Wednesday, August 4, 2021

Markets slide as private sector hiring slows in July

Dow dropped 206, decliners over advancers 2-1 & NAZ was off 4.  The MLP index fell 1+ to the 178s & the REIT index was off 1+ to the 462s.  Junk bond funds slid lower & Treasuries were sold following the recent rally.  Oil gave back 1+ to the 69s & gold inched up 1 to 1815.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil69.22

GC=FGold   1,828.30



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US private sector job growth slowed sharply in Jul amid an uptick in new COVID-19 infections.  The economy added 330K private sector jobs last month, a decline from the downwardly revised 680K jobs gained in Jun, according to the ADP National Employment Report.  The forecast called for the addition of 695K jobs.  "The labor market recovery continues to exhibit uneven progress, but progress nonetheless," said Nela Richardson, chief economist at ADP.  "Bottlenecks in hiring continue to hold back stronger gains, particularly in light of new COVID-19 concerns tied to viral variants."  The service sector added 318K jobs last month.  Within services, the leisure & hospitality sector continued to pace the gains, adding 139K new workers last month.  However, that was down from the 332K jobs added in Jun.  Hiring in education & health services (+64,000); professional & business services (+54K); & trade, transportation & utilities (+36K) remained strong, while job losses in information services (-1K) continued.  Goods-producing sectors added a total of 12K jobs, led by manufacturing (+8K).  Last month, goods producers hired 68K new workers.  Job growth was pretty evenly distributed across small-, medium- & large-sized businesses.

Private sector hiring slows sharply in July amid an uptick in COVID infections

General Motors (GM) earned a pretax profit of $4.1B on $34.2B in Q2 revenue in the face of the ongoing chip shortage that has hampered production this year.  The automaker said it has booked $8.5B in earnings thru H1 & is revising its full-year outlook upward from $10-11B to $11.5-13.5B.  However, the new guidance assumes it will have cleared its inventory of incomplete vehicles awaiting chips, which stands at $1.4B worth of product.  In a letter to shareholders, CEO Mary Barra credited GM's pivot to focus on "highest-demand, capacity-constrained products," namely its large trucks & SUVs, as a driving force behind the stronger-than-expected performance.  "The credit for our strong first half goes to our employees and extended team, including suppliers and dealers, who have collectively demonstrated strength, agility and resilience," Barra wrote.  GM has gone to extreme lengths to keep production of its profitable truck lines going this year, even removing some features to conserve its available supply of chips.  However, it finally had to idle its 3 full-size pickup plants for the last week in Jul & will be suspending production at them for another week starting Mon.  Overall production was higher in May & Jun than initially projected, with the arrival of some chip supplies coming earlier than expected.  Strong demand for used cars also delivered record profits of $1.6B for the GM Financial arm.  GM's positive outlook for the rest of the year follows similar guidance from other automakers. The stock fell 4.58 (9%).
If you would like to learn more about GM, click on this link: 

GM shares fall despite $4.1B profit, boosted forecast

Treasury Secretary Janet Yellen will warn that enacting Pres Biden's economic agenda is critical to maintaining America's status as the world's top economic superpower, according to a copy of her remarks.  She will deliver the address as part of a White House messaging blitz designed to rally the public behind the T$ bipartisan infrastructure bill & Dems' even bigger $3.5T spending plan.  It will be her first domestic trip & a reflection of her increasingly visible role as one of the administration's champions for expansive investments in “human capital.”  “We’ve grown used to America as the world’s pre-eminent economic power. We aren’t destined to stay that way, but with these investments, I believe we will,” Yellen said in her remarks.  “We have a chance now to repair the broken foundations of our economy, and on top of it, to build something fairer and stronger than what came before.”  Her comments come at a critical moment in negotiations with Capitol Hill.  The Senate is haggling over the final details of the infrastructure bill, while Dems are trying to unify their own party around the broader spending package.  Yellen will urge lawmakers not to lose sight of their ambition, arguing that the nation’s economic recovery “did not happen by default.”  Instead, she credits the rapid rebound from recession as the direct result of the Biden administration's policy decisions.  Long-term secular problems — declining labor force participation, wage polarization, climate change — are also choices, not inevitable outcomes.  “Fiscal policy can help unwind them. Or the lack thereof can intensify them,” Yellen said.

Yellen: Pass Biden agenda to keep U.S. the world’s top economic superpower

The new jobs report was disappointing & may be followed by more indications of a slowdown in the recovery.  Yellen is clearly behind more spending & believes that higher inflation will take care of itself.  I don't know about that.

Dow Jones Industrials


Tuesday, August 3, 2021

Markets push higher with Dow reaching a new record

Dow advanced 278 for a new record, advancers over decliners 4-3 & NAZ climbed 80.  The MLP index stayed in the 179s & the REIT index was little changed in the 462s.  Junk bond funds inched higher & Treasuries were mostly flattish.  Oil dipped under 71 & gold was off 9 to 1813 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Household debt rose by its highest $ amount in 14 years during Q2, thanks mostly to a surge in the housing market that brought the collective American IOU to just shy of $15T, the Federal Reserve reported.  Total debt balances jumped $313B in the Apr-Jun period, the sharpest rise since the same period in 2007.  As a share of debt, that represented a 2.1% increase, the fastest pace since 2013.  Most of the gain came from mortgage originations, both initial purchases & refinances, which have been on fire as the Federal Reserve has kept benchmark borrowing rates anchored around historic lows.  Mortgage balances increased $282B for the period, up 2.8% rise from Q1 & 6.7% from a year ago, for a total of $10.4T.  Over the past 4 qtrs, mortgage originations have totaled close to $4.6T, amounting to 44% of all outstanding home loan balances.  But the swelling debt numbers weren't just about mortgages, with non-housing balances up $44B.  Credit card balances increased by $17B, while auto loans were up $33B.  Student loan debt actually decreased for the period, falling $14B to $1.57T as forbearance programs have kept education-related balances in check.  Indeed, gov efforts overall at getting consumers through the Covid-19 pandemic resulted in low delinquency numbers across the board.  In the aggregate, some 2.7% of debt was in some form of delinquency, a 2-percentage point drop from Q4-2019, just before the pandemic hit.  However, those breaks are expiring in the coming months, posing challenges to borrowers who now will have to get current on their loans.

Household debt jumps by the most in 14 years to nearly $15 trillion

The Institute for Supply Management, a trade group of purchasing managers, said that its index of manufacturing activity declined by 1.1 percentage points to a reading of 59.5.  The index had also slowed in Jun, dropping to 60.6 from a reading of May.  Any reading above 50 indicates growth in the manufacturing sector.  Jul was the 14th consecutive month manufacturing has grown after contracting in Apr 2020 when the coronavirus triggered nationwide business shutdowns.  But the Jul reading showed slower growth in new orders & production.  Manufacturers have struggled in recent months with supply-chain bottlenecks that have made it difficult for them to get computer chips & other necessary components for their products.  “As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodity prices and difficulties in transporting products” said Timothy Fiore, chair of the ISM manufacturing survey committee.  

US manufacturing expands again in July, but pace slows

Gold futures finished lower as equity markets tilted higher & Treasury yields & the $ edged up.  The decline in bullion prices was also attributed to some consolidation of profits by investors after a run above $1800 for the precious metal.  The decline for gold came as stocks took a leg higher, with the Dow gaining altitude, while the yield for the 10-year Treasury note was up slightly at around 1.18% & the $ was inching higher, up around 0.05%, measured by the ICE U.S. Dollar Index.  Against that backdrop, Dec gold closed $8 (0.4%) lower at $1814 an ounce, following a 0.3% gain to start the week & the first session in Aug.  Price action for the precious commodity may ultimately be dictated by the monthly US labor-market data due Fri which could help investors better gauge the economic recovery from the COVID pandemic against the backdrop of the spread of the highly transmissible delta variant.  Commodity investors continue to key in on comments from Federal Reserve members, with some policy makers offering a more hawkish stance on monetary policy since the conclusion of the Fed's rate-setting meeting last week.

Gold futures end lower Tuesday as yields, dollar perk up

Oil futures gave up early gains to finish lower, extending a sharp decline from the previous session blamed on worries about the impact on demand from the spread of the delta variant of the coronavirus that causes COVID-19.  West Texas Intermediate crude for Sep fell 70¢ (1%) to close at $70.56 a barrel.  Oct Brent crude, the global benchmark, declined 48¢ (0.7%) ending at $72.41 a barrel.  Both benchmarks fell more than 3% yesterday.  Investors will also be paying attention to weekly data on US crude & product inventories this week.  The forecast is for crude inventories to show a drop of 4M barrels last week.  Gasoline stocks are expected to show a drop of 1.1M barrels, while distillate supplies are seen down 600K barrels.

Oil ends lower, extends drop as COVID spread stokes demand worries

Investors were a little cautious in the first hour of returning.  But they returned & took the Dow over 35K to a new record.  The rise is difficult to understand with DC so dysfunctional & so much that is needed to get done.  Recently the Dow has been trending sideways.  During the last 3 weeks, the Dow has been up a relatively modest 120.  The bulls may be away on holiday.

Dow Jones Industrials


Markets turn lower on virus concerns

Dow rose 52, decliners over advancers 5-4 & NAZ was off 77.  The MLP index fell 1+ to the 178s & the REIT index was off 1+ to the 461s.  Junk bond funds were mixed & Treasuries saw more buying.  Oil dropped 1+ to the high 69s & gold declined 7 to 1814.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil70.44

GC=FGold   1,815.60



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Time is running out for Congress to raise, or suspend, the debt ceiling before the US gov runs out of money to pay its bills.  Lawmakers missed a Sat deadline to extend former Pres Trump's 2-year suspension of the nation's borrowing limit, which was automatically reinstated at the beginning of Aug & hit $22T in 2019, the legal limit on the total amount of debt that the federal gov can borrow on behalf of the public, according to the Committee for a Responsible Federal Budget< (CRFB).  Once the suspension lifted, the new limit was reinstated around $28.5T, a figure that includes debt held by the public & the gov.  On Mon, the Treasury Dept began deploying "extraordinary measures" to ensure the gov can continue to pay its obligations for the time being.  But if the debt ceiling is not raised or suspended, the US gov can no longer issue debt & will soon run out of cash on hand.  "The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic," Treasury Secretary Janet Yellen wrote in a recent letter to Congress.  The nonpartisan Congressional Budget Office (CBO) estimated at the end of Jul that the gov would probably run out of money to pay its bills sometime in the fall, likely Oct or Nov.  The new debt ceiling, which will include the new spending approved by Congress over the course of the past 2 years, will likely be around $28T, the CBO said.  It's unclear how or when lawmakers plan to raise or suspend the debt limit.

McConnell says GOP won’t agree to debt ceiling hike: What happens next

Simon Property (SPG) saw sales at its shopping malls & outlet centers bounce back to pre-pandemic levels in its latest fiscal qtr, as Americans shopped for clothes, shoes & other items.  CEO David Simon said that retail sales at its properties in Jun were comparable to Jun 2019 levels & up 80% from a year earlier.  Parts of the US saw sales higher than 2019 levels, he added.  The biggest US mall owner is hoping the improving trends coax businesses to sign new leases.  The company has been looking to fill spaces that were vacated by brands that either went bankrupt or had to cull stores.  For the 3-month period ended Jun 30, the occupancy rate was 91.8%, down from 92.9% a year ago & from 94.4% 2 years earlier.  “We continue to see demand for space across our portfolio, from healthy local, regional and national tenants, entrepreneurs, restaurateurs and mixed-use demand ... it’s increasing day by day,” he said.  “We still have a hole to dig out of because of the bankruptcies that we had to confront during the pandemic,” he added.  “But I’m very pleased with the activity.”  The stock rose 2.28.
If you would like to learn more about SPG, click on this link: 

Mall owner Simon Property says sales at its centers returned to pre-pandemic levels in June 

Clorox (CLX), a Dividend Aristocrat, fiscal Q4 sales plunged due to consumer demand shifting away from products like disinfectants & wipes.  The company reported a 9% sales decrease & a 68% decrease in diluted net EPS for Q4.  Quarterly net sales were $1.8B, down from $1.98B a year ago & diluted EPS fell to 78¢ compared to $2.41 a year-ago.  The Health &Wellness segment, which includes cleaning, professional products, minerals & supplements, posted a 17% sales decrease.  "Sales decreased in two of three businesses, primarily reflecting lower shipments of cleaning and disinfecting products in both the retail and professional channels as consumer demand decelerated," the company said.  "Segment sales results were also impacted by negative product mix from the normalization of supply."  For the full 2021 fiscal year, CLX delivered sales growth of 9% driven primarily by higher shipments due to COVID-19 across all reportable segments.  Total net sales for the year came in at $7.34B, compared to $6.72B for fiscal 2020.  Diluted EPS came in at $5.58 compared to  $7.36 a year-ago.  Excluding noncash items, adjusted EPS was $7.25 for a 2% decrease.  Net cash provided by operations fell 17% to $1.3B compared to $1.5 B in fiscal year 2020.  "Fiscal year 2021 was an extraordinary year for Clorox, with the pandemic putting us through the test of volatility, including rapid changes in consumer demand and inflationary pressure, which is reflected in our fourth quarter results," CEO Linda Rendle said.  Looking ahead at fiscal 2022, CLX forecasts a sales decrease of 2-6% during fiscal H1.  Sales are expected to normalize toward the lower end of the company's sales growth target of 3-5% in H2.  The company expects consumer demand to be the largest headwind impacting sales in fiscal year 2022.  The company also expects diluted EPS of $5.05-5.35 & adjusted EPS oF between $5.40-5.70.  The stock sank a very big 20+ (11%).
If you would like to learn more about CLX, click on this link: 

Clorox stock hit as demand for wipes, disinfectants wanes

Congress is on a 5 week holiday so nothing will get done on raising the debt ceiling for awhile.  Nobody cares because few understand the problem.  However that is one very dark cloud which must be dealt with, & soon.  Earnings keep coming, but theses tend to be the weaker ones.

Dow Jones Industrials