| Wednesday, August 12, 2020 Headlines 1. US markets rally as tech shares gain 2. US federal trade deficit triples 3. Brooks Bros. finds a buyer 4. US consumer prices are creeping higher 5. ETF/ETP assets under management top $6.66 trillion Markets Closed
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Markets Today U.S. markets rallied back after Tuesday's late losses as big technology stocks resumed their market leadership. The S&P 500 ended the day just shy of an all-time record close, but it'll get there. News that the White House has secured 100 million doses of Moderna's vaccine candidate spiked some optimism across sectors tied to the economic recovery. It would still be nice to know if that vaccine, or any vaccine, really works, but investors liked the news.
Fund flows into exchange traded products are breaking records around the world, and investors have been following the Federal Reserve's lead with the securities they are buying. Even as more money flows out of the stock market on an absolute basis, ETFs and ETPs are big winners in the investing arena.
Consumer prices are also starting to rise, especially for food and gasoline—two essential items. The gains are mild, but we'll feel them over the next few months.
The U.S. federal deficit continues to swell as the government has been trying to spend its way through the pandemic while revenue sources decline. Here's where the money comes from, and where it goes:  Chart courtesy USTreasury
Headlines:
 chart courtesy Factset
Prices Are Creeping Higher Little by little, prices for consumer goods in the U.S. are creeping higher. The Consumer Price Index increased 0.6% in July on a seasonally adjusted basis, the same increase as in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1% before seasonal adjustment.
Gas prices, which had been historically low until July, continued to rise after increasing sharply in June and accounted for about one quarter of the monthly increase in the seasonally adjusted all items index.
The index for all items less food and energy also rose 0.6% in July from June, its largest increase since Jan. 1991. One of the biggest drivers: motor vehicle insurance. As we've mentioned, new and used car sales have been on the rebound lately as low borrowing rates and less flying are keeping us on the road.
Food prices continued to increase as we all become better at-home chefs. The food index increased 4.1% over the last 12 months, with the index for food at home rising 4.6%. Energy prices remain in a historic slump as demand vanished, but they are starting to rise.  Chart courtesy ETFGI
ETFs Are Feeling the Flows Amid the rally in equities since late June, a flood of money has flown into the world of exchange traded funds (ETFs) and other exchange traded products (ETPs). That's been the trend over the past decade, but as these products become more widely used among both institutional and retail investors, the flows have accelerated.
According to research firm ETFGI, assets invested in ETFs/ETPs listed globally reached a new record of $6.66 trillion at the end of July. ETFs and ETPs listed globally gathered net inflows of $79.35 billion during July, the third highest monthly net inflow on record. Year-to-date, $373.16 billion in net inflows has already washed in, which is significantly higher than the $270.21 billion gathered at this point in 2019.
Where Is it Flowing? Investors are following the Fed, of course. If you look at the chart above listing the ETFs and ETPs that have seen the greatest inflows, it looks like a map of where the Federal Reserve has instituted its bond buying programs: government bonds and high-yield corporate bonds. We all know what has happened in the stock market since the Fed announced it would buy bonds in late March, but bond investors who have bought these ETFs and ETPs have done pretty well too.  Chart courtesy YCharts
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(chart courtesy YCHARTS)  Shares of Qualcomm are up by nearly 6.5% after a U.S. federal appeals court threw out an antitrust ruling against the telecommunications equipment and semiconductor manufacturer. NVIDIA's stock price rose by almost 5.5% following the semiconductor company announcing its "GeForce Special Event" for Sept. 1.  Shares of Carnival are down by 4.5% amid reports from Stifel Nicolaus and J.P. Morgan that cruise lines' return to operation could be much slower than initially hoped. Las Vegas Sands' stock price fell by almost 3.5% after Fitch affirmed the casino's BBB- rating and revised its outlook from Stable to Negative. Word of the Day Balance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments (BOP). Economists use the BOT to measure the relative strength of a country's economy. The balance of trade is also referred to as the trade balance or the international trade balance. A country that imports more goods and services than it exports in terms of value has a trade deficit. Conversely, a country that exports more goods and services than it imports has a trade surplus. The formula for calculating the BOT can be simplified as the total value of imports minus the total value of exports.  Image courtesy ibm.com
Today in History Aug. 12, 1981: The PC hit the mainstream as IBM introduced its "Personal Computer," which for a list price of $1,265 came with a whopping 16 kilobytes of user memory and 40 kilobytes of ROM with Microsoft BASIC. For just $90 more, you could expand the memory by another whole 16 kb.
Phil Koopman, "Finally—IBM Unleashes Personal Micro," Electronic Engineering Times, Aug. 17, 1981.
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Wednesday, August 12, 2020
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