Whether or not that will remain the norm in the lead-up to the election depends on a wide array of variables, but there's good reason to believe that the political storm will create more than enough trading scenarios to keep the stock jockeys busy through the month of October.
Of course, there are other elements affecting stocks and the economy. Beginning in earnest next week will be an avalanche of third quarter earnings reports, led off by the banks and financial institutions. As was the case with the second quarter, of particular interest will be the loan loss reserves put aside by these companies. They were large in the prior two quarters and there's little doubt they will grow again, as the COVID crisis has not been broken by any means. Some trend and economic followers may actually believe that the after effects have only worsened with the passage of time, especially since the congress has chosen to punt on any new stimulus measures.
Negotiations for a second round of stimulus began in July and have consistently stalled out, the Democrats wanting more, Republicans less. It now appears that the Democrat strategy has been to purposely overshoot and add in aid to states, municipalities, and schools, knowing that the Republican-led senate would surely reject such proposals.
Thus, according to the Democrats, it would be the Republicans that have kept the American public in limbo prior to the election. This strategy seems to have failed. If anything, the public is blaming both sides for not coming to a reasonable compromise, though President Trump's recent forays into the struggle seem to have tipped House Speaker Nancy Pelosi's hand. Trump favors stand-alone bills for the airlines, small business, and another round of $1200 checks to Americans. He has called Pelosi's bluff and she has folded, unable to respond with a cogent counteroffer.
It would appear that a standalone bill for checks to most Americans (those earning less than $125,000, or similar threshold), and additional money for dependents would be a no-brainer and would easily sail through both houses of congress and onto the president's desk lickety-split. However, there's been no offer since Trump brought it to the table Tuesday night. Heading into the weekend, without a plan to move forward, Pelosi now appears to be the one blocking the path and the longer she delays, the more it will appear that Democrats are the ones not attuned to the plight of the common men and women of the country.
Moving on, Paychex (PAYX), the company that manages payroll and tax reporting for thousands of small companies nationwide, reported earnings Tuesday for its fiscal first quarter, ended August 31. As was the case in the prior quarter, the company beat lowered expectations,
Paychex reported net income of $211.6 million, or 59 cents a share, down from $264.2 million, or 73 cents a share, a year ago. The company said adjusted net income includes adjustments for one-time costs of $31.2 million related to the acceleration of cost-saving initiatives, "including the long-term strategy to reduce our geographic footprint and headcount optimization, and net tax windfall benefits related to employee stock-based compensation payments."
Well, how about that? While whistling an upbeat tune, the company is actually downsizing. Naturally, they've couched their long-term strategy with catch-phrases like "geographic footprint" and "headcount optimization" instead of saying, "we're closing branches and laying people off."
Paychex is a bellwether for small business and their quarterly report was just a little bit distressing to holders of the stock. Paychex reported before the bell on Tuesday and shares were initially lower, down 1 1/2 points before gaining some traction as the whole market moved higher. Carrying a ridiculous P/E ratio of 27.77, this is a company that has been materially affected by the COVID shutdowns of small business and they can only hide that reality so long.
Since the company is heavily-owned by funds and institutional investors, there will be a concerted effort to keep its shares moving higher, despite the obvious slowdown in its core business. Top holders of the stock are BlackRock, Vanguard, State Street, and Bank of America, which speaks volumes to the concentration of vested interests invested.
Paxchex is still profitable, though less so than last year, and pays a healthy dividend. It's shares will roll gaily along until the next panic, then will be sold hastily, as it was in February and March of this year. As a going concern, it's a shaky, overvalued investment. As a barometer for the general economy, it's shrieking about lost revenue and layoffs.
For the hopelessly cynical, a pledge by JP Morgan Chase (JPM) to inject up to $30 billion into Black and Hispanic communities reeks of disingenuous intentions. On the surface, the nation's largest bank by assets appears to be tackling "systemic racism" (no such thing) head on, when in reality all they're doing is making more loans available for housing and small businesses. Now that JP Morgan and their cohorts in the banking cartel have successfully hollowed out the middle class, they have to target other groups to inflict with their version of debt slavery.
Other than Wall Street financial psychopaths can see this as anything other than a predatory action, cloaked in good intentions. If anything, people in these communities should tell CEO Jamie Dmon and his teams of lenders to stay away. Inner city communities have been victimized enough already by government and big business policies. Saying you're helping by putting more people into debt is like telling a diabetic to eat more candy. After a period of seeming euphoria the end result will be disastrous.
Americans of all races, ages, and political leanings need to realize that the proximate causes for most of the problems in this country stem from government, Wall Street financing, and mega-corporations acting in collusion to "fix" what they've already broken. Programs like the "war on poverty" and "urban renewal" were nothing more than wholesale strip-mining of minority communities, lining the pockets of the already well-off with manufactured profits.
It brings into question the recent concept of being "woke." Millennials and generation Z types who believe they are somehow on the receiving end of socialized economics are more likely suffering early onset dementia and instead of being "woke" are actually in a currency-induced coma.
Heading into the final two sessions for the week, the major averages are looking at solid gains, though the indices are still below the highs recorded in late August and early September, but not by very much. As long as the market keeps pinning hopes on a stimulus breakthrough - as has been the overriding narrative since July - there's nothing other than possibly some slumping earnings news to keep the markets from churning higher. If some sort of stimulus bill is passed before the election, new highs should be in the cards despite plenty of evidence that the economy is still slipping.
Long-dated treasuries have been selling off all week, punching yields higher. The 10-year note hit 0.81% on Wednesday; the yield on a 30-year bond posted 1.60%. That pair hasn't seen yields that high since early June. With the Federal Reserve hell-bent on creating inflation, it's no surprise that yields should go higher as money moves from fixed income to riskier alternatives.
At the Close, Wednesday, October 7, 2020:
Dow: 28,303.46, +530.70 (+1.91%)
NASDAQ: 11,364.60, +210.00 (+1.88%)
S&P 500: 3,419.45, +58.50 (+1.74%)
NYSE: 13,042.33, +204.45 (+1.59%)
Posts
No comments:
Post a Comment