A win is a win. Stocks rose in yesterday’s session as investors cheered the President’s weekend executive orders to extend benefits. Whether legal or not, investors liked the progress and hoped that Congress was paying attention.
N O T E W O R T H Y
Perception is reality. If you wandered off into the woods at the beginning of the year and took an extended nap under a fine tree, only to wake up yesterday, what would you think? Well, let’s say that you ambled out of the forest and into town and you picked up a financial newspaper to see what was going on. You would see that the Dow Jones rallied by some +350 points led by Boeing, Caterpillar, Dow, Raytheon, Nike, and Chevron. "The cyclicals”, you think to yourself. Cyclicals do really well when global economies… cycle upward. The global economy must be doing well, by the looks of that snapshot. Moving on to the section of the financial press that covers individual companies you would note that earnings season is just about ending with around 90% of the S&P500 having reported so far… and the results are… the best ever. Earnings have beaten Wall Street estimates by 17%, which according to BofA, is a record. ** Side note: the bar has been set really low and while companies are beating at record levels, they are down from past quarters. Now back to the story. Paper still in hand, you thumb your way to the bonds section and your first reaction is: “Wow, I can’t believe how low rates are, I sure miss those good old days when you could get a solid muni with a 9% yield (those zany 1980’s)!” Beyond your initial muse, you note that Ball Corporation, makers of aluminum cans for soda, beer, and aerospace companies (I can’t make this up) just sold $1.3 billion worth of 10 year bonds with a yield of 2.875%. You would expect a bond with such a low yield to have great credit, but if you found out that the new issue was a junk bond, you might initially be shocked, but you know that junk bonds trade more like equities and they generally trade up when things are going well for the economy (you know this because you read my daily market note). So you fold your paper and tuck it under your arm and saunter down Main street only to notice very few people in the street. You might notice that most of them are wearing face masks. Some of your favorite small stores appeared to have gone out of business and restaurants are only seating people outside… in parking lots. Now you grow concerned and decide to pick up a non-financial newspaper and you notice that the President has just signed an executive order which includes an extension of unemployment benefits, a payroll tax moratorium, and an eviction moratorium. He has done this because Congress has been unable to agree on a multi-trillion dollar stimulus package to help the economy which fell by -32% last quarter (annualized, as reported by the BEA) and a dire employment situation which includes a 10% unemployment rate with 30 million Americans receiving unemployment benefits. At that point you realize that something is not normal. Except for Congress’ inability to agree, you wonder how could the economy be doing so badly while the financial markets appear to be signaling an economic boom. Then it comes to you. You remember that stocks factor in not only current conditions but also results for many years into the future. So, all at once you realize that the markets are reflecting the possibility that next year and years beyond will be much better than this current one. You decide to drop the non-financial newspaper into a recycling can and continue your walk with the financial paper. You are, after all, a long term investor.
THE MARKETS
Stocks rose yesterday in response to President Trumps executive order extending certain benefits while Congress continues to disagree on a path forward. The S&P500 climbed by +0.27%, the Dow Jones Industrial Average jumped by +1.30%, the Russell 2000 Index traded up by +0.99%, and the Nasdaq Composite Index slipped by -0.39%. Bonds slipped and 10-year treasury yields climbed by +1 basis point to 0.57%.
NXT UP
- This morning the NFIB Small Business Optimism Index (July) slipped from 100.6 to 98.8 surprising economists.
- Producer Price Index Ex Food and Energy (July) is expected to have risen by +0.1% after falling by -0.3% in the prior month.
- Fed speakers today include Thomas Barkin and Mary Daly.
- Today’s earnings include Lumentum, Sysco, Marcerich and recently-famous Eastman Kodak.