Despite a strong rally on Friday, most of the major indices were unable to avoid a fourth straight week of declines. Expiration of the current and uncertainty around the next stimulus package, corporate governance issues, and cautious comments from Federal Reserve Chairman Jerome Powell drove selling across all asset classes early in the week. Even gold suffered its worst week in months.
DJIA -- (1.8%)
S&P 500 -- (0.6%) - Chart below...
Nasdaq Composite -- +1.1%
On the economic front, the number of applications for unemployment benefits held steady at just under 900,000 a week, as uncertainty around the economic recovery continued to restrain hiring. The housing market continued to remain red hot, U.S. existing home sales rose 10.5% y/y in August, to its highest level in nearly 14 years and set a new record for average home prices. And on Friday, the Commerce Department reported that new orders for durable goods rose 0.4% m/m in August. Although the headline number was slower than July’s 11.7% gain and below economist forecasts, orders for nondefense capital goods (excluding aircraft), did rise 1.8% and is now above the level it reached in January.
Data out of the Federal Reserve showed that U.S. household net worth rose by the most ever in the second quarter – increasing by $7.6 trillion, or 6.8% to $119 trillion. This was the largest gain on record, dating back to 1952, thanks to the strong rebound in equities which accounted for 75% of the increase. Real estate value added a smaller percentage of the net worth gain, but has been positive in every quarter since Q1 2012. And consumer credit fell at a 6.5% annual pace, the most since World War II, despite the strong increases in federal government and business borrowing.
Finally, as businesses continue to grapple with the extraordinary challenges of the current environment, a new McKinsey survey (800 executives globally) provided some insight into how COVID-19 has forced companies to change the way they operate (and will operate going forward).
- 85% of companies have accelerated digitization
- 67% of companies have accelerated automation and artificial intelligence
- 15% said that at least one-tenth of their employees could work remotely two or more days a week going forward... permanently
- 83% said they would hire more people for health and safety roles
- 73% said they expect to hire more people to manage on-site physical distancing and sanitation
- 70% said they expect to use more temporary workers and contractors onsite at their companies than they did before the crisis.
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Other bits of news from last week...
- Federal Reserve Chairman Jerome Powell told Congress that the expiration of Congress' coronavirus stimulus will weigh on the U.S. economy. He believes that "direct fiscal support" (as opposed to Fed loans) is needed for small and medium-sized businesses that are struggling during the pandemic. The Fed already has a $600 billion fund for medium-sized businesses, but strict terms mean it has barely been used.
- Thousands of leaked government documents covering at least $2 trillion worth of transactions reportedly shows that some of the world's biggest banks knowingly moved money for terrorists and criminals with few consequences.
- 22% of college students across all four years are planning not to enroll this fall, according to a College Reaction/Axios poll. Of those not returning to school, most — 73% — are working full time. Almost 1/4? That's a big number.
- The FDA is expected to outline stricter standards for an emergency use authorization (EUA) of a coronavirus vaccine as soon as this week.
- A coalition of 156 economies signed onto a "landmark" agreement aimed at fair distribution of COVID-19 vaccines around the world, the World Health Organization announced.
- JPMorgan plans to move $230 billion from the U.K. to Germany as a result of Brexit by the end of the year, in a shift that will make it one of the largest banks in the country.
- Minneapolis Fed president Neel Kashkari and Dallas Fed president Robert Kaplan are both in favor of keeping U.S. interest rates at zero for years in an effort to help buoy the economy and spur inflation.
- New research from LinkedIn shows more than two-thirds of European C-level executives have found the COVID-19 pandemic to be their biggest-ever professional challenge. Nearly a third had to make employees redundant, 42% had to ask staff to take a pay cut, and in the U.K., 62% of leaders had to furlough staff. The biggest challenge for 72% of the surveyed executives was not having all the answers—and just over half doubted their own ability to lead at times
- The House approved a bill to avoid a government shutdown. Congressional Democrats and the Trump administration agreed on a funding package that will run through Dec. 11 and includes extra money for farmers and school lunches. The plan still needs approval from the Senate and President Trump.
- Global trade is rebounding much faster this year than it did after the 2008 financial crisis. While still below pre-pandemic levels, trade has snapped back robustly—and had recovered about half of this year’s historic loss by June, according to calculations by the Kiel Institute for the World Economy, a German think tank.
- The Justice Department has proposed curbing legal protections that shield the likes of Facebook and Twitter from liability related to their users' actions on their platforms. 45 describe the proposal as "concrete legal steps to protect an open internet and a free society." Democratic Senator Ron Wyden, who co-authored the legal protections, claimed the proposal was "a warmed-over mishmash of existing Republican proposals to force private companies to host lies, misinformation, hate speech and other slime online." That said, Joe Biden also wants to revoke the relevant protections, in order to counter the spread of false information.
- Gov. Gavin Newsom announced an executive order that will prohibit the sale in California of all new cars and light trucks that run on gasoline, starting in 2035. The order -- which is almost certain to face a court challenge -- also set a goal for California to phase out new permits for fracking by 2024.
- Special-purpose acquisition companies [SPACs], also known as blank check companies, are facing greater scrutiny on matters such as disclosure and compensation, Securities and Exchange Commission Chair Jay Clayton says. Clayton acknowledges the usefulness of SPACs in providing an alternative to initial public offerings but says the SEC is concerned about "transparency and whether investors are getting all the information they need."
- The pandemic closed hundreds of thousands of U.S. businesses. But now applications for new businesses are rising at the fastest rate since 2007. Applications for the employer identification numbers that entrepreneurs need to start a business have passed 3.2 million so far this year, compared with 2.7 million at the same point in 2019, according to the Census Bureau.
- A court said investors that made money from Bernie Madoff’s Ponzi scheme would have to pay back their profits — even though they were unaware of the fraud.
- House Democrats are readying a new, scaled-down package of coronavirus aid that would include assistance to airlines, restaurants and small businesses, according to people familiar with the matter, but Republicans said the chances of a deal before Election Day remained slim. House Speaker Nancy Pelosi is aiming for a price tag of around $2.4 trillion. Republicans have been skeptical of a large new round of deficit spending, and have expressed more confidence that the economic recovery was on a solid footing after a sharp slump earlier this year.
Have a good trading week.