| Wednesday's Headlines 1. U.S. markets race higher, erasing two weeks of losses 2. Nasdaq slips as Tesla falls 20% 3. Madoff says he is dying and seeks early prison release 4. How do Americans feel about their financial prospects? 5. Happy anniversary Chairman Powell Markets Closed
 photo: Getty Images
Markets Today U.S. markets charged higher on Wednesday, taking their lead from Asian and European markets which were emboldened by a report from a Chinese TV news outlet claiming that a research team at Zhejiang University had found an effective drug to treat people with the new coronavirus. However, the World Health Organization said in a statement: "There are no known effective therapeutics against this 2019-nCoV."
That did little to dissuade investors from buying and sending the DJIA up close to 1.6% and the S&P 500 up more than 1% to a record close. The Nasdaq's gains were paired as Tesla finally fell from its recent highs as investors balked on the sky-high valuation of the electric car maker, which had risen close to 40% in two days.
We didn't see that one coming.
Headlines:
chart courtesy Washington Post  The Best Economy Ever?? In President Trump's State of the Union address last night, he claimed that the U.S. economy is "roaring" and "the best it has ever been." He went as far as to say the nation is "moving forward" at an "unimaginable" pace. That, of course, is not true. But Trump is not the first and certainly won't be the last president to make that claim. That's what politicians do—especially when they are seeking reelection.
The real truth is that presidents don't really have that much of an influence on economic growth, despite what they say. They and their administrations play the hands they are dealt and do what they can with fiscal policy to promote growth or recovery. In Trump's case, he was able to pass tax cuts in 2017 that reduced corporate income tax and lowered tax rates for some income groups. That did help corporate balance sheets, which led to higher stock prices as companies used the largesse to buy back their own shares or issue higher dividends. That helps shareholders, but that is not exactly tied to economic growth.
While it is true that unemployment is at a 50-year low and there has been some wage increases, the seeds of that were sown during Obama's first term as he and the Federal Reserve threw everything they had in their monetary and fiscal policy playbooks to pull the U.S. out of the financial crisis. Interest rates have remained low under Trump, which has kept borrowing costs low for companies and promoted more hiring. But, he also kicked off a trade war with China that has sapped growth due to lower manufacturing and industrial production.
What may be indisputable, though, is that Americans feel better off financially now and about their futures than they have in awhile. At least those are the results of a recent Gallup poll that asked that question. Obviously not all Americans feel this way—just the ones that Gallup asked. But if polls matter—and they often do—this is a strong sign for the Trump Administration as it seeks a second term.
chart courtesy Gallup Research  Correlation? Trump also boasted about the stock market's returns during his first term, which have been substantial. We know that the economy and the stock market are not one in the same, although they often influence one another. Monetary policy—the department of the Federal Reserve, has more of an impact on stock prices than who is in the Oval Office, and interest rates have been low. It's true that Trump nominated Jerome Powell to lead the Fed, and we know how much pressure the President has put on Powell to keep rates low, but that's a different conversation.
This chart, shared by Bianco Research, shows an interesting correlation between Trump's odds of winning reelection and the S&P 500. Big business traditionally favors Republicans, given their track record of deregulation, and Trump has followed suit in his first term. This is by no means scientific—but it is interesting.
chart courtesy Bianco Research 
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(chart courtesy YCHARTS)  Shares of Biogen received a huge 18% boost today following the decision by a U.S. Patent Office board to uphold the patent protecting Tecfidera, a prominent drug for treating multiple sclerosis and one of the biotech company's most lucrative products. The stock price of Coty also saw a major increase, almost 15%, after the beauty company beat its earnings expectations for the second quarter. Similarly, O-I Glass' share price rose by nearly 11% after the glassmaker showed better-than-anticipated results in its Q4 earnings report.  Tesla's stock price took the biggest hit today, falling by over 17%, due to the Coronavirus outbreak in China delaying the delivery of the first Model 3 sedans. Shares of Manhattan Associates decreased by almost 12% after the software company reported that its fourth-quarter net income was down. Another software company, New Relic, dropped by nearly 11% today due to its Q3 earnings falling short of market estimates. Word of the Day Given Bernie Madoff's request for an early release from prison, we thought this would be appropriate.
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unravel.  Image Source: Alex Wong/Getty Images
Today in History Feb. 5, 2018 Today in 2018, Jerome "Jay" Powell took office as Chair of the Board of Governors of the Federal Reserve System. He was nominated by President Trump to chair the Fed and has endured some harsh criticism from the President for not lowering interest rates to his liking. Powell has remained steadfast, leaning on the independence of the Federal Reserve and its mandate to keep unemployment low and inflation at around 2%. After raising rates at the end of 2018 for the first time since the Financial Crisis, the FOMC under Powell lowered them three times in 2019. Powell was born on Feb. 4, 1953, incidentally. Happy belated, Jay!
Source: https://www.federalreserve.gov/aboutthefed/bios/board/powell.htm
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Wednesday, February 5, 2020
Legging it Out
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