The last thing we needed today was good news. The economy unexpectedly added 2.5 million jobs in May. But I wish this hadn’t happened today.
Just in case you were wondering if the market is counting on a coronavirus vaccine in the nearer term, wonder no longer. (Expectations, for the moment, look to a vaccine by January, if I can judge by comments I’m seeing.) News from Pfizer (PFE) and partner BioNtech that an early stage vaccine candidate had passed trials for safety and had produced antibodies against the virus was enough today to turn an early flat performance into a modest gain. The Standard & Poor’s 500 was essentially flat at 10 a.m. before moving to a 0.70% gain by 10:31 a.m. New York time.
I’m using Apple (AAPL) as one indicator for the state of the re-opening economy. Apple’s decision today to re-close 30 more of its stores in seven states, including Alabama, California, Florida, Georgia, Idaho, Louisiana, Nevada, Oklahoma, Texas and Utah, is a sign that the re-opening economy is taking another step backward. Apple has now closed 77 stores out of the 271 it has in the United States.
It’s a measure of how dire things are in the oil sector that Royal Dutch Shell (RDS-A) has announced a write down of between $15 billion and $22 billion for the second quarter. The write down is larger than the $17.5 billion write down that BP (BP) took in June or the $15 billion that Baker Hughes took in April 2020. It does not exceed, however, the $32 billion write down BP took in 2010 after the explosion and oil release in the Gulf of Mexico.
We’ll soon get new figures from the Federal Reserve now that the second quarter is coming to an end today, but I’d guess that the debt picture won’t be better than it was at the end of the first quarter on March 31. At the end of May non-financial corporate debt in the United States stood at $10.5 trillion, or 48.7% of gross domestic product. That’s the highest level in records that go back to 1950.
Wells Fargo (WFC) said today that it will cut its current 51-cent dividend after the Federal Reserve’s most recent round of stress tests set new limits on dividend payouts and share buybacks. The bank said it will announce the size of the cut on July 14 when it announces quarterly earnings. Analysts expect a cut to 20 cents a share.
The advice “Don’t fight the Fed” makes sense. If the Fed is flooding the financial markets with cash, then buy and follow along as the Fed makes money available to drive up asset prices. If the Fed is tightening, reducing the available supply of cash, then sell and move to the sidelines. It will be hard for the price of financial assets to climb if the Fed is pulling money out of the financial markets. Right now it sure looks like the Fed is expanding the money supply.