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).

AMJ (Alerian MLP Index tracking fund)

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

Markets struggle after March inflation data jumps

Dow went up 92, advancers modestly ahead of decliners & NAZ declined 36 following recent strength.  The MLP index was even at 171 & the REIT index traded flattish in the 409s.  Junk bond funds hardly budged & Treasuries were sold, raising Treasury yields (more below).  Oil drifted lower in the 59s & gold dropped 11 to 1746.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil59.23  

GC=FGold   1,740.60



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One in 5 Americans are fully vaccinated, according to the latest data published on the Centers for Disease Control & Prevention's (CDC) website.  A 3rd of the population has received at least one dose of a Covid-19 vaccine.  The US is currently administering a 7-day average of 3M vaccine doses per day, as daily case counts remain at levels below the winter peak but in line with the surge seen over the summer.  More than 66M Americans (20% of the population) are now fully vaccinated with one shot or 2 shots of vaccines.  About 1/3 of the population has received at least one dose of a vaccine.  One in 4 of those 18 & older are fully vaccinated & nearly 60% of those 65 & older are fully vaccinated.  Following a reported 3.4M vaccine shots given yesterday, the 7-day average of doses administered sits at 3M per day. The rate of new coronavirus cases in the US is well below Jan's peak of about 250K new cases per day but more in line with numbers seen during the summer surge.  In Jul, average daily case counts reached nearly 70K.  The latest 7-day average of new Covid-19 cases in the US is 66K.  The 7-day average of Covid-19 deaths in the US is 978.  The nationwide trend in Covid deaths over the past couple days is being impacted by a bulk data release of about 1800 deaths from Oklahoma.  These deaths are all currently all being reported for Apr 7, though they may have occurred in weeks or months prior. The Oklahoma State Dept of Health announced that the state is in the process of transitioning to data reporting guidelines in line with CDC requirements, which is the cause for this increase.

1 in 5 Americans are fully vaccinated and a third of the country has received at least one shot, says CDC

US producer prices increased more than expected in Mar, resulting in the largest annual gain in 9½ years, fitting in with expectations for higher inflation as the economy reopens amid an improved public health environment & massive gov funding.  The producer price index (PPI) for final demand jumped 1.0% last month after increasing 0.5% in Feb, the Labor Dept said.  In the 12 months thru Mar, the PPI surged 4.2%, the biggest year-on-year rise since 2011 & followed a 2.8% advance in Feb.  The forecast for PPI was for it increasing 0.5% in Mar & jumping 3.8% year-on-year.  The report was delayed after the Bureau of Labor Statistics' website crashed.

U.S. producer prices surge in March

Treasury yields climbed after the Mar producer price index, which measures wholesale price inflation, showed a larger-than-expected increase.  The yield on the benchmark 10-year Treasury note rose to 1.68% today & the yield on the 30-year Treasury bond advanced to 2.356%.  Yields move inversely to prices.  The Mar PPI data showed a rise of 1.0%, compared with a projected rise of 0.4%.  The majority of the increase came from a jump in prices for final demand goods, the Bureau of Labor Statistics (BLS) said.  The release of the data, originally slated for 8:30, was delayed by a website outage from the BLS.  Economists & Federal Reserve officials have repeatedly warned that inflation data will show rising prices in the spring & summer months as the economy reopens & rebounds from the pandemic, but the increases could prove temporary & may not be a cause for concern.  Yields rebounded in early trading after falling in the previous session following dovish comments on the economy from Federal Reserve Chair Jerome Powell.  He called the recovery from the pandemic “uneven” yesterday, signaling a more robust recovery is needed.  “The recovery remains uneven and incomplete,” Powell added.  “This unevenness that we’re talking about is a very serious issue.”  Treasury yields moved rapidly moving higher earlier this year over concerns about inflation, amid the economic recovery from the coronavirus.  However, the Federal Reserve has said it will let inflation run hotter if this helps achieve full employment.

Treasury yields climb as producer prices jump

The rise in the inflation data got the attention of investors,  Bond holders are selling which raises yields while stockholders are anxious.  The Dow is up although the advance decline ratio is weak.  One month of data proves little, but investors don't like to see the jump.  Meanwhile Q1 earnings will start rolling out next week.

Dow Jones Industrials


Thursday, April 8, 2021

Markets edge higher with earnings season about to begin

Dow went up 57 with buying in the last hour, advancers over decliners better than 3-2 & NAZ rose 140.  The MLP index gave back a fraction to the 168s & the REIT index was off 1+ to the 409s.  Junk bond funds inched higher & Treasuries were purchased.  Oil was slightly lower in the 59s & gold went up 14 to 1756 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Dallas Federal Reserve Pres Robert Kaplan said that he expects interest rates to reach pre-pandemic levels as the economy recovers, which he said is "a healthy sign" and "not an alarming sign."  Kaplan, a voting member of the 10-person rate-setting FOMC, made the comment one day after the release of minutes from the central bank's March meeting, which revealed that the central bank plans to continue the pace of its asset purchase program in an effort to meet its dual mandate of maximum employment & price stability.  With their own forecasts projecting the strongest run of economic growth in nearly 4 decades, "participants noted that it would likely be some time" before the situation in the US improved enough for the Fed to consider pulling support.  The Fed made no changes to its near-zero target interest rate or the $120B pace of monthly bond-buying at the Mar 16-17 meeting.  Fed officials also boosted their outlook for the economy significantly as they surveyed advancements as it pertains to coronavirus vaccines & the Ts of $s in fiscal support.  The median Fed policymaker projection for economic growth this year increased from 4.2% as of Dec to 6.5%, which, if achieved, would reportedly be the fastest rate of expansion since 1984.  Kaplan referenced the Dallas Fed's updated outlook.  "The economy is strengthening," Kaplan said. "Our outlook now with the Dallas Fed is for GDP growth this year to be in the range of 6.5% and I know there’s some private forecasters who have more aggressive forecasts than that."  He then pointed to pre-pandemic interest rates, noting that in Feb 2020, before the onset of the coronavirus pandemic, "the 10-year Treasury [note] was in the range of 1.75 to 2%."  "So I’ve been assuming and expecting that as the economy recovers, it wouldn’t surprise me to see rates back up to that level and I think that’s a healthy sign, not an alarming sign," Kaplan continued.  The recent rise in the 10-year yield has rattled investors as it reached higher than the S&P 500's 1.5% div yield.

Dallas Fed president: Interest rates to reach pre-pandemic levels as economy recovers

Gold futures ended higher to mark their biggest daily gain of the month so far & the highest finish since Feb, supported partly by a decline in the $ & an expected rise in inflation.  Prices for the precious metal extended their gains after Federal Reserve Chair Jerome Powell said the central bank wanted to see actual evidence of a strong economy before it would even consider pulling back from its loose policy stance.  He also reiterated expectations that an anticipated rise in inflation this year would be temporary.  Jun gold climbed $16 (1%) to settle at $1758 an ounce.  That was the highest finish for a most-active contract since Feb 25 & largest one-day $ & % climb since Mar 31.  Prices posted a little loss yesterday, the first daily decline in 5 sessions.  Gold has also registered losses in each of the past 3 months.  Gold-backed exchanged-traded funds also lost 107.5 metric tons in Mar, marking outflows the 4th time in 5 months.  The report also said Mar was “second month in a row in which net outflows ranked the top 10 worst outflows historically.”

Gold scores the biggest daily gain of the month to end at a 6-week high

Making vaccinations available globally is the correct & smart thing to do, Federal Reserve Chair Jerome Powell said.  “Viruses are no respecters of borders and until the world really is vaccinated, we’re all going to be at risk of new mutations, and we won’t really be able to resume activity all around the world,” Powell said during a webinar on the global economic outlook hosted by the IMF.  Powell urged all Americans to get vaccinated, saying the recent rise in COVID cases in the country was a risk to the economic outlook.  In his discussion about the US economy, Powell maintained a dovish tone.  Asked about the strong Mar job report — in which it was shown that employers added 916K jobs — Powell said the Fed wanted to see a “string” of similar reports.  He said the Fed “will not forget” people who still have not been able to find work since the pandemic struck & added the central bank wanted to see actual evidence of a strong economy before it would even consider pulling back from its loose policy stance.  Forecasts won’t be enough, he stressed.  Powell again said he expected that an anticipated rise in inflation this year would be temporary.  He pledged the Fed would act if it saw the public was starting to act like it expected prices to skyrocket.

Fed’s Powell says ‘we’re all going to be at risk’ until the world is vaccinated 

Minneapolis Fed Pres Neel Kashkari said he wouldn't have a knee-jerk panic attack if inflation heats up to a 4% annual rate.  “It would depend on why” inflation had hit 4%, Kashkari said.  It would be important to ascertain whether the high inflation was due to something temporary, like a blockage in the Suez Canal, or something more that was more long-lasting, he added.  Kashkari has been one of the most dovish regional Fed pres since he joined the Fed in 2016.  It could be argued that the Fed's Open Market Committee, moved in his direction.  Kashkari said he believes there still a lot of slack in the economy. He said the real unemployment rate is more like 9.1% than the 6% jobless rate for Mar.  Kashkari said he supported the new Fed policy framework & added it meant the Fed would not “shortcut the recovery” as it had in the past.  “We were always wrong. And it was the worker who paid the price,” he said.

Fed’s Kashkari says he would not panic if he saw a 4% inflation rate

Oil prices ended mixed, with the global crude benchmark slightly higher but US prices down, as traders weighed prospects for energy demand on the back of the rise in global cases of COVID-19.  Some analysts also said the bigger-than-expected weekly increase in US gasoline stocks, which contributed to losses for futures prices of the fuel yesterday, was also to blame for the weakness in oil today.  The Energy Information Administration (EIA) yesterday reported that gasoline supply was up by 4M barrels, while distillate stockpiles climbed 1.5M barrels for the week.  The forecast was for weekly supply increases of 200K barrels for gasoline & 500K barrels for distillates.  West Texas Intermediate crude for May lost 17¢ to settle at $59.60 a barrel, following a 0.7% gain yesterday.  Global benchmark Jun Brent,  however, edged up by 4¢ to settle at $63.20 a barrel after the contract rose 0.7% a day ago.  Oil prices ended slightly higher yesterday after an initial retreat in values but investors may be rethinking the state of inventories & demand.

Oil ends mixed, with U.S. prices holding below $60 as demand concerns prevail 

This was another unexciting day for trading.  Earnings season begins shortly, with the big banks being to first to report.  Expectations are high!!

Dow Jones Industrials