Photo courtesy GettyImages/Jana Chytilova/Freestyle Photo/Stringer

Markets Today

U.S. markets powered higher today behind strong earnings from a variety of sectors, some positive developments in the new stimulus bill negotiations, and promising vaccine news. The S&P 500 rallied for the fourth day in a row and is just 2% below its record high, which was set earlier in the year before the planet fell into a pandemic.

Gold topped another record high, and the appetite for the soft metal is so strong among investors that the World Gold Council reported that demand for gold ETFs is causing a record amount of physical gold to flow into the sector.

U.S. lawmakers are said to be closer to a potential deal over the next round of stimulus measures. They've indicated that they will stay in D.C. until a deal is reached, and since we know they like their summer breaks, there is hope that a deal may come soon. It can't come soon enough for the nearly 40 million unemployed Americans who have been relying on that extra unemployment insurance to make ends meet over the past several months.

Headlines:

U.S. and Chinese officials will review the implementation of their phase one trade deal and likely air mutual grievances during an Aug. 15 video conference. The trade agreement is top of the list, but conversations around TikTok, Huawei, and other sensitive topics are bound to surface.
Teladoc, a provider of virtual doctor visits, announced that it is acquiring digital health company Livongo in a cash and stock deal that values Livongo at $18.5 billion. According to analysts, the combination gives the companies a joint enterprise value of about $37 billion.
CVS reported a strong second quarter and raised its outlook for the year, saying it is better positioned to weather the pandemic because of its diverse business, which includes its large drugstore chain and pharmacy benefit management business. The healthcare company and Dow component beat analysts’ expectations for earnings and revenue in the fiscal second quarter, posting sales of $65.3 billion, and earnings per share of $2.64.
Blackstone Group acquired a majority stake in Ancestry.com Inc., the business known for family history research and DNA testing. The deal is valued at $4.7 billion, Blackstone said in a statement Wednesday. It’s the first acquisition by Blackstone’s largest ever private equity fund.
Novavax (NVAX) announced positive phase one data for its COVID-19 vaccine candidate. Subjects who received two doses developed four times more neutralizing antibodies than patients who had recovered, but mild-to-severe side effects remain a concern. Shares of the drugmaker went on a wild ride overnight as the results have been misunderstood, plunging 32% late yesterday, then recovering to a 10% gain today.
Moderna, the venture capital-backed drugmaker, reported a fivefold increase in second-quarter revenue related to its work on a potential coronavirus vaccine. Revenue increased to $66.4 million during the quarter, more than five times the $13.1 million it took in during the same period last year and higher than analysts' estimates. The company said it has begun talks with multiple countries to supply its potential coronavirus vaccine and it has received about $400 million in deposits as of July 31 for the potential orders.
Gold's price crossed $2,000 an ounce for the first time and hit an all-time-high of $2,030.72 today as investors continued to rush to the safe haven. Although jewelry demand fell 46% and central bank demand fell 39% year-over-year in the first half of the year, inflows into gold ETFs were a record 734 tons. This surpassed the 2009 annual record of 646 tons and lifted global holdings to 3,621 tons.

Chart courtesy World Gold Council

Disposable Income Has Evaporated

We know the personal savings rate in the U.S. climbed in May and June as many Americans banked their stimulus checks, and the newly unemployed saved their unemployment checks for a rainy day. But what we didn't know until recently is that those checks represented the only meaningful growth in overall disposable income from February to June. According to analysis from Treasury economist, Ernie Tedeschi, nearly every category that is counted as disposable income lost ground in that four-month stretch.

chart courtesy @ernietedeschi

More Urgency Around Stimulus

The nearly 40 million job losses during that stretch put a huge dent in Wages & Salaries, as did the loss of income from small businesses and rentals.

Disposable income is a key component in consumer spending for obvious reasons. As Congress reportedly gets closer on an agreement over the next stimulus bill, another round of $1,200 checks and a continuation of pandemic unemployment insurance will be required to keep this income in people's pockets.

Can You Sea Me Now?

I never get tired of reading about a company that comes out of nowhere and racks up ridiculous returns for investors while flying under the radar.

That happened today when I read Bloomberg's article about Sea Limited (SE), the Singapore-based gaming, e-commerce, and payments company. It's listed on U.S. exchanges, and it's a large cap company, so it wasn't trying to hide, but I'd never heard of it.

That's surprising when you realize that it has returned over 1,200% to investors since the beginning of 2019. According to the article, demand for Sea’s mobile games and online-shopping platform has surged during the pandemic, and the company is bidding on a Singapore digital-banking license to accelerate its push into financial services. Revenue has also grown quickly, jumping 163% to $2.2 billion in 2019. Its losses, however, totaled $1.46 billion.

Talk about winning by losing... Sea has turned it into a game.

All-Time Highs

It's been awhile since we've looked at stocks making all-time highs, but since markets have been surging across all sectors, now is as good a time as any.

AMD is having its best year as a public company. It has benefited from failures by its major competitor, Intel, in making chips for the burgeoning 5G market.
BJ's Wholesale Club (BJ), the Costco competitor, is also having a banner year as we stock up on toilet paper and flour.
Clorox (CLX) picked the right year to be the leader in bleach and cleaning wipes sales. Shares are up 54% this year.
Deere (DE) has been selling a lot of smaller equipment to homeowners with time on their hands. Its industrial business has been weak, but small tractor sales have made up for some of those losses.
For those who like to mow their lawns in athletic leisure gear, or just like hanging out in those stretch pants, Lululemon (LULU) has been there all year, growing online sales like a boss.
Payments processor Square (SQ) is benefiting from the digital payments revolution, in addition to bitcoin transactions, which it facilitates. If you hadn't noticed, Bitcoin is up more than 50% in 2020, and Square has cashed in on crypto.

Shares of Arista fell by 11% after the computer networking company posted Q3 guidance indicating an 11% revenue drop from the same quarter last year. Similarly, Microchip Technology’s stock price fell by over 8% amid the semiconductor manufacturer posting Q2 earnings guidance that is projected to fall short of analyst estimates.

Word of the Day

Savings Rate

The savings rate is a measurement of the amount of money, expressed as a percentage or ratio, that a person deducts from their disposable personal income to set aside as a nest egg or for retirement. In economic terms, saving is a choice to forego some current consumption in favor of increased future consumption, so the savings rate reflects a person or group's rate of time preference. The savings rate is also related to the marginal propensity to save.

Image courtesy loc.gov

Today in History

Aug. 5, 1861:

Federal income tax was inflicted on the public for the first time, as the Revenue Act of 1861 became law, assessing a tax of 3% on all personal income in excess of $800 a year to help pay for the Civil War.

https://www.history.com/this-day-in-history/lincoln-imposes-first-federal-income-tax