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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Friday, August 12, 2022, 8:22 am ET
As of Thursday's closing bell, here's how stock indices stack up for the week:
The NASDAQ and S&P are looking for a fourth straight weekly gain, while the Dow looks to get back on the wining side after a minor loss last week. The Dow still has not had three straight weekly gains this year and will need to not only post a positive number this week, but next week as well in order to smash through that barrier. The same applies to the NYSE Composite.
The Dow Industrials appear to have a slam dunk for the week, though following Thursday's pop and drop, nothing can be taken for granted. The NASDAQ has been the laggard all week, suffering losses in three of the four sessions thus far, and, there's an unhealthy gap between Tuesday's close (12,493.93) and Wednesday's open (12,793.44), based entirely on the July CPI reading that was released prior to the opening bell.
Similar spaces appear on the charts of all the major indices. The Dow's gap from Tuesday (32,774.41) to Wednesday (33,130.63) is even larger than the 300-point void on the NAZ, 356 points.
Thursday's failed rally may have had more to do with plain old technicals than anything else. Stocks went from oversold to overbought conditions at a pretty rapid pace. Considering the losses incurred during the first half of the year, some profit taking off the massive rally from mid-June to the present would hardly be a surprise.
More of the same could be in store for Friday, though that's not a given by any means. The rally should have more room to run, though it needs a better catalyst at these levels than the "no recession / growing economy meme that's been fueling most of the recent run.
On the positive side for equity investors, stocks may be regaining their TINA (There Is No Alternative) status as other asset classes have not been exactly on fire. Fixed income still guarantees a loss against inflation. Real rates remain negative across the treasury curve. The best deal is on the one-year note, yielding 3.25%. With inflation eating away purchasing power at the rate of 8.5%, the return would be -5.25%, marginally better than cash under a mattress.
Precious metals have had a nice run recently, though that's after having been savaged from April through June and it looks to be consolidating here. PMs - and bonds - aren't as exciting as stocks, however. Many short-term traders are gamblers and thrill junkies, thus, the huge allure of riches made trading stocks. Some people never learn.
There's bitcoin and other cryptos, but that kind of volatility is mainly for the criminally insane.
With trading in the US about an hour away, the overnight view saw the NIKKEI put on a gain of more than 2.5% while the rest of the Asia/Pacific indices were flat to lower. European stocks are sporting small gains or are flat as well, leaving it to the US to lead the way out of the week. US stock futures are higher, but have been declining overnight.
The set-up looks to be an uninspired open and possibly a dull session overall. Extending the rally past Thursday's highs is probably not in the cards. The more likely scenario sees investors just holding their fire until Monday. There's also the usual summertime rush to the exits on Friday for a weekend away from the hustle to consider. Trading volume has been down for weeks.
The big event of the day will be in Washington, DC, as the House looks to pass the "Inflation Reduction Act," a $739 billion pork-laden spending measure already gotten through the senate on a 51-50 partisan vote. Among a slew of climate and health-related spending, the bill also authorizes $124 billion over ten years for the IRS, the supporters talking smack about 87,000 fresh new faces at the agency, as if that's something the American people even remotely desire.
There exists the possibility of the bill failing, dependent on some deep-left members who have not spoken out for or against the legislation. Republicans, like their colleagues in the Senate, are united in opposiition to the bill. There's going to be extensive debate, mostly sound and fury signifying nothing more than virtue signaling, so the final passage may come after the close of markets.
The bill, being pushed via the reconciliation route, was promoted as a boon to American families and revenue-positive, though a slew of opponents - especially in the business sector - have deried it as wasteful spending with tax hikes on corporations which will be passed along to consumers.
Being little more than a slimmed-down version of Brandon's Build Back Better proposal that failed last year, this legislation puts congress first and American business and consumers last. Passage is expected, but the bill - like most of what comes out of congress - does little to address the actual needs of the country and absolutely nothing to address inflation. Congress has become clown world personified.
See you Sunday for the WRAP.
At the Close, Thursday, August 11, 2022:
Thursday, August 11, 2022, 9:14 am ET
After a semi-soft reading on CPI (0.0% monthly; +8.5% yoy), investors bought with the reckless abandon that typified the years of QE and ZIRP after the sub-prime meltdown of 2008-09. Highlighting the rally was the NASDAQ, as tech stocks have been beaten down for months and now appear - to some - as bargains.
As of Wednesday's close, the rally on the NASDAQ has added 2208 points to the index since June 16, but is approaching some resistance above. That was the level at which the NASDAQ first bottomed in March 2022 (12,581.22) as the bear market was not yet realized by some and subsequently rallied, only to return to the bearish pattern in April, May, and the first half of June.
The biggest hurdle for the NASDAQ is still a ways higher, in the range of 14,400 to 14,650, the level at which the NASDAQ topped out and failed on four separate occasions in February and March. While the NASDAQ rally still has momentum, it's likely to stall out at that level and exhibit some weakness thereafter.
If it's the NASDAQ leading the market, then the other indices will follow a similar path. On the Dow, resistance can be seen on charts between 34,200 and 35,300. There was a slew of trading at that level in March and April. The blue chips may have a difficult time exceeding that congested area, just as the S&P is close to its area of convergence (where buyers become sellers) in the 4400 range.
That's not to say stocks can't get past these levels. After all, inflation is easing, right? The Fed is going to take its foot off the economic brake of rate hikes, right? Both of those topics are subject to considerable debate. Inflation has not stopped. The 8.5% rise on the year-over-year CPI is in no way an indication that prices will continue coming down.
As a matter of fact, the 7.7% decline in the heavily-weighted gasoline component of the consumer basket was the driving force for no change in the monthly data, managing to null the effects of a 1.1% rise in food, a 1.6% rise in electricity, a 0.6 jump in the cost of new vehicles and a 0.5% gain in the cost of shelter, all the preceding gains in the month of July. If not for the miraculous decline in gas at the pump, inflation would have been quite a bit higher, and there's no guarantee that gas prices will continue to fall.
As far as the Fed and interest rates are concerned, Chairman Powell and his fellow members on the FOMC will have plenty of data with which to work before their next meeting on September 20-21. Neither a 0.75% hike or a pause are slam dunks. There's a real possibility that the Fed will only riase 50 basis points, which would give more fire to the stock rally, if it's still alive by then.
The main takeaway from what market activity is telegraphing is that there is plenty of optimism for beaten down issues and more gain are likely short-term. It's also very possible that any gains will be quickly taken off the board as investors capture profits when and where they can. The current run doesn't seem to be slowing down any time soon, but come September, that may change.
For today, traders will be encouraged by July PPI, which declined 0.5% on a monthly basis, but remained elevated at +9.8% year-over-year.
Meanwhile, initial unemployment claims continue to rise, with today's number of 262,000 the highest sicne November 2021 and the 12th consecutive week initial claims have exceeded 200,000. This series stands in stark contrast to last week's July Non-farm Payroll blowout, but indicates at least that there is no balance in the labor market.
Elsewhere, gold continues to trade in a tight range just below $1800/oz and silver seems to have found a nesting spot between $20.45 and $20.75. Precious metals remain relative bargains to other assets.
At the Close, Wednesday, August 10, 2022:
Wednesday, August 10, 2022, 9:25 am ET
The hits just keep on coming!
CPI cooled a bit in July, checking in with no change for the month, but still registering an 8.5% increase on a year-over-year basis. When the news broke at 8:30 am ET, stock futures immediately surged, with Dow futures surging by more than 300 points in a flash, from +76 to +405. S&P and NASDAQ futures were also up sharply. With a little more than 1/2 hour to the opening bell, NASDAQ futures were sporting a woody gain of 2.32% and the S&P higher by 1.72%.
On top of July's blowout jobs number from Friday, this is music to the ears of investors, sensing the possibility that the worst of the runaway inflation is past. Considering how prices have risen over the past 18 months, a cooling off was anticipated, the only downside that it wasn't even better.
The CPI reading was flat primarily because of a decrease in the price of energy, specifically gas at the pump, which was down 7.7%. Core CPI, leaving out food and energy, was higher by 0.3%, the smallest gain since March (also +0.3%).
While consumer prices continue to rise overall, they are doing so at a slower pace than in previous months. The aim of the entrenched political class is to have CPI actually decrease heading into the midterm elections in November, which might aid the plight of Democrats as they seek to hold control of congress.
By insisting that the US in not in a recession, having inflation under control by election day would add another talking point to their argument, though many would-be voters are certain to shy away from the current congressional make-up, especially after the FBI and Justice Department antics of raiding the home of former president Donald J. Trump. The incident left a nasty taste in the mouths of both Democrats and Republicans. Independent-leaning individuals are also cognizant of Democrat overreach in many areas of governance and will likely swing towards Republicans in the fall.
CPI's stalling probably comes as welcome relief to Fed Chair, Jerome Powell, who now can weigh any number of options in consideration of raising the federal funds rate at the next FOMC meeting in late September. He and his cohorts will have the added luxury of seeing another CPI reading (August) prior to making a decision. Current projections are for a third straight 75 basis point increase, though the benign CPI number may encourage the Fed to lower the hike to 50 basis points or even 25. They could also pause in September, keeping the target rate at 2.25-2.50%, which would extend through to just before the midterms as there is no meeting in October and the November meeting is set for the 1st and 2nd.
Overall, this is great news for equity investors, who have been happily watching stocks rise since the middle of June. All indications are positive presently as stocks continue to shake off the bear market that held sway over the first half of the year.
With so much on the line politically, expect the Fed to align with the party in power by keeping rates at reasonable levels. After all, Powell himself said that they've already reached the neutral rate, so a smaller increase or pause becomes a distinct possibility at the next FOMC meeting.
Stay tuned and stay solvent.
At the Close, Tuesday, August 9, 2022:
Tuesday, August 9, 2022, 9:06 am ET
If the FBI raiding the home of a former president isn't enough of a red flag for the people of the United States to make changes - congress isn't going to do it, elections or no elections - in how they deal with government at all levels, then maybe 87,000 new IRS agents will be.
No matter what, many Americans are increasingly fed up with government invading every aspect of their lives, from their kids to their jobs to their money. The presumption of privacy enshrined in the fourth amendment and the right of due process in the fifth are being eroded by a federal government hell-bent on shredding the constitution, starting, it appears, with the Bill of Rights. The first and second amendments have been repeatedly attacked and breached over the past decade, and now they're coming for the rest.
As this relates to economics, money, and investments, nothing should be taken for granted as being "safe" or "risk free," as US treasury bills, notes, and bonds have been for decades. With wild swings in the treasury market and inflation running near out-of-control levels, the only thing treasuries guarantee is that your US dollar purchasing power will be slightly better than if you just held cash. In either case, you're losing 6-15% or more, depending on individual spending habits and hedging activities.
While there are no good solutions to the current level of government overreach, there are solutions to your lifestyle and your money. Three basic tenets apply:
1. Avoid contact with government agencies as much as possible.
It's a simple enough plan, but the devil is in the details. It's next to impossible to avoid contact with government. Drive a car, buy anything, engage in any kind of business transaction will lead inexorably to dealing with the government at some level, be it local, state, or federal. And though the latter is the one most to be avoided, it is the one with the most severe levels of taxation, enforcement, fines, and penalties. Local and state governments ar confined mostly to sales and use taxes, licenses and fees, and minor intrusions, many of which are merely revenue-enhancers and only mildly enforced.
Being self-sufficient means just that. Unless you have your own land with a well, some source of energy, arable land, and the tools by which to tend to it, you're not fully self-sufficient. Growing a garden is a good start, but, having enough to feed your entire family is another thing altogether. (Owning a boat with access to fish and ocean might be another way.) Separation and determination are key. Homeschooling satisfies the objectives in both of the first two tenets.
Gold and silver as investments in true money goes without saying. Don't try to time the market. Both metals move up and down with regularity. Better to keep track of how many ounces you own rather than some numerical value based on other currency. In case one hasn't already started amassing a stack of gold and silver cons and bars, it's not too late. Both are still on sale and available. Dollar cost averaging is useful in smoothing out prices paid, but nothing beats turning over a huge amount of stocks, bonds, and cash into precious metals at regular intervals through a trusted dealer.
One look at the charts of the major indices from Monday reveals great insight into near-term investing if stocks are still your thing. Nothing will be allowed to decline from here until the midterms on November 8. All part of the plan.
Go long or go wrong!
At the Close, Monday, August 8, 2022:
Sunday, August 7, 2022, 10:32 am ET
Other than the inexplicably-large July Non-farm Payroll report from Friday - 528,000 new jobs, unemployment rate, 3.5% - the past week was lackluster in terms of volatility events. The Dow Industrials traded in a very narrow range of 531 points and the last three days of the week (Aug. 3, 4, and 5) moved only 177 points top to bottom.
Traders will be looking forward to July CPI data on Wednesday (Aug. 10) to see whether inflation has eased or the Fed needs to keep hiking the federal funds rate at the current pace of 75 basis points per meeting. Since the next FOMC rate policy meeting isn't until September 20-21, there could be cause even for a full percentage point raise or the unlikely step back to 50 basis points. The Fed will have the benefit of the August NFP report and an extra CPI reading with which to work.
In very much an undecided manner, major indices ended the week of trading in split fashion, the Dow and NYSE Composite lower, with the NASDAQ and S&P, higher, though the latter of the two gainers just squeaked by unchanged, completing a three-week win streak, the second of the year for both the NAZ and SPX (first three weeks of March).
The Dow and NYSE Composite have not had three straight weeks of gains this year. In fact, the Dow strung together five straight back in October, 2021, while the Comp. pressed ahead the final two weeks of 2021 and the first two weeks of 2022.
Overall, second quarter earnings reports were steady, and there were a few big surprises last week. Among the big movers, UBER (UBER) was up 37% for the week after reporting solid second quarter numbers. PayPal (PYPL) added 9.53% on the week after beating estimates and reporting a $2 billion investment stake by activist investor Elliott Management.
Moderna (MRNA) gained from 160 to as high as 196 after reporting an earnings beat for the second quarter and the launching of a $3 billion stock buyback program, finishing the week with a 15.81% gain.
Carvana (CVNA) saw 16% year-over-year (YOY) revenue growth to $3.8 billion, representing an earnings per share (EPS) loss of $2.35. Those results took the stock up 64% for the week.
Online sports betting company, DraftKings (DKNG) surged 32% after trimming losses and revising future guidance to the upside.
There are a few companies reporting in what is the last big week for earnings upcoming. Among the more interesting names reporting this week are Coinbase (COIN), Barrick Gold (GOLD), Walt Disney (DIS), and Tyson Foods (TSN).
Treasury Yield Curve Rates
People focused on the 10-year note yield (+0.16) are missing the bigger picture, as the yield curve got a lot more inverted over the course of the week. With the 2-year and 3-year notes both adding 35 basis points, the 2s-10s spread is now -41 basis points and the entire curve from 6-months to 30-years is inverted to the tune of -4 basis points. The curve is now strangely configured, with rates from 3-months to 10-year blowing out.
It's difficult to ascertain just what the yield curve is presaging other than a fairly serious economic downturn just months ahead. Buyers are avoiding everything with a duration longer than three months out to the 20 and 30-year bonds, up seven and six basis points respectively. Money is fleeing the bond market but finding few places in which to hide.
WTI crude oil finished the week at a six-month low of $88.53. The last time is was this cheap was February 2nd. Since then, it's been as high as $123/barrel, peaking in June. This recent downturn is music to the ears of drivers and the Democrat party, facing tough elections in November and lower gas prices can only aid their side.
For the US motoring crowd, prices at the pump took another serious downturn over the past week, the national average dropping from $4.18 to $4.04 as of Sunday morning. Texas has the lowest in the nation, checking in at $3.53/gallon with most of the Southeastern states close behind. On the high end, California leads the way at $5.42 while the rest of the Western states have seen prices fall below the $5 mark.
This past week's drop in the price of crude should eventually translate into even lower gas prices despite being 85 cents higher per gallon that at this time last year. A national average of $3.25 seems to be the goal, which would put prices in the Southeast down below $3.00/gallon, likely in a range of $2.75-2.90 and the Northeast population centers just above the average.
A price of $75-90 per barrel of WTI crude looks to be the sweet spot for producers and consumers alike, balancing exploration and production costs with economic consequences. Oil and gas prices cannot remain high for long, as the damage to consumers is high and the general economy suffers. Eventually, mean reversion brings prices back to near equilibrium. Prices at the pump should continue to decline and oil prices may continue to downtrend or stabilize near the current range. Demand is down while supply has been steady to higher.
Dropping from $23,791.70 to its current price of $23,155.80, bitcoin continues to disappoint from an investment standpoint though steady-handed proponents point to the relative price stability as a positive for currency die-hards.
Bitcoin, down more than 50% year-to-date, doesn't appear to have much of a future in any regard and its lesser rivals are struggling to establish relevance in a crypto world besieged by scandal, hacks, and government meddling.
The entire space continues to be the shakiest of all asset classes.
Gold price 07/08: $1,740.90
Silver price 07/08: $19.24
Gold popped over $1800 briefly, but eventually could not hold that level while silver took a breather, losing 48 cents (about two percent) on the week. The price gains in recent weeks seem to be tenuous at best, though dealers are reporting strong demand across the spectrum, allowing them to command high premiums over spot prices.
It still appears that the lows from the week ending July 22 for silver and July 15 for gold are holding, setting up what some analysts consider a potentially strong move higher. Of course, precious metals investors have been hearing that for years, justifying widespread skepticism. Prices in current ranges offer a fairly terrific buying opportunity, well below record levels, despite premiums.
Here are the latest prices for common one ounce gold and silver items sold on eBay (numismatics excluded, free shipping included):
With US midterm voting slated for November 8, Monday will mark exactly three months out from the usual November madness. From this point onward, Americans will be force-fed politics non-stop, even through the August recess and month-long congressional holiday.
As of this writing, the US senate is charging ahead toward a vote on the $740 billion Inflation Reduction reconciliation act, hoping for a vote later today. The bill is widely expected to pass on a 50-50 partisan tie, forcing Vice President to cast the deciding vote for Democrats. The House will return Friday, having already begun their summer recess, to cast votes on the bill and send it to Brandon for a signature (and an extra scoop of pudding for the pooper-in-chief).
An incessant reminder that politics are top of mind for the wasters and spenders in Washington, DC should provide no small entertainment for the US people, who are sick and tired of being ignored in favor of an aristocratic elite in the nation's capitol.
For investors, it's a sideshow. It's the economy that matters more than anything and any distraction away from the real issues facing America are likely to be a net negative. However, with Democrats in control for now, expect the media to chime along with the "strong" economy narrative.
The truth is out there. Finding it is a monumental task.
At the Close, Friday, August 5, 2022:
For the Week:
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