Roundtable, said.  The report, which surveyed over 35K small & medium-size businesses across the world, found that 22% of US small businesses were closed in Feb.  Those figures were up from Oct's 14%.  At the peak in May, the pandemic saw 23% of small & medium-size businesses closed — only 1 percentage point higher than the current closure rate.  While the overall closures are nearing Covid highs, the report found that different areas of the country were experiencing varying degrees of difficulty.  Some states, like Maine, Idaho & Colorado, were seeing 9%-10% closures, while others like New York, Pennsylvania & Massachusetts were seeing at least 30% closed.  Within states, the report also found that certain demographics were getting hit harder than others:  27% of minority-led small & medium-size businesses reported closures, compared with 18% of others.  Female-led businesses saw 25% closure rates, while 20% of male-led businesses closed.  Small & medium-size businesses are continuing to see the impact of the pandemic despite a relative bounce back for larger corps.  “Small businesses are really our front-line defense for the business community,” Stanford said.  “They feel impacts first, and those impacts stay the longest.”  “So while larger companies with larger capital reserve may be doing OK, small businesses can’t just take the risk to stay open, and I think we’re seeing that play out with these high numbers,” he added.

U.S. small business closures are ticking back toward Covid pandemic highs

Oil futures ended lower, with concerns about growing supply & weakening appetite for energy, as global cases of COVID rise in Europe, Brazil & India in particular, prompting prices to post a loss for the week.  West Texas Intermediate crude for May fell 28¢ (0.5%) to settle at $59.32 a barrel.  Global benchmark Jun Brent crude edged down 25¢ (0.4%) at $62.95 a barrel.  For the week, WTI oil finished 3.5% below the Apr 1 settlement, which marked the end of that holiday-shortened trading week.  Brent marked a loss of 2.9%.  Energy markets have also been influenced by the decision of members of OPEC & its allies (OPEC+) in a recent meeting to slowly unwind output curbs.  OPEC+, which includes Saudi Arabia & Russia, agreed to gradually increase oil production by about 2M barrels a day between May & Jul.  Energy traders are anticipating that demand will be strong in H2-2021 but questions about COVID variants & troubles with the AstraZeneca vaccine (AZN) have raised some questions about how quickly an economic rebound will take hold in some countries.

Oil prices decline, with U.S. prices losing more than 3% for the week

The dark cloud of high inflation is in the sky for everybody to see, but investors are not worried.  Next week will bring Q1 earnings reports & expectations are running high.  Those results will move stocks as the Dow nears 34K today.

Dow Jones Industrials