…Stocks bounce; tech and energy up. Trade concerns linger. Ray Dalio in the 7th inning of the buildup to WW3. GDP forecast slump. Deficit grows. Job openings climb. Here comes Flo.
Financial Review by Sinclair Noe for 09-11-2018
DOW + 113 = 25,971
SPX + 10 = 2887
NAS + 48 = 7972
RUT + 0.94 = 1718
10 Y + .04 = 2.98%
OIL + 2.37 = 69.91
GOLD + 2.70 = 1199.10
Apple rose 2.5 percent, boosting the three major indexes, a day ahead of its expected unveiling of new iPhone models. The S&P technology sector gained 0.8 percent, its biggest percentage jump in two weeks, also boosted by Microsoft, up 1.7 percent, and Facebook, up 1.1 percent. Oil prices jumped 3.5% today. The energy index, up 1 percent, helped to lift the S&P 500, with shares of Exxon Mobil up 1.4 percent and Chevron up 0.5 percent. So, tech and oil were higher – boom.
On the down side, the semiconductor stocks continue to take a beating. Intel dropped 3% today, to extend a six-session losing streak despite gains in the broader stock market and technology sector, and to close 21.3% below the 18-year closing high of $57.08 on June 1, 2018. So, Intel is in a bear market. The Philly SOX index closed down 1%. AMD was the exception in chips – topping $30 a share for the first time in 12 years. A big semiconductor deal was announced. Japan’s Renesas said it had agreed to buy US rival IDT for $6.7 billion to boost its autonomous car technology. It bought another US chipmaker, Intersil, for $3.2 billion last year.
The Trump administration said it will seek fast-track approval from Congress for a trade deal being negotiated with the European Union, suggesting the two sides are hoping to make substantial changes to their commercial relationship. The U.S. Trade Representative’s office will begin consultations with Congress on a trade deal with Europe under Trade Promotion Authority, a legislative tool that allows for a simple yes-or-no vote by lawmakers on a final deal. Automobiles could still be a sticking point. The European Union appeared to step back from a major concession it made in August when the European trade commissioner said then that the bloc was willing to cut tariffs on motor vehicles to zero, if the United States did the same. Trump, his bluff called, immediately declared that the concession was inadequate. Now, the European line is that any cuts on tariffs on motor vehicles will need the approval of the union’s 28-member states before further talks on the issue. In other words, trade talks are not the same as a trade deal.
So far, China trade to the U.S. knows no bounds. In fact, the U.S. is faced with a record deficit with the Chinese. Companies, meanwhile, are shipping back and forth like crazy to avoid tariff lock-in dates. The trade war has not harmed China’s trade economy, based on recent trade data for August and the first week of September. Total trade activity climbed 12.9% on an annual basis in August in yuan terms, up from 12.5% in July. That marked the 22nd month of growth. This is not because of a weaker yuan. In dollar terms, total trade grew 14.3%.
China will ask the World Trade Organization (WTO) next week for permission to impose sanctions on the United States for Washington’s non-compliance with a ruling in a dispute over U.S. dumping duties. The U.S. dollar edged up against a basket of major currencies on Tuesday as concerns about trade friction between China and the United States prompted some safe-haven buying of the currency.
It remains to be seen how much impact a trade war might have on the US and China economies. Exports accounted for roughly 20% of China’s GDP last year, down from 36% in 2006. For the U.S., this share is even lower, with exports only accounting for 12% of GDP. That said, certain sectors and companies remain vulnerable. Apple warns proposed U.S. tariffs on $200 billion of Chinese goods would affect some of its signature products and disrupt its Asia-focused supply chain.
Stocks started today’s session in the red but seemed to bounce following a Wall Street Journal article suggesting Beijing was backing off the tough talk and wooing US firms’ investment dollars. Treasuries sold off across the curve as U.S. equities rebounded from early lows.
Ray Dalio, the Bridgewater billionaire, is out with a new book called A Template for Understanding Debt Crises, which collects and organizes the fruits of his analysis of 48 different debt crises throughout history—analysis that helped his fund actually make money in 2008 while the average hedge fund lost 20%. The most important takeaway from the book is that debt crises are an almost inevitable byproduct of capitalism and human nature. So Dalio went on CNBC to talk about it. He says the current bull market is in the 7th inning, meaning we might have a couple more years of good times, then all hell breaks loose. Dalio said the next crisis won’t be a big bang-type affair but one that leads to more severe social and political problems. So, then the question is how to straighten out the economic problems without triggering World War 3.
The Atlanta Federal Reserve’s GDPNow forecast model shows the U.S. economy is expanding at a 3.8 percent annualized rate in the third quarter, following the August payroll data released last Friday. This was slower than the 4.4 percent pace calculated by the regional Fed’s forecast program on Sept. 5.
The Congressional Budget Office estimates the U.S. budget deficit in August was $211 billion, nearly double the gap during the year-ago month. The budget deficit is widening in a big way. In the first 11 months of the fiscal year, the deficit was $895 billion, which is $222 billion more than the previous year. Outlays have climbed 7% while revenue rose 1%. Corporate taxes have plummeted by 30% this fiscal year, both because of the lower rate as well as the expanded ability to immediately deduct the full value of equipment purchases. Individual income and payroll taxes have climbed 4%, as increasing wages — mostly, due to more people having jobs — offset a lower withholding rate.
The number of job openings in the U.S. climbed to a record 6.94 million in July. About 5.68 million people were hired and 5.53 million lost their jobs in July. The share of people who left jobs on their own, known as the quits rate, rose a notch to a 2.7% among private-sector employees. The record is 2.9%, set in 2001. The quits rate was 2.4% among all workers — also near a record high. Workers who switch jobs usually get better pay than those who remain in their old ones. And more people switch when they are confident about the economy. Job openings increased the most in insurance, finance and manufacturing.
Hurricane Florence will hit the southeastern and mid-Atlantic United States as a major storm — potentially thrashing coastal areas stretching from South Carolina to northern Virginia with winds, heavy rains (topping 2 feet), and life-threatening storm surge which could top 12 feet in some areas. More than a million people are being ordered to evacuate ahead of the storm. Hurricane watches — meaning hurricane conditions are possible within the next two days — have been issued from South Carolina to the North Carolina-Virginia border. Currently, Florence is sustaining 130 mph winds, making it a Category 4 storm. But forecasters warn that it may continue to intensify as it approaches the coast, possibly even making landfall Thursday or Friday in North Carolina as a Category 3 or 4 storm, with winds in excess of 120 mph. Motorists streamed inland on highways converted to one-way evacuation routes Tuesday as about 1.7 million people in three states were warned to get out of the way of Hurricane Florence. For now, Florence is expected to slow down as it approaches the coast. That could lead to “a prolonged and exceptionally heavy rainfall event, which may extend inland over the Carolinas and Mid Atlantic for hundreds of miles.” Recall that slow speed and heavy rain were what made Hurricane Harvey such a devastating event for Houston last year, not the wind speed.
Millions of homes across the U.S. sit in harm’s way, and the resulting damage could be in the trillions of dollars. Those estimates come from real-estate data provider CoreLogic and are based on forecasts from the National Oceanic and Atmospheric Administration that foresaw a 2018 Atlantic hurricane season that was “near or above normal.” This year, nearly 7 million homes are at risk of hurricane storm surge. That’s the same number as last year, when NOAA predicted an “above normal” season. But total reconstruction costs are forecast to be more than $1.6 trillion this year, a jump of 6.6% compared with the $1.5 trillion estimated in 2017. The driver? Higher costs for construction, equipment and labor. A noteworthy factor that’s consistent from 2017 to this year: Once again, the National Flood Insurance Program is set to expire in the middle of hurricane season if Congress doesn’t take action. It is estimated that more than 750,000 homes are in the path of Florence and a worst-case rebuilding scenario could cost more than $170 billion.
Today marks the 17th anniversary of the September 11 attacks. Nearly 3,000 people were killed in 2001 when terrorists flew planes into the World Trade Center and the Pentagon, while a fourth plane crashed in Pennsylvania. There were ceremonies at Ground Zero, Washington and Shanksville. I realize that we all lead busy lives and it could be easy to let a day like today pass like any other. But today is not like other days, so if you have not yet, at some point take a moment to pause and remember.