Worldwide COVID-19 cases crossed the 4.3 million mark and the death toll is closing in on 300,000 as of 13 May. The focus is now increasingly shifting to monitoring new cases and fatalities in a second wave that might follow hot on the heels of exit from lockdown.
Those countries leading the way out of lockdown in Europe – Austria, Demark, and the Czech Republic – are yet to show any noticeable spikes in new infections (see Exhibit 1 below). As a result, their exit process continues. The data in these countries remain a key signpost and the market will no doubt be monitoring closely Germany, Italy, Spain, and France for any signs of a second wave.
Exhibit 1: COVID-19, daily new infections in countries among the first to exit lockdown
Source: ECDC, as of 11 May 2020
The situation is more concerning in the Americas. There is a glacial decline in the number of new infections in the United States. Testifying before the US Senate health committee, Doctor Fauci, head of the US National Institute of Allergy and Infectious Diseases (NIAID), warned that reopening “could even set you back on the road to economic recovery”. Meanwhile, Brazil leads the cumulative death toll statistics for developing nations with over 12,000 deaths (over three times more than Mexico with the second highest death toll). A recent editorial in the medical journal ‘The Lancet’ warned President Jair Bolsonaro that he “needs to drastically change course”.
R0 – the basic reproduction number – a key market signpost
With the focus now shifting to government’s capacity to manage the virus outside lockdown, we anticipate that R0 – or the basic reproduction number – will become a key market signpost. R0 describes the average number of secondary cases caused by a single infection in a population with zero acquired immunity (not to be confused with the effective reproduction number, R, which adjusts for the extent of immunity within the population).
The Robert Koch Institute now publishes a daily estimate of R0 for Germany. The latest estimate, based on electronically notified cases as of 12/05/2020, placed the reproduction number in a 95% prediction interval between 0.79 – 1.10, with a central estimate just below one.
Hard data on the impact the lockdowns have had on economic activity are starting to arrive. We already have preliminary estimates of GDP in a number of countries for the first quarter of 2020. However, these preliminary estimates generally contain little information about economic activity in the final month of the quarter, which is precisely when the lockdowns began.
Data on industrial production and output in the manufacturing sector providing more detail are now available for March (see Exhibit 2 below). The numbers vividly illustrate the variation in the extent of the economic contraction across countries. This of course results from the differing severity of lockdown measures across countries. Manufacturing output was essentially unchanged between February and March in Sweden, down around 5% in the UK and the USA, with falls of around 10% in Germany, almost 20% in France and around 30% in Italy. It may well be that the level of manufacturing output falls further in the UK – closing the gap on continental Europe – in the April release when the lockdown was in full force throughout the period.
Exhibit 2: Changes in level of manufacturing output among developed nations
Source: Haver, as of 13 May 2020
Policy measures – discussions continue in Europe
Developments in Europe remain centre stage after last week’s ructions at the German Constitutional Court. In terms of a common fiscal response there is at least now clarity over the Pandemic Crisis Support tool that will be available to the sovereigns via the European Stability Mechanism. Discussions on the all-important recovery fund continue but without conclusion.
We will remain concerned about the long-term consequences of the pandemic for Europe unless and until the eurozone’s finance ministers and leaders are able to reach a consensus around a sufficiently substantial solidarity package that can create the space for all countries to do whatever it takes to support their economies.
Looking further ahead we suspect that investors will increasingly come to share the concerns of Ángel Gurría, secretary-general of the OECD, who has warned that the cost of fighting the pandemic will “come back to haunt us” given the starting position of many economies – or as he put it:
“We are going to be heavy on the wing because we are trying to fly and we were already carrying a lot of debt and now we are adding more.”
- Valuations of risky asset prices remain supported by the central bank interventions and by the modest improvement in sentiment. Equities have continued to recover, albeit at a slower pace over the past few days. Credit spreads have ground slowly tighter and volatility has fallen back to levels last seen in mid-February. We see this backdrop continuing for now, with lower volatility and markets drifting sideways. This cautious positive tone is supported by the perception that any further downturn will be met by more central bank intervention or fiscal stimulus.
- There are risks going forward, especially if the high unemployment rates consolidate at high levels with temporary layoffs becoming permanent. This, combined with current lending standards, that have tightened considerably, may hinder a sustainable rebound in asset prices. So far, financial markets have decoupled from the real economy due to central bank support. Should the economic rebound remain weak, financial markets could increasingly reflect the state of the real economy via corrections in valuations.
- A key question is the pace of recovery in global demand. Long dated oil futures point to a recovery that may be slower than expected by equity analysts. However, China is slowly turning the corner where significant credit easing is helping the rebound. This could point the way forward for those economies that are starting to lift restrictions. One key headwind to the rebound are the current tensions between the US and China, fuelled by the upcoming US elections. There is risk of a breakdown in the existing US-China trade deal.
- It is likely that the current stimulus programmes will have to be increased going forward as some industries (airlines, tourism, retail, etc) will require more support. This uneven recovery is pushing earnings and credit dispersion up, with entire sectors or even countries coming under significant pressure. Asset selection and risk allocation are likely to be more important than outright market calls in such an environment.
- Emerging market assets have been hit hard by the combination of lower global trade, a stronger US dollar and increased volatility. This has created a massive rise in dispersion among emerging market credits. However, with outflows stabilising and the prospect of a weaker US dollar, some carry trades have started to look attractive, especially in Asia where the COVID-19 crisis has been better managed.
Asset allocation view
Our set of signposts remain critical orientation points as developed economies cautiously reopen.
In terms of asset allocation, we remain long market risk strategically. We overweight European and US investment-grade credit (financed by government bonds) and are long emerging market and UK equities; long commodities and long EM hard currency debt.
Having lowered our risk exposure tactically with short positions in the S&P 500 and eurozone equities, we await a market corrections to further increase our risk exposure.
Writen by Marina Chernyak. The post Coronavirus – weekly update – 13 May 2020 appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.
Stocks for a recession: which companies have historically done well during recessions or are likely to this time?
Last week the Bank of England forecast a recession starting this autumn that it now expects to be deeper and longer than previously assumed. It also expects…
Last week the Bank of England forecast a recession starting this autumn that it now expects to be deeper and longer than previously assumed. It also expects inflation to hit 13% by the end of the year just months after reassuring that it didn’t expect more than modestly high figures.
Having belatedly acknowledged the extent of the inflation problem, admittedly exacerbated by the impact on energy and food prices the war in Ukraine has had, the UK’s central bank’s nine-member Monetary Policy Committee voted to raise interest rates. Thursday’s 0.5 percentage points rise, which took the BoE’s base rate to 1.75%, was the biggest single increase in 27 years.
The European Central Bank and USA’s Federal Reserve have also taken aggressive measures on rates, with the former also raising rates by 0.5% to 0%. It was the ECB’s first rates rise in 11 years. The Fed went even further, raising rates for the fourth and largest time this year with a 0.75 percentage points hike to between 2.25% and 2.5%.
Aggressive interest rate hikes alongside high levels of inflation tend to result in recession with the combination referred to as stagflation. With inflation expected to remain high next year and not dropping back towards the target 2% before 2023, we could be in for an extended period of recession.
Why stock markets fall during a recession but not all stocks do
Stock markets historically do badly during recessions for the simple reason they are a proxy for the economy and economic activity. When economic activity drops, people and companies have less money or are worried about having less money, so they spend less and companies earn less. Investors also become less optimistic about their prospects and valuations drop.
But the kind of drop in economic activity that leads to recessions is not evenly distributed across all areas of an economy. When consumers cut back on spending, they typically choose to sacrifice some things and not others, rather than applying an even haircut across all costs. And there are goods and services that people spend more on rather than less when tightening their belts.
So while the net impact of a recession has always historically been the London Stock Exchange and other major international stock markets losing market capitalisation, or value, that doesn’t mean all the stocks that constitute them go down. Some go down by more than others. And some stocks grow in value because the companies sell the categories of goods and services people spend more on when they are either poorer or worried about becoming poorer.
Should we be investing “for” a recession?
This surely means all investors need to do to mitigate against a recession is to sell out of the stocks that do badly during an economic slump and buy into those that do well? In theory, yes. In practice, doing that successfully would mean being sure a recession will take place some time before it becomes a reality and timing its onset, then the subsequent recovery, well.
That is of course far easier said than done which is why even professional fund managers don’t attempt the kind of comprehensive portfolio flip that would involve. Some investors will make big bets on events like the onset of a recession or inflation spiralling out of control.
They are the kind of bets that make for dramatic wins like those portrayed in the Hollywood film The Big Crash, which tells the story of a group of traders who predicted and bet big on the 2007 subprime mortgage implosion that triggered the international financial crisis. But as the film relies on for its dramatic tension, the big winners of The Big Crash very nearly got their timing wrong. Another few days and they would have been forced to close their positions just before market conditions turned in their favour and lost everything.
The reality is the big, risky bets that result in spectacular investment wins when they come off are usually far more likely to go wrong than right. Which is why regular investors, rather than high risk traders using leverage, shouldn’t take them. At least not with their main investment portfolio if they don’t have the luxury of being able to justify setting aside 10% to 20% of capital for highr isk-high reward bets.
If you have a well-balanced investment portfolio with a long term horizon and you are happy with the overall quality of your investments, you may choose to do nothing at all to mitigate against the recession that is almost certainly coming. If you have ten years or more until you expect to start drawing down an income from your portfolio, your investments should have plenty of time to recover from this period.
But if you do want to rebalance because you feel your portfolio is generally too heavily weighted towards the kind of growth stocks particularly vulnerable to inflation, higher interest rates and recession, you might want to consider rotating some of your capital into the kind of stocks that might do well in a recession.
How to pick stocks that will do well in a recession?
There are two ways to highlight stocks that might do well in a recession. The first is the most obvious and simplest approach – look at which did well in previous recessions. We had a very brief recession at the start of the Covid-19 pandemic and a much more significant one in 2008/09 in the wake of the international financial crisis. Which companies did well over those periods?
The second approach is to add a layer of complexity into the equation and consider how and why the coming recession might differ from the two most recent historical examples. The 2020 recession was extremely unusual in its brevity. Within a couple of months, stock markets were soaring again as people under quarantine and social distancing restrictions spent more in the digital economy and generally on services and products to enhance their experience being couped up at home.
The 2008/09 recession was also different because it was caused by a systemic failure in the financial sector. Unemployment leapt which is not expected to happen this time around with an especially tight labour market one result of the combination of the pandemic and Brexit. Many households also have higher levels of savings built up during the pandemic which a significant number of analysts believe is softening the impact of inflation.
While there are likely to be constants throughout recessions, there are also differences that should be taken into account. Normally energy companies do badly during a recession as lower economic activity means less energy being used. But energy companies are currently posting record profits because of sky-high energy prices which are one of the major factors behind the expected recession. They should continue to do well while the recession lasts as energy prices dropping again is likely to be one of the catalysts behind the recovery.
The online trading company eToro recently published two baskets of “recession winning stocks” – one made up of Wall Street-listed companies and the other companies listed in the UK. The stocks in each basket were selected because they were the biggest gainers during the last two recessions. Interestingly, they also did well during the intervening period between 2009 and 2020, as well as in the aftermath of the coronavirus crash.
The portfolio of US stocks beat the S&P 500 index of large American businesses by 60 percentage points through the financial crisis between 2007 and 2009 and by 9 percentage points during the Covid crisis in 2020.
The portfolio of UK stocks beat FTSE-100 by 35 percentage points during the financial crisis and by 17 percentage points in the Covid crash. Since 2007, the US portfolio has gained 834%, more than twice the return of the Nasdaq and about five times that of the S&P 500. The UK portfolio’s 129% return is eight times more than the FTSE 100’s, excluding dividends.
“Well represented segments included discount and everyday-low-price retailers as consumers trade down, like Walmart (WMT), Ross Stores (ROST) and Dollar Tree (DLTR).”
“Fast food McDonalds (MCD) is related. Similarly, home DIY, like Home Depot (HD) Lowe’s (LOWE), and auto repair parts stocks Autozone (AZO) and O’Reilly (ORLY). Health care and big biotech is well-represented as inelastic non-discretionary purchases, like Abbott (ABT), Amgen (AMGN), Vertex (VRTX).”
“Also, domestic comforts from toys (Hasbro, HAS) to candy (Hershey, HSY), and getting more from your money and tax (H&R Block, HRB), and educating yourself (2U, TWOU).”
The UK portfolio included the drug makers AstraZeneca and GlaxoSmithKline, which did well because spending money on healthcare and medicines is essential and families don’t tend to cut back even when struggling financially.
The cigarette makers British American Tobacco and Imperial Brands also don’t usually see any downturn in demand because they benefit from a customer base addicted to their products. Both companies pay high and rising dividends. Consumer goods firms such as Unilever and Premier Foods also typically do well because they own strong brands that people bought even after price rises have been passed on.
Proactive Investor also picks out a range of London-listed stocks it expects to do well over the next year or so. In the energy sector that is doing so well at the moment it highlights Harbour Energy as a “core sector stock” and Diversified Energy Company as having “one of the lowest-risk free cash flow profiles in the sector”, while Energean (a client) provides “excellent visibility on multi-decade cash flows”.
Another difference to recent recessions could be how miners do during the one expected from autumn. Normally lower economic activity reduces for demand for commodities but the sector is also facing supply constraints that should see prices supported or rebound quickly.
Copper, mineral sands and diamonds look among the commodities most constrained in terms of supply, with limited supply growth under development. Mining and commodity stocks to look at are suggested as:
“Atalaya Mining (AIM:ATYM, TSX:AYM), Central Asia Metals, Kenmare Resources, Petra Diamonds and Antofagasta, with Tharisa PLC (LSE:THS, JSE:THA) tagged on as platinum group output to be in focus as automotive sales recover.”
“Gold stocks are seen as outperforming the market during the pullback phase, as in March 2020 and in the initial stages of a rebound, with top picks currently Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN, OTCQX:PAFRF), Pure Gold Mining Inc (TSX-V:PGM, LSE:PUR, OTC:LRTNF), Wheaton Precious Metals and Yamana Gold (TSX:YRI, LSE:AUY).”
Credit Suisse has also picked out stocks that have historically outperformed during recessions, highlighting:
“London Stock Exchange Group PLC (LSE:LSEG), RELX PLC (LSE:REL), Experian (LSE:EXPN) PLC, Microsoft Corporation (NASDAQ:MSFT) and Visa Inc (NYSE:V).”
While there is nothing wrong with doing some periodic portfolio rebalancing and potentially rotating more assets into stocks seen as likely to thrive in a recession, don’t panic. Recessions have always come and gone as part of the economic cycle and stock markets traditionally go on to greater heights during the subsequent recovery.
That means the chances are your portfolio will regain its losses and add new gains over the years ahead. Buying cheap growth stocks seen as likely candidates to flourish again during the recovery could be seen as just as sensible a tactic as rotating into recession-proof stocks. But if you do decide to reposition to some extent, look for stocks that have not only historically done well during recessions, or could be expected to during this one ahead, but are also healthy companies you would expect to keep doing well when markets recover. Then your success won’t come down to the fickle fate of whether or not you get your timing right.
TDR’s U.S. Stock Market Preview For The Week Of August 8, 2022
A weekly stock market preview and the data that will impact the tape. Sunday Evening Futures Open – Stock Market Preview Weekend News And Developments…
A weekly stock market preview and the data that will impact the tape.
Sunday Evening Futures Open – Stock Market Preview
Weekend News And Developments
Berkshire Hathaway dramatically slowed new investment in the second quarter after setting a blistering pace at the start of the year, as the US stock market sell-off pushed the insurance-to-railroad conglomerate to a $43.8bn loss.
China’s southern island province of Hainan started mass Covid-19 testing on Sunday, locking down more parts of the province of over 10 million residents, as authorities scramble to contain multiple Omicron-driven outbreaks, including the worst in capital Sanya, often called “China’s Hawaii”.
Cuba: 17 missing, 121 injured as fire rages in oil tank farm in Matanzas City
Equity positioning for both discretionary and systematic investors remains in the 12th percentile of its range since January 2010, according to Deutsche Bank published last week.
Fisker Inc. (NYSE:FSR) unveils a process for qualifying US-based reservation holders of the Fisker Ocean all-electric SUV to retain access to the existing federal tax credit. The current $7,500 tax credit would be unavailable should Congress pass the Inflation Reduction Act of 2022 and President Biden signs the legislation into law.
Former Labour prime minister Gordon Brown has called for an emergency budget before the UK hits a “financial timebomb” this autumn. Mr. Brown said millions would be pushed “over the edge” if the government does not address the cost of living crisis.
Israel said Sunday it killed a senior Islamic Jihad commander in a crowded Gaza refugee camp, the second such targeted attack since launching its high-stakes military offensive against the militant group just before the weekend. The Iran-backed militant group has fired hundreds of rockets at Israel in response, raising the risk of the cross-border fighting turning into a full-fledged war.
Rhine river hit by drought conditions, hampers German cargo shipping. According to reports, transport prices have shot up as drought and hot weather have affected water levels in the river Rhine in Germany leading cargo vessels to reduce loads during transportation.
Taiwan’s defense ministry said it had detected 66 Chinese air force planes and 14 Chinese warships conducting activities in and around the Taiwan Strait on Sunday, Reuters reports. Thursday’s drills involved the live firing of 11 missiles.
Unifor: 1,800 members from across the country arrive in Toronto this weekend before Monday’s start to the union’s 4th Constitutional Convention, where delegates will elect a new National President and vote on key priorities and initiatives. Unifor is Canada’s largest union in the private sector, representing 315,000 workers in every major area of the economy.
U.S. rate futures have priced in a 69% chance of a 75 bps hike at its September meeting, up from about 41% before the payrolls data. Futures traders have also factored in a fed funds rate of 3.57% by the end of the year.
What The Analysts Are Saying…
Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station, because that’s not in the cards. It is clearly a situation where the economy is not screeching or heading into a recession here and now.” — Art Hogan, chief market strategist at B. Riley Financial
“It is not a market bottom, things are not going to go up consistently from here because we are going to be buying low tech products for a while, so everyone has something to make up as COVID demand = pre-COVID, there are fewer units for this. Reality check – unlike ‘Big Tech’, consumer discretionary related companies are offering more cautious guidance.” — Morgan Stanley analyst commentary on a potential market bottom
“The fact of the matter is this (Aug. 5 nonfarm payroll report) gives the Fed additional room to continue to tighten, even if it raises the probability of pushing the economy into recession. It’s not going to be an easy task to continue to tighten without negative repercussions for the consumer and the economy”. — Jim Baird, chief investment officer at Plante Moran Financial Advisors
“We are surprised to not see investors start to chase upside calls in fear of underperforming the market. People are just watching.” — Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald
What We’re Watching
• Psychedelic Sector Gaining Momentum: What started out as bottoming action after a protracted multi-quarter decline has now morphed into a tangible bullish impulse. We believe Netflix new docuseries How To Change Your Mind has played an important roll in the creation of critical mass awareness for the sector—and a rebound in broad market risk assets hasn’t hurt. At the tip of the spear for this sentiment shift is COMPASS Pathways plc (CMPS), which has risen 62.64% since the docuseries debuted on July 12. Price on the benchmark Horizons Psychedelic Stock Index ETF has now breached the 20-day MA/EMA.
We are watching to see if investor sentiment shifts into laggard names such as Cybin Inc. and MindMed, which has continued to fall following a proposed 15-1 reverse stock split initiative announced this year. Many Tier-2/3 names still 90%+ off their highs…
• Revive Therapeutics (RVV:CSE, RVVTF:OTC): This has been on our radar for the last couple of weeks, and remains on our watch list. The company has already confirmed that their statistician is in possession of 210 unblinded patient data for its Phase 3 clinical trial to evaluate Bucillamine to treat COVID-19. The company is currently attempting to revise endpoint data from a hospitalization/death focus to a symptoms focus. If they are to achieve this, it will mark a material event in the course of the trial.
We believe an endpoint decision, either positive or negative, is imminent and will have cause a material price action event.
• Consumer Price Index, August 10: Consumer inflation expectations for July are released by the New York Fed, while the University of Michigan’s preliminary survey of consumers for August is on tap. Taken together, these should give investors a better picture of how consumers are feeling about current economic conditions.
As of June, it’s running at 9.1% on an annual basis. Investors, economists and consumers will be watching to see if price increases are easing as everything from gasoline to food is elevated.
Given the mixed signals on the overall state of the economy (i.e. indications of recession vs. this week’s strong nonfarm payrolls number), CPI will be in-focus by market participants. Scotiabank expects 8.9% y/y (9.1% prior) and 0.4% m/m for headline CPI; ex-food-and-energy: 6.1% y/y led by a 0.6% m/m gain.
• Pot stocks earnings continue, with several Tier-1/Teri-2 names reporting including Curaleaf Holdings, Trulieve Cannabis, Marimed Inc., Cronos Group, TerrAscend Corp. and more. Last Wednesday, Green Thumb Industries allayed fears somewhat that this earnings season would be a write-off, producing solid numbers which beat expectations on several key metrics. An additional strong report or two will go a long way to help improve sentiment for a sector that’s been decimated over the past six quarters.
U.S. Economic Calendar
|TIME (ET)||REPORT||PERIOD||MEDIAN FORECAST||PREVIOUS|
|Monday, August 8|
|11:00 AM||NY Fed 3-year inflation expectations||July||—||3.60%|
|Tuesday, Aug. 9|
|6:00 AM||NFIB small-business index||July||89.5||89.5|
|8:30 AM||Unit labor costs||Q2||9.30%||12.60%|
|Wednesday, August 10|
|8:30 AM||Consumer price index||July||0.30%||1.30%|
|8:30 AM||Core CPI||July||0.60%||0.70%|
|8:30 AM||CPI (year-over-year)||July||-8.70%||9.10%|
|8:30 AM||Core CPI (year-over-year)||July||6.10%||5.90%|
|10:00 AM||Wholesale inventories (revision)||June||1.90%||1.70%|
|2:00 PM||Federal budget (compared with year earlier)||July||—||-$302 billion|
|Thursday, August 11|
|8:30 AM||Initial jobless claims||Aug. 6||265,000||260,000|
|8:30 AM||Continuing jobless claims||July 30||—||1.42 million|
|8:30 AM||Producer price index||July||0.20%||1.10%|
|Friday, Aug. 12|
|8:30 AM||Import price index||July||-0.80%||0.20%|
|10:00 AM||UMich consumer sentiment index (preliminary)||Aug.||53||52|
|10:00 AM||UMich 5-year inflation expectations (preliminary)||Aug.||—||2.90%|
Meme Of The Week
Key Earnings (US Markets)
|Monday, August 8||3D Systems||DDD||$0.00 per share|
|Take-Two Interactive Software||TTWO||$0.86|
|Tuesday, Aug. 9||Akamai Technologies||AKAM||$1.31|
|H & R Block||HRB||$1.24|
|Hilton Grand Vacations||HGV||$0.88|
|Norwegian Cruise Line||NCLH||-$0.83|
|Super Micro Computer||SMCI||$2.35|
|The Trade Desk||TTD||$0.20|
|Warner Music Group||WMG||$0.20|
|World Wrestling Entertainment||WWE||$0.55|
|Wednesday, August 10||AppLovin||APP||$0.50|
|Jack in the Box||JACK||$1.42|
|Pan Am Silver||PAAS||$0.14|
|Red Robin Gourmet||RRGB||-$0.16|
|Wolverine World Wide||WWW||$0.65|
|Thursday, August 11||AerCap||AER||$1.42|
|Brookfield Asset Management||BAM||$0.69|
|Melco Resorts & Entertainment||MLCO||-$0.44|
|Ryan Specialty Group||RYAN||$0.35|
|Wheaton Precious Metals||WPM||$0.32|
|Friday, Aug. 12||Broadridge Financial||BR||$2.65|
Past Week What’s Hot… and What’s Not
Top 12 High Short Interest Stocks
|BBBY||Bed Bath & Beyond Inc.||Nasdaq||46.38%||61.57M||79.96M||Retail (Specialty Non-Apparel)|
|ICPT||Intercept Pharmaceuticals Inc||Nasdaq||43.76%||23.62M||29.71M||Biotechnology & Medical Research|
|MSTR||MicroStrategy Inc||Nasdaq||39.29%||9.32M||9.33M||Software & Programming|
|BYND||Beyond Meat Inc||Nasdaq||37.91%||56.79M||63.54M||Food Processing|
|SWTX||SpringWorks Therapeutics Inc||Nasdaq||37.51%||31.64M||49.41M||Biotechnology & Medical Research|
|BIG||Big Lots, Inc.||NYSE||37.37%||26.49M||28.92M||Retailers – Discount Stores|
|EVGO||Evgo Inc||Nasdaq||35.65%||67.76M||69.00M||Utilities – Electric|
|UPST||Upstart Holdings Inc||Nasdaq||35.60%||72.32M||84.77M||Consumer Lending|
|BGFV||Big 5 Sporting Goods Corp||Nasdaq||34.65%||20.85M||22.33M||Retailers – Miscellaneous Specialty|
|SRG||Seritage Growth Properties||NYSE||34.38%||23.58M||43.68M||Real Estate Operations|
|NKLA||Nikola Corporation||Nasdaq||32.77%||265.95M||421.14M||Auto & Truck Manufacturers|
|BLNK||Blink Charging Co||Nasdaq||32.54%||33.98M||50.20M||Utilities – Electric|
Tags: stock market preview, stock market preview August 8, 2022.
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Senate Passes $740 Billion Tax, Climate Package — Will Go To House Next
Senate Passes $740 Billion Tax, Climate Package — Will Go To House Next
Update (1532ET): After much wrangling, the Democrats finally passed…
Update (1532ET): After much wrangling, the Democrats finally passed their sweeping economic package through the Senate on Sunday.
The estimated $740 billion "Inflation Reduction Act" - far less ambitious than their original $3.5 trillion vision - next heads to the House, where its passage is a foregone conclusion. According to Axios, a vote could come as early as Friday before it heads to President Biden's desk.
The package includes provisions to address climate change, pharmaceutical costs, and a supercharged IRS.
"It’s been a long, tough and winding road, but at last, at last we have arrived," said Senate Majority Leader Chuck Schumer (D-NY). "The Senate is making history. I am confident the Inflation Reduction Act will endure as one of the defining legislative measures of the 21st century."
WATCH: Kamala Harris and Senate Democrats cheer as they pass a bill to raise taxes on the middle class. pic.twitter.com/NPpPMGV7Wj— RNC Research (@RNCResearch) August 7, 2022
As the Washington Post notes, "Senators engaged in a round-the-clock marathon of voting that began Saturday and stretched late into Sunday afternoon. Democrats swatted down some three dozen Republican amendments designed to torpedo the legislation. Confronting unanimous GOP opposition, Democratic unity in the 50-50 chamber held, keeping the party on track for a morale-boosting victory three months from elections when congressional control is at stake."
And as Axios reports,
The Senate returned to the Capitol Saturday afternoon, and began voting late Saturday night and into Sunday on a series of amendments — part of the process known as "vote-a-rama."
- Senate Republicans offered dozens of amendments aimed at minimizing the bill, including stripping out funding for the Internal Revenue Service and eliminating COVID-19-related school mandates.
- Democrats held firm in their unity, with the help of Harris, of preserving the core elements of the package and voting down each GOP amendment.
. . .
The bill includes:
- $370 billion for climate change - the largest investment in clean energy and emissions cuts the Senate has ever passed.
- Allows the federal health secretary to negotiate the prices of certain expensive drugs for Medicare.
- Three-year extension on healthcare subsidies in the Affordable Care Act.
- 15% minimum tax on corporations making $1 billion or more in income. The provision offers more than $300 billion in revenue.
- IRS tax enforcement.
- 1% excise tax on stock buybacks.
Drilling down on the climate portion - Axios' Andrew Freedman writes:
- This includes tax incentives to manufacture and purchase electric vehicles, generate more wind and solar electricity and support fledgling technology such as direct air capture and hydrogen production.
- Independent analyses show the bill, combined with other ongoing emissions reductions, would cut as much as 40% of U.S. greenhouse gas emissions by 2030, short of the White House's 50% reduction target. However, if enacted into law, it would reestablish U.S. credibility in international climate talks, which had been flagging due in part to congressional gridlock.
- As part of Democrats' concessions to Sen. Manchin, the bill also contains provisions calling for offshore oil lease sales in the Gulf of Mexico and off the coast of Alaska, and a commitment to take up a separate measure to ease the permitting of new energy projects.
* * *
Senate Democrats late on Aug. 6 advanced a mammoth spending bill on climate and energy, health care, and taxes, after overcoming unanimous Republican opposition in the evenly divided chamber.
The procedural vote to advance the Democratic bill - which authorizes over $400 billion in new spending - was 51–50 after Vice President Kamala Harris arrived at the Capitol to cast a vote, breaking the deadlock in the Senate over the measure that Democrats say would reform the tax code, lower the cost of prescription drugs, invest in energy and climate change programs, all while lowering the federal deficit.
The vote means that senators will have 20 hours to debate on the measure, followed by a vote-a-rama, a marathon open-ended series of amendment votes that has no time limit. After that, the bill will head to a final vote. The measure is anticipated to pass the chamber as early as this weekend.
The House, where Democrats have a majority, could give the legislation final approval on Aug. 12, when lawmakers are scheduled to return to Washington.
The vote came after the Senate parliamentarian - the chamber’s nonpartisan rules arbiter - gave a thumbs-up to most of the Democrats’ revised 755-page bill.
But Democrats had to drop a significant part of their plan for lowering prescription drug prices, Parliamentarian Elizabeth MacDonough said.
The provision would have essentially forced companies not to raise prices higher than inflation. MacDonough said Democrats violated Senate budget rules with language in the bill imposing hefty penalties on drugmakers who raise their prices beyond inflation in the private insurance market.
As Mimi Nguyen Ly details at The Epoch Times, while the bill’s final costs are still being determined, it includes about $370 billion on energy and climate programs over the next 10 years, and about $64 billion to extend subsidies for Affordable Care Act program for federal subsidies of health insurance for three years through 2025.
It also seeks generate about $700 billion in new revenue over the next 10 years, which would leave roughly $300 billion in deficit reduction over the coming decade, which would represent just a tiny proportion of the next 10 year’s projected $16 trillion in budget shortfalls.
A large portion of the $700 billion—an estimated $313 billion—is expected to be generated by increasing the corporate minimum tax to 15 percent, while the remaining amounts include $288 billion in prescription drug pricing reform and $124 billion in Internal Revenue Service tax enforcement.
According to the current version of the bill, the new 15 percent minimum tax would be imposed on some corporations that earn over $1 billion annually but pay far less than the current 21 percent corporate tax. Companies buying back their own stock would be taxed 1 percent for those transactions, swapped in after Sinema refused to support higher taxes on private equity firm executives and hedge fund managers. The IRS budget would be increased to strengthen its tax collections.
The White House said in a statement of administrative policy on Aug. 6 that it “strongly supports passage” of the bill.
“This legislation would lower health care, prescription drug, and energy costs, invest in energy security, and make our tax code fairer—all while fighting inflation and reducing the deficit,” the statement reads.
“This historic legislation would help tackle today’s most pressing economic challenges, make our economy stronger for decades to come, and position the United States to be the world’s leader in clean energy.”
Republicans say the legislation is simply an alternate, dwindled version to the Democrat’s earlier Build Back Better bill—a multitrillion-dollar social spending package that was a major agenda of President Joe Biden—that Democrats have now dubbed the “Inflation Reduction Act of 2022.”
Senate Minority Leader Mitch McConnell (R-Ky.) said Democrats “are misreading the American people’s outrage as a mandate for yet another reckless taxing and spending spree.” He said Democrats “have already robbed American families once through inflation and now their solution is to rob American families yet a second time.”
“There is no working family in America whose top priorities are doubling the size of the IRS and giving rich people money to buy $80,000 electric cars,” McConnell said in a separate statement on Twitter.
“Americans want Washington to address inflation, crime, and the border—not another reckless liberal taxing and spending spree.”
Democrats have said the measure would “address record inflation by paying down our national debt, lowering energy costs, and lowering healthcare costs,” but Republicans have criticized the measure as having no potential other than to make matters worse, nicknaming the legislation “Build Back Broke,” in part because the bill would fulfill many parts of Biden’s Build Back Better agenda.
“The time is now to move forward with a big, bold package for the American people,” said Senate Majority Leader Chuck Schumer (D-N.Y.).
“This historic bill will reduce inflation, lower costs, fight climate change. It’s time to move this nation forward.”
But not every Democrat is buying what Chuck is selling...
As John Solomon reports at JustTheNews.com, Sen. Bernie Sanders, the former presidential candidate and proud socialist, on Saturday attacked President Joe Biden‘s Inflation Reduction Act for failing to live up to its name, after the non-partisan Congressional Budget Office declared it would have a minimal impact on surging prices.
“I want to take a moment to say a few words about the so-called Inflation Reduction Act that we are debating this evening," Sanders said just after voting with Democrats to advance the bill to debate on the Senate floor.
"I say so-called because according to the CBO and other economic organizations that have studied this bill, it will in fact have a minimal impact on inflation."
CBO declared this week that the $740 billion piece of legislation would only affect inflation by 0.1% in either direction.
"I don't find myself saying this very often. But on that point, I agree with Bernie," Sen. John Thune, R-S.D., told Insider.
Overall, economic analysts are divided on the measure, with some having predicted that the bill will worsen inflation and lead to stagnation in growth.
As Will Cain explained in an excellent monologue reality check, "look at the name of the bill, whatever it is, you can be sure the legislation will do the opposite."
Finally, as Goldman details in a new notes, the net fiscal impact of these policies continues to look very modest, likely less than 0.1% of GDP for the next several years...
While the final outcome may still yet differ in details, the fiscal impact is likely to be similar.
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