| Tuesday's Headlines 1. US markets diverge as tech stocks sag 2. EU leaders approve new stimulus package 3. United Airlines reports 87% plunge in revenue 4. Money supply has never been bigger 5. Stocks hitting all-time highs Markets Closed
 Image courtesy Feifei Cui-Paoluzzo/Getty
Markets Today U.S. markets diverged today as tech stocks sold off while financials and industrials surged higher on economic recovery hopes. European leaders approved a historic €750 billion ($860 billion) coronavirus recovery fund after days of tense debates, and they are finally working towards a cohesive budget for the bloc. U.S. Treasury Secretary Mnuchin said he expected to see a new U.S. stimulus bill as soon as next week.
Volatility has cooled way down despite rising temperatures everywhere else. We can see it in equity markets, commodities, and in fixed income, where the heavy hand of the Federal Reserve may be muting prices. The Fed's balance sheet has never been bigger, and heavy saving by businesses and consumers could lead to interesting problems down the road.
But that's a future problem. As for the present, central banks and governments are throwing stacks of money at the crisis, and it is bringing out the riskiness among investors. Headlines:
 chart courtesy Bianco Research
The Fed's Deep Pockets The U.S. Federal Reserve's unprecedented monetary policy procedures and purchases of all kinds of assets over the past three months has had some profound consequences that we have yet to really feel.
We learned recently that the Fed became the largest holder of U.S. Treasury bonds, surpassing China and other foreign governments. That may explain the relative lack of volatility and price movement in U.S. Treasury bonds amid the stock market's meteoric recovery. When the Fed is the biggest customer at the Treasury's shop window, pricing is pretty tight.
We also learned that the money supply in the U.S. has spiked at an unprecedented rate. Money supply, or M2, as it is known, is a calculation of the money supply that includes cash and checking deposits, in addition to savings deposits, money market securities, mutual funds, and other time deposits. It has risen at an 83% annualized growth rate for three months—the biggest spike in history.
This lifted the year-over-year growth rate of M2 to 23%, almost double its prior fastest rate in the modern era.
The Fed's quantitative easing—massive purchases of Treasuries and mortgage backed securities—has ballooned the Fed's balance sheet from $4.1 trillion in February to nearly $7 trillion presently.  So What? The ballooning of the money supply is a consequence of the Fed's massive asset purchases as well as savings by households and businesses who have been hoarding money as they try to navigate this recession. That has been the prudent thing to do, without question.
What worries economists and strategists about this is that historically, a swelling in money supply is usually the precursor to wicked bouts of inflation. Part of the Fed's dual mandate is to keep inflation in check. If the economy bounces back with some vigor at the end of the year or in early 2021, as many suspect it will, prices could rise across all categories, catching businesses and consumers by surprise at a time when they may not be back on their feet.  Chart courtesy YCharts
Techs Hitting All-Time Highs Even though the tech sector had an off day today, it didn't stop several tech stocks from hitting all-time highs.
Chipmakers, including Lam Research (LRCX), Skyworks Solutions (SWKS), and Texas Instruments (TXN), hit their high-water marks again this year, as semiconductor stocks have been among the market leaders in 2020.
Alphabet/Google (GOOGL) hit another all-time high today as well, before giving up some of those gains towards the close. It still has some unfinished regulatory matters to clean up in Europe, so the good times may be in jeopardy.
Take-Two Interactive (TTWO), the video game publisher, is having one of its best years as a public company. Given the fact that many schools will be remote-only in the fall, this stock could stay ready, player one.
Everyone's Curious Guess who's really interested in tech stocks these days? Everyone, according to Google. Searches for "Tech Stocks" hit all-time highs on the search engine. Google really wasn't Google back in 1999 when the Internet bubble exploded, but 2020 would've given that year a run for its money. 
 SPONSORED BY INVESCO
(chart courtesy YCHARTS)  Oil companies, such as Occidental Petroleum, Devon Energy, and Apache, are up today following the EU's approval of a new stimulus package. Oil field services companies, such as Baker Hughes and National Oilwell Varco, rose in unison.  FirstEnergy's stock price fell by 17% as a result of a bribery scandal involving the Ohio House Speaker, a former Ohio Republican chairman, the speaker's political advisor, and two paid lobbyists. Shares of eBay are down by over 3% after the e-commerce marketplace agreed to sell its classified-ad business to Adevinta for $9.2 billion. Word of the Day M2 is a calculation of the money supply that includes all elements of M1 as well as "near money." M1 includes cash and checking deposits, while near money refers to savings deposits, money market securities, mutual funds, and other time deposits. These assets are less liquid than M1 and not as suitable as exchange mediums, but they can be quickly converted into cash or checking deposits.  photo courtesy MOAF.org
Today in History July 21, 1933: As Wall Street began to digest the implications of Pres. Franklin D. Roosevelt's "New Deal"—including the Glass-Steagall Act, enacted just over one month earlier—the Dow Jones Industrial Average suffered its ninth-worst daily percentage loss, dropping 7.8% (or 7.55 points) to close the day at a dismal 88.71.
John A. Prestbo, ed., The Market's Measure: An Illustrated History of America Told through the Dow Jones Industrial Average.
Want more Investopedia market news?
 Sign Up for 'Chart Advisor'
How can we improve the Market Sum? Tell us at marketsum@investopedia.com
CONNECT WITH INVESTOPEDIA
Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.
114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC. All Rights Reserved | Privacy Policy
|
Tuesday, July 21, 2020
Overloaded
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment