US stocks lost their sizzle after Treasury yields continued to climb higher as expectations have clearly shifted for Fed Chair Powell to turn hawkish at Jackson Hole and make a formal announcement on tapering asset purchases at the September FOMC meeting. The Nasdaq is underperforming given the rise in Treasury yields, as the Dow Jones Industrial Average makes a fresh record high after the Senate passed Biden's $550 billion infrastructure bill.
Earlier, the S&P 500 made a fresh record high after Bloomberg reported Apple’s new iPhones will include a new pro-focused camera with enhanced video-recording features. Excitement over the new iPhone lineup however will likely deliver an incremental boost as Apple is already in the middle of a super cycle. Last month, Apple already asked suppliers to ramp up production to make the next-generation iPhone, so a lot of the good news has been priced in.
President Biden’s $550 billion infrastructure plan got a little closer to become a reality after the Senate passed it with a 69-30 bipartisan vote. The House has signaled they will not pass this legislation unless the Senate can deliver on the bigger human infrastructure package that includes social spending and tax increases. The current $3.5 trillion package doesn’t stand a chance of passing in its current form. Progressives want to see the broader economic plan pass before voting on the $550 billion infrastructure plan. The big uncertainty is if the partisan budget resolution is chopped down too much, will progressives refuse to hold up all infrastructure legislation.
The NFIB Small Business Optimism Index fell in July as labor shortages remain the biggest challenge. The headline index dropped 2.8 points in July to 99.7. The report highlighted 49% of owners reported job openings could not be filled, a 48-year record high. Today’s report supports the pressure to increase wages which should fuel the persistent inflation debate. A slowdown in job creation might complicate the growing thesis that September’s nonfarm payroll will be robust and pave the way for a September taper.
Crude prices are rebounding as the rout that stemmed from delta variant concerns has run its course. The oil market is still heavily in deficit and after a 14% pullback, energy traders need to pounce on this buying opportunity.
The headlines for crude have been mostly constructive, but the primary driver has been the overall risk-on theme that stemmed from Senate’s passing of the $1 trillion bipartisan infrastructure spending bill. Moderna and Canada’s government made a deal to create a messenger RNA vaccine factory which should help their pandemic response capabilities. Citigroup also made the decision to require vaccines for workers to return to the office. More companies are requiring vaccines and that should be very positive for winning the battle against COVID-19.
Despite a stronger dollar, WTI crude is rallying, but a swift rebound will prove difficult as dollar momentum grows from a much steeper yield curve.
Gold prices are steadying as investors start to price in an economy that is no longer fueled by massive monetary and fiscal stimulus. Gold’s worst enemy is a stronger dollar and that might remain the theme until the Fed makes the formal taper announcement. Traditionally when the taper starts it should be bullish for Treasuries and thus supportive for gold.
The technicals look awful for gold, but if prices could stabilize between $1700 and $1750, that might allow some longer-term investors to scale back in.
Bitcoin mania is taking a break after the recent surge shows signs of exhaustion. A lot of the good news has already been priced in, but if that theme continues, Bitcoin should not struggle to rally to $50,000. Votes of confidence from Venmo and AMC are important for keeping the bullish theme going for cryptocurrencies.
Profit-taking was triggered for some cryptocurrency traders after President Biden's infrastructure bill, which as it stands will include new crypto tax-reporting rules passed the Senate.
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