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=F Crude Oil 70.44 -0.82 -1.2%

GC=F Gold    1,815.60 -6.60 -0.4%

 

 

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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:
club.ino.com/trend/analysis/stock/SPG?a_aid=CD3289&a_bid=6ae5b6f7 

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:
club.ino.com/trend/analysis/stock/CLX?a_aid=CD3289&a_bid=6ae5b6f7 

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

 

Markets are mixed on concerns about the Covid virus spreading

Dow fell 97 with selling in the last hour, advancers barely ahead of decliners & NAZ rose 8.  The MLP index gave back 2+ to the 179s the REIT index fell 1+ to the 462s.  Junk bond funds fluctuated & Treasuries continued in heavy demand.  Oil dropped 2+ to the 71s & gold added 2 to 1819 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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70% of US adults have had at least one shot of a Covid vaccine, according to the CDC, about a month behind Pres Biden's Fourth of Jul goal.  The 70% goal set in May is seen by federal health officials as a crucial step toward reaching herd immunity — when enough people in a given community have antibodies against a specific disease.  While the milestone is a significant achievement for the nation, it should be seen as a floor, rather than a ceiling, especially as the highly contagious delta variant spreads, health experts say.  “We need to have at least 80% of the population vaccinated to truly have some form of herd immunity,” Dr Paul Offit, a voting member of the Food & Drug Administration's Vaccines & Related Biological Products Advisory Committee, said.  “This is a fairly contagious virus.”  The Centers for Disease Control & Prevention's (CDC) updated data comes almost a week after the agency reversed course on its prior guidance & recommended fully vaccinated Americans who live in areas with high Covid infection rates resume wearing face masks indoors.  The guidelines cover about 2/3 of the US population.  While the delta variant hits unvaccinated people the hardest, some inoculated people could be carrying higher levels of the virus than previously understood & could transmit it to others, CDC Director Dr Rochelle Walensky said last week.  She added that the variant behaves “uniquely differently from past strains of the virus.”

U.S. reaches 70% Covid vaccine milestone for adults about a month behind Biden’s goal

Dr Scott Gottlieb said he believes that Covid vaccine booster shots will start to be given in the US as early as next month to older people & those with compromised immune systems.  “My guess is sometime by September or October we will be giving booster shots to older individuals and certainly immunocompromised,” said the former Food & Drug Administration chief.  “I just think we’re on a slower path here,” he said referring to other countries’ booster shot plans.  “Quite frankly, it’s unfortunate because I do believe at least for older individuals and people who were vaccinated back in December, January should be contemplating this more actively,” he said, adding those people seem to be more susceptible to the virus right now.  ”[This is] certainly concerning because eventually those infections are going to break through and develop into more severe disease.”  Gottlieb, who led the FDA from 2017-2019, said the booster shot would be a 3rd dose of the existing vaccine available in the US, barring any change in the virus that would render the vaccines ineffective against current strains.  He added the gov has purchased enough vaccines to give booster shots to its entire population.  “For people who think that this is a zero-sum game and giving boosters to Americans is going to take vaccines away from other countries, those vaccines have already been purchased. A lot of them have been stockpiled,” he said.  “They exist and they’re not going to be used unless they’re used by the U.S. government. The U.S. government’s going to maintain a stockpile of Covid vaccine as a national security matter.”

Dr. Gottlieb sees Covid boosters for vulnerable in U.S. as early as September

India's chief economic advisor Krishnamurthy Subramanian hit back at the IMF for downgrading the country's growth projection, saying it’s “significantly off the mark.”  The IMF last week cut India's growth outlook to 9.5% for the fiscal year ending in Mar 2022 — that’s 3% lower than its Apr forecast of 12.5%.  In an accompanying report, the IMF said India's prospects were downgraded following a severe second wave of Covid-19 outbreak and an “expected slow recovery in confidence from that setback.”  He claimed the IMF's assessment was driven by “saliency bias” — where more focus is given to striking information while data that is comparatively less remarkable is ignored & added that India did not agree with the downgrade.  “Our projections were not as high as theirs, nor do we think that the revision is warranted,” Subramanian said about the size of the 3% downgrade.  “I would say IMF is significantly off the mark.”  The Indian gov's expectations are more in line with the Reserve Bank of India, which revised down its projected growth rate by 1% to 9.5% in Jun, he added.

India’s chief economic advisor says IMF’s growth downgrade is ‘off the mark’

Gold futures settled higher, starting Aug on an upbeat note for the precious metal as a retrenchment in the $ & a further pullback in 10-year Treasury yields helped to pave the way for bullion buying.  Strategists are maintaining an upbeat outlook for precious metals as data are beginning to highlight some weakness for parts of the world in the economic recovery phase from COVID-19, which is staging a resurgence in parts of the globe.  In China, data released by the National Bureau of Statistics showed that the country's official purchasing managers index fell to 50.4 in Jul from 50.9 in Jun.  Numbers above 50 indicate expansion.  Dec gold, the most active contract, rose $5 to close at $1822 an ounce, after bullion on Fri rose nearly 0.9% for the week & scored a 2.6% monthly advance, its 3rd such gain of the past 4 months.  Last week, gold benefited from a selloff for the $, which was in response to a dovish stance of the Federal Reserve.  Meanwhile, Dr Anthony Fauci warned yesterday that more “pain and suffering” is on the horizon as COVID-19 cases climb from the Delta variant & officials plead with unvaccinated Americans to get their shots.  Last week, Powell said that concerns over rising Delta cases partly supported the Fed's stance to remain patient with tapering its monthly purchases of $120B, known as quantitative easing (QE) in Treasuries & mortgage-backed securities.

Gold futures end higher to start August as dollar and yields retreat

Oil futures start Aug on a down note, under heavy pressure after disappointing data on activity in China & the US worries about the spread of the delta variant of the coronavirus that causes COVID-19 & rising output by OPEC+ producers.  West Texas Intermediate crude for Sep fell $2.69 (3.6%) to close at $71.26 a barrel.  Oct Brent crude the global benchmark, closed with a loss of $2.52 (3.3%) at $72.89 a barrel.  In China, data released by the National Bureau of Statistics showed the country's official purchasing managers index fell to 50.4 in Jul from 50.9 in Jun.  Numbers above 50 indicate expansion.  Crude added to losses after the Institute for Supply Management’s Jul manufacturing index slipped to a 6-month low of 59.5% in Jul from 60.6%, coming in slightly below expectations.  The reading continues to point to strong activity, but showed manufacturers are still struggling to cope with broad shortages of supplies & labor that are causing delays in production.  Meanwhile, investors also continue to track resurgent COVID-19 cases & the potential for renewed lockdowns.  The US had a one-day tally of more than 100K new COVID-19 cases on Fri, according to Centers for Disease Control & Prevention data, the highest single-day reading since Feb.  Most of new cases are in people who are not vaccinated, prompting public health experts to again push for more of that group to get their shots.  A fresh COVID outbreak in China has spread to new locations, raising concerns over the country's ability to contain the outbreak of the delta variant of COVID-19.  Meanwhile, investors are gauging rising output levels by major producers.  OPEC+ agreed last month to lift output by 400K barrels a day each month beginning in Aug until existing curbs are eliminated next year.  A survey released Sat found that OPEC members had boosted output in Jul by 610K barrels a day, to 26.7M barrels a day.  The survey indicated OPEC members, led by Saudi Arabia, continue to be in “overcompliance” with production curbs.

Oil ends more than 3% lower after weaker China, U.S. economic readings

The Dow has been close to 35K for about 3 weeks (shown below).  Meanwhile gold has been in demand & Treasuries have been in heavy demand.  Monthly economic data could be coming in weaker than expected which contributed to selling in the last hour.  Aug may be a tough month for stocks.

Dow Jones Industrials

Markets climb higher on earnings & economic data

Dow went up 110, advancers over decliners better than 2-1 & NAZ gained 69.  The MLP index fluctuated in the 182s & the REIT index added 2+ to 467.  Junk bond funds inched higher & Treasuries were heavily purchased, bringing the yield on the 10 year Treasury under 1.19%.  Oil was off 1+ to the 72s & gold inched up 1 to 1818.

AMJ (Alerian MLP index tracking fund)

CL=F Crude Oil 72.88 -1.07 -1.5% GC=F Gold    1,814.10 -3.10 -0.2%

 

 

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Expanded federal unemployment benefits, put in place as an emergency measure during the COVID-19 pandemic, are on course to become another long-term "welfare trap," a gov fiscal watchdog group warns in a new report.  Under emergency response legislation, the federal gov expanded eligibility for unemployment benefits, extended the number of weeks & gave bonuses to state unemployment benefits.  The expansion will sunset in Sep, but congressional Dems have pressed Pres Biden for an extension.  The benefits have been extended before.  "It has started to look more like welfare and more like another piece of the welfare package. It’s starting to look like a long-term benefits program rather than a short-term temporary supplement it was supposed to be," Alli Fick, a senior research fellow with the Foundation for Government Accountability (FGA), said.  "Unemployment insurance program should promote work and reject government dependency."  Fick wrote in the FGA study that dug into the legislative history of federal unemployment insurance when it began in 1935 as part of the New Deal, going thru committee reports & hearing debates.  "Unemployment insurance cannot give complete and unlimited compensation to all who are unemployed," the 1935 House Ways and Means Committee report on the legislation states.  "Any attempt to make it do so confuses unemployment insurance with relief, which it is designed to replace in large part. It can give compensation only for a limited period and for a percentage of the wage loss."  But now, jobless benefits are available for more than a year, according to the FGA report titled, "How Unemployment Benefits Have Become the New Welfare and How to Fix It."  "Instead, unemployment benefits were meant to temporarily tide over the average worker," the report states.  "But unfortunately, due to the recent COVID-19-related changes, unemployment insurance has been morphed into more of a long-term benefits program.  The Pandemic Emergency Unemployment Compensation program now extends unemployment insurance by an additional 53 weeks."

Short-term expanded jobless benefits becoming long-term issue, warns report

The coronavirus delta variant has already led some officials to reinstate mask mandates, but Minneapolis Federal Reserve Pres Neel Kashkari warns that it could also hinder the economy's comeback.  Kashkari observed that the more transmissible delta variant is breeding "caution" among Americans, which has contributed to hesitancy when it comes to going back to work.  "I was very optimistic the fall would be a very strong labor market with many of those Americans coming back to work," he added.  "That's still my base-case scenario, but if people are nervous about the delta variant, that could slow some of that labor market recovery and therefore be a drag on our economic recovery. So the sooner we can get people vaccinated – the sooner we can get delta under control – the better off our economy’s going to be."  He noted that in addition to caution about contracting the illness, there are more indirect factors behind people not returning to work.  These include having issues with child care as well as enhanced unemployment benefits.  Those benefits, Reps have warned, have led to a lack of motivation to return to work because in some cases the benefits pay more than the jobs people had.  Reps have urged the administration to end the enhanced benefits, which provide an extra $300 per week.  It is set to expire Sep 6.  In May, Biden warned that people who turn down job offers could lose their benefits.  So far, 26 states have opted out of the enhanced benefits 7 require people collecting unemployment to look for work.

Delta variant concern could slow economic recovery, Fed's Kashkari warns

The Treasury Dept will begin conducting emergency cash-conservation steps today to avoid busting the federal borrowing limit after a 2-year suspension of the debt ceiling expired at the end of Jul.  Economists say those so-called extraordinary measures will allow Treasury to pay off gov bills without floating new debt for 2-3 months.  After that, Congress will need to either raise or suspend the borrowing limit or risk the US defaulting on its obligations.  The limit, a facet of American politics for over a century, prevents the Treasury from issuing new bonds to fund gov activities once a certain debt level is reached.  That level reached $22T in Aug 2019 & was suspended until Sat.  The new debt limit will include additional borrowing since summer 2019.  The Congressional Budget Office estimated in Jul that the new cap will likely come in just north of $28.5T.  Though the federal gov has never defaulted, economists say such an event would have disastrous effects on the US economy by spiking interest rates.  “The government needs to have funds, for example, to pay interest on its debt, and if it were to stop paying interest that could be extremely unsettling for financial markets,” Harvard University economics professor Karen Dynan said.  These funds are needed to pay gov workers & send out Social Security checks.  “People depend on that money and could suffer a lot of hardship if they don’t get it as scheduled.”  Still, near-certain economic calamity hasn't stopped politicians from using the debt ceiling as a political football over the years.

Treasury Dept to invoke ‘extraordinary measures’ as Congress misses debt-ceiling deadline

It's difficult to see where enthusiasm by investors is coming from.  Maybe it's from Congress taking a 5 week holiday which will limit the damage they can do.  Senators are reading the infrastructure package with needed repairs & plenty of pork.  They finally finished writing the 2000+ pages yesterday.  But hopes are high for favorable Jul economic data.  Also, raising the debt ceiling can not be dealt with until next month at the earliest by a dysfunctional Congress.  Not good for the economy which has been on the mend in the last year.

Dow Jones Industrials