DIASTOLE ECONOMIC AND MARKET COMMENT
October 4, 2021
Last week we saw all kinds of tumult in the markets during the first four days, followed by rising stock prices on Friday. Several factors were rattling investors. The Chinese Evergrande debacle continues, the debt ceiling has not been raised (leaving us open to a federal default on debt), inflation is still a concern, as are supply chain disruptions and semiconductor chip shortages.
On Friday, Merck announced that it had developed a new antiviral drug, (molnupiravir) to treat active Covid. Merck says it is 50% effective at preventing death, but it has not been approved yet. Still, stocks moved higher - mostly the ones that will benefit from economic recovery, i.e. value stocks. (Value stocks are old-fashioned manufacturing and other dividend-paying stocks.) Growth stocks, which include tech stocks, are suffering because interest rates are/will be/should be rising, and tech companies hold more debt on their balance sheets. Covid-vaccine makers’ shares also fell on the possibility that the vaccine-hesitant will never choose vaccination, and will instead rely on Covid treatments.
So, for last week, we saw the Standard & Poor’s 500 lose 2.19%, the Dow Jones Industrial Average down 1.36%, and the Nasdaq Composite Index lower by 3.19%. The fact that the Dow held up the best is due to its concentration in value stocks. But year to date, the three indices are up 17%, 13% and 13%. Most analysts expect October to be volatile (it would help if Congress would deal with the debt ceiling before the U.S. defaults on its obligations around October 18th.), but anticipate a positive fourth quarter overall.
And speaking of the debt ceiling, there’s a wild idea going around that a platinum coin will solve our current cash-flow problems. As you’ll remember, the debt ceiling limits how much debt the federal government can issue in order to pay its bills. And you’ll also remember that deficit spending is how the sausage is made in Washington. So not only do we have to pay for all of the social safety-net programs, and huge defense spending, we also have to pay for several rounds of pandemic assistance and the large 2017 tax break. I’m not here (this time) to judge the spending, only to reiterate that when we spend more, or reduce revenue, we have to cover it somehow.
Oh wait - back to the platinum coin. Through a legal loophole, the Treasury Department is allowed to print (mint?) a one-time platinum coin, declare what it’s worth (one trillion dollars is a popular amount), sell it to the Federal Reserve Board which will use it to offset more debt, and poof! problem kicked down the road by one trillion dollars. No one actually wants to engage with this transparently ridiculous tomfoolery, but no one wants Congress to default us either. The idea of the platinum coin is circulated every time we need to raise the debt ceiling, and this time we might be closer than ever to using it. Congressional Democrats are ready to raise or suspend the debt ceiling, but Republicans don’t want to help, and it can’t be done without them unless another carve-out to the filibuster rule is created.
In a relatively unrelated story, Facebook is continuing to tank today, due mostly to a whistleblower from Facebook appearing last night on 60 Minutes, telling the world that Facebook knew it was disseminating lies before the election and fomenting insurrection before January 6th, but did nothing, because it didn’t want to hurt revenue. Likewise, Instagram (owned by Facebook) knew that it was harming teenaged girls’ self-images and causing suicidal thoughts, but also didn’t want to hurt its revenue stream. Note to self: quit Facebook, for real this time.
The MacArthur Foundation announced this year’s Fellowships. 25 artists, writers, scientists, and don’t-fit-into-any category recipients will each receive $625,000 to help them continue their “high-risk, high-reward” work. Past and present recipients do not include me.
On October 1st, 1928, ten stocks were added to the Dow Jones Industrial Average, bringing it to the 30-stock format that continues today. Among the stocks included at that time were Nash Motors, American Smelting, and Victor Talking Machine. All giants of the Dow today! Kidding, of course. The Dow was originally founded in 1896 with 12 stocks, none of which survive in the Index. General Electric was the last of the original 12, and it was removed in 2018. The Dow is unusual in that stocks with higher prices have more influence on the index, rather than stocks with bigger market caps.
For the week ending October 1st, the S&P finished at 4,357, the Dow at 34,326, and the Nasdaq at 14,566. The yield on the ten-year Treasury Note closed at 1.47%. U.S. crude oil cost $75.74 per barrel, N.Y. gold cost $1,761.30 per ounce, and one Euro was worth $1.16.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Yahoo Finance, Bloomberg, Barron’s, MarketWatch, The Economist, The Wall Street Journal, The New York Times, The Washington Post, USA Today, Reuters, The Associated Press, CNBC, and CNN. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.
America has now passed 700,000 Covid deaths, the latest 200,000 of which happened after vaccines became widely available. Scientists from Yale now posit that unvaccinated people who have had Covid may only be protected by their antibodies for up to three months and thereafter could face reinfection. You’re important to us. Please get your shots!