Stocks plunged yesterday as last week’s relative stability gave way to global concerns that rising covid-19 infection rates could derail the economic recovery. The Dow gapped down 2% at the opening bell following the lead of Asian and European markets. At the close the Dow was off 725 points at 33,962 on heavy trading volume. IBD is listing markets as being under pressure and today’s selloff most likely will push this indicator into the red.
The Economy and Earnings
The latest inflation readings continue to post huge numbers as headline CPI rose 0.9% in June which is well above guru estimates calling for an increase of 0.5% reading. This latest reading put the year over year inflation rate at 5.4%. Core inflation was up 0.9% which is the largest monthly and yearly gain since 1991 when the Dow was 3,168 and the US led coalition liberated Kuwait from the clutches of Saddam Hussein.
The big banks reported earnings last week and the results revealed positives and negatives. Positives were improving credit quality, strong balance sheets, good consumer spending and rising deposits. Negatives were sluggish loan growth and falling net interest margins due to low interest rates. Bank stocks were generally lower after the reports with Bank of America getting hit the most.
The US housing market continues to show strength and one reason for that is the 85 to 90 million millennials that are now in the home buying market which was not the case 10 years ago. While builders have slowed construction of new single family homes due to supply chain and labor issues, gurus are expecting demand for new homes to continue with millennials leading the charge as they adjust to the newfound ability to work from home.
Taiwan Semi-Conductor (TSMC) reported that auto chip shortages should peak this quarter as microcontroller unit production rose 30% in the first half of the year and is expected to be up 60% for the full year.
Items of Interest
John was talking with someone in the insurance industry who said the rush of people from Washington signing up for a long term care policy is causing a nationwide log jam of applications. One company said they usually get 100 applications per week for the whole country but are now getting 1,200 per day thanks to the bums rush from Washington residents looking to avoid the tax! As a result, underwriters are busier than a one legged man in a fanny kicking contest. The deadline to have a policy in place exempting you from the tax is October 31st. Please call us or respond to this email if you have questions about this situation.