Infrastructure package helps support still fragile markets – Courthouse News Service


Wall Street turned its attention away from the Federal Reserve and Capitol Hill this week, as $ 1.2 trillion in infrastructure spending gave investors a reason to return to the market.

(Photo by Barbara Leonard / Courthouse News)

MANHATTAN (CN) – Wall Street advanced with decent gains as the Biden administration’s $ 1.2 trillion infrastructure deal was passed by the Senate.

The bipartisan deal struck on Thursday, which includes $ 579 billion in new spending, has helped prop up markets that have been stagnant over the past two weeks. Some senators have called it “the biggest infrastructure package in history,” although the bill’s prospects in the House are unknown.

As news of an impending deal emerged earlier in the week, Wall Street took note. The Dow Jones Industrial Average gained nearly 600 points at the end of Monday’s session, registering 1,146 points for the week. The S&P 500 had one of its best weeks in months, gaining 115 points at Friday’s closing bell to reach 4,281 points. The Nasdaq also performed well, although it stagnated on Friday; for the week, he gained 330 points.

The gains offset losses last week, caused mainly by inflationary concerns and rumors that the Federal Reserve is considering cutting its bond purchases and raising interest rates. These concerns still exist, however.

On Friday, the Bureau of Economic Analysis reported that basic personal consumption spending rose 3.4% last month. The Core PCE, which is closely watched by the Fed, has already risen 3.1% in April and 1.9% in March.

Concern about inflation, even among those who share the Fed’s view that it is likely to be transient and die out later this year, is very real.

“[W]We must remember that the annual inflation rate is still the highest since April 1992 and that there are still many inflation risks given the persistent supply frictions and the fact that companies are struggling to find workers, ”wrote James Knightley, chief international economist. at ING, in an investor note on Friday. He added that “It is increasingly evident that companies are increasingly aware of their own pricing power.

Others agree that companies, many of which have recorded historically high profits over the past year, could become addicted to price increases to keep profits at record highs even as retail chains supply are improving.

“Over the past two decades, fear of raising prices has controlled inflation,” wrote consultant Joel Naroff. “The idea that the same fear will reappear after companies see the benefits of price increases may be wishful thinking.”

Fortunately, many other economic indicators are improving. On Thursday, the Fed released its annual stress tests for banks. The studies, which have been carried out since the Great Recession and predict the strength of financial institutions under various scenarios, were good news, showing most of the big banks ready to weather any economic storm.

The 23 major banks tested have shown they are “well above” their minimum capital requirements, the Fed reported, and will now be subject to normal restrictions instead of the increased Covid-era restrictions on reserves of capital.

In a worst-case scenario, which involved a “severe global recession with significant stress in the commercial real estate and corporate debt markets”, banks would lose more than $ 470 billion. However, they would keep their capital ratios at more than double the minimum capital ratio of 4.5% and could continue to lend to businesses and households, the central bank said.

Last year, the central bank warned banks to boost their capital while banning share buybacks and bank dividends. Banks were also required to reassess their long-term capital plans to perform another stress test later in 2020 to see if their reserves were adequate.

More good news came in the form of slightly better consumer sentiment. According to the University of Michigan’s June survey, consumer confidence fell from 82.9 in May to 85.5 this month. Consumers, however, have mixed feelings about the economy.

On the one hand, the current conditions index – which measures the near-term outlook for consumer demand, inflation and economic growth – fell slightly from 89.4 to 88.6. In contrast, the index of consumer expectations for the future fell from 78.8 in May to 83.5 this month. Consumers are also less worried about inflation, although concerns remain fairly high, with expectations dropping from 4.6% last month to 4.2%.

“While many are optimistic that the pandemic will gradually end, consumers still find the risks of emerging variants of Covid to be significant,” survey chief economist Richard Curtin said in a statement. “It is likely that consumers will not reduce their accumulated savings and reserve funds to their pre-pandemic levels, but will maintain a higher level of precautionary funds.”

The number of Covid-19 cases has continued to decline, although more than 180 million cases and nearly 4 million deaths have been reported worldwide, according to data from Johns Hopkins University. In areas of the country where vaccination rates are lower, however, experts are concerned about the spread of the so-called delta-plus variant. After passing through Covid-ravaged India, the most dangerous variant has landed in the United States and several other countries.

Considered more deadly than other mutations in the virus, the variant spreads 40 to 60% faster than other strains, according to British researchers. Former US Food and Drug Administration commissioner Scott Gottlieb recently said the delta variant is likely to lead to new outbreaks in the fall. Meanwhile, unvaccinated Americans would still be at risk of harboring a future, and in all likelihood, worse, mutation of the coronavirus.

Unemployment claims, which rose slightly last week, fell again but remain stuck at around 400,000. For the week ending June 19, 411,000 initial claims were filed, according to the Ministry of Labor, against 418. 000 new claims filed the previous week based on revised data. Once again, a spike in claims in Pennsylvania added to the weekly figures, but this time California and Georgia saw notable declines in initial claims.

The unemployment landscape is rockier for some states. The unemployment rate in California, Connecticut, Hawaii, Illinois, Louisiana, New Jersey, New Mexico and New York is over 7%, while more than half of the states are less than 5.5%.

Some attribute this disparity to the high unemployment rate in cities and more populous states, with unemployment rates in New York and Los Angeles hovering around 10%. “Urban employment doesn’t get as much attention as other US labor market narratives, but it really should,” wrote Nicholas Colas and Jessica Rabe of DataTrek Research. “Until America’s largest cities return to pre-pandemic routines, we simply won’t see a pre-pandemic job market. “

Follow Nick Rummell on Twitter.

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