| Thursday, August 06, 2020 Headlines 1. US markets rally behind big tech 2. BoE holds interest rates steady but says recovery is a '21 thing 3. Facebook shares rise on TikTok competitor launch 4. Weekly unemployment claims finally fall 5. No surprise that markets rise in recessions Markets Closed
 Photo courtesy GettyImages/SBDIGIT
Markets Today U.S. markets steadily rallied throughout the day, following the path of the big technology stocks higher and finding little resistance. Facebook was tech's big gainer today, as it launched its TikTok competitor for Instagram. The Nasdaq closed above 11,000 for the first time in history.
For the 20th straight week, over 1 million Americans filed for first-time unemployment claims, but last week saw a drop of over 200,000 claims from the prior week. That's as good a sign as we have seen in a long time, except for the fact that many of the newly unemployed were actually rehired back in June. That's a trend we don't want to see, but it might just be the reality of the impacts of the resurgence in the virus last month. We'll get a slightly clearer picture of what happened in July when the U.S. nonfarm payrolls report comes out tomorrow morning.
Meanwhile, if you are looking for a V-shaped recovery, look no further than Europe's retail sales. According to Eurostat, they are back to February's pre-pandemic levels.  Headlines:
 A Welcome Drop in New Unemployment Claims For the first time in several weeks, filings for first-time unemployment benefits showed a small but meaningful decline, falling to their lowest level since the pandemic hit the U.S. in March.
Initial unemployment claims fell by a seasonally adjusted 249,000 to 1.18 million for the week ended Aug. 1, the Labor Department said Thursday. The decline came just as the extra $600 a week in pandemic-related unemployment benefits ended last week.
It was the 20th straight week applications were above the pre-pandemic record of 695,000 in 1982. The number of people receiving benefits through regular state programs, also known as continuing claims, also decreased, by 844,000 to 16.1 million for the week ended July 25. That's the lowest level since April.
But a Resurgence in Layoffs May Be Coming In a sign that businesses felt confident enough to hire in June, only to have to lay off those workers in late July, more than half of recently laid off workers in California lost their jobs or had their hours cut after having returned to work, according to an analysis published Thursday by the California Policy Lab.
We may not see that kind of data make its way through to the July nonfarm payrolls report that is due out tomorrow given when the Labor Dept. collects its data. But if California, the nation's most populated state, is experiencing it, we should assume it's happening in many other states.  Chart courtesy LPL Financial
No Surprise that Stocks Rise During Recessions We all know the stock market and the economy are not the same, although they sometimes overlap and influence one another. 2020 has been an extreme example of how divergent they can be, but history shows us that the disconnect is not that uncommon—especially during recessions. According to data from LPL Research, U.S. markets have actually gained during seven out of the last 12 recessions.
To be sure, it is surprising that the Nasdaq has made 31 all-time highs so far in 2020, while the S&P 500 Index has gained four consecutive months, all while the unemployment rate remains above 10%.
But investors, especially big institutional investors, are betting that the economy will recover in late 2020 and 2021, and they are placing their bets on that recovery. Massive fiscal and monetary policy stimulus are also helping to boost equity prices both directly and indirectly.
The government stimulus programs are literally putting money in people's pockets, which has staved off an avalanche of delinquencies and bankruptcies—at least for now. That stimulus has also kept consumer spending alive, albeit barely.
The Fed's purchase of government and corporate bonds, and its commitment to keep interest rates at or near zero, makes stocks one of the few areas to earn a return.
If you look at interest rates around the developed world, the options for big investors to put money to work in the government bond market are not plentiful and certainly not as attractive as the unstoppable mega-cap tech stocks.  chart courtesy @CharlieBilello
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(chart courtesy YCHARTS)  Shares of MGM Resorts are up by 10% after the hospitality and entertainment company announced its new work-from-Vegas "Viva Las Office" package. Sealed Air's stock price rose by over 9% following the packaging company releasing Q2 earnings and revenue results that beat analyst estimates.  Shares of Western Digital are down by over 16% amid the data storage company reporting Q4 revenue results that fell short of analyst estimates. Similarly, Corteva's stock price fell by nearly 11% after the agricultural chemicals company posted second-quarter revenue results that missed analyst estimates. Word of the Day A melt up is a dramatic and unexpected improvement in the investment performance of an asset class, driven partly by a stampede of investors who don't want to miss out on its rise, rather than by fundamental improvements in the economy. Gains that a melt up creates are considered to be unreliable indications of the direction the market is ultimately headed. Melt ups often precede melt downs.  Image courtesy federalreserve.gov
Today in History Aug. 6, 1979: Paul Volcker took office as Chairman of the Federal Reserve Board. Inflation, the chief destroyer of America's household wealth, would soon be on the run, and interest rates would drop almost continuously for the next twenty years, creating a stock-market boom and a flood of new home ownership.
http://www.ny.frb.org/aboutthefed/PVolckerbio.html
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Thursday, August 6, 2020
Melt Up
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