No Freaks Yet

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DOW – 28 = 21,783
SPX – 5 = 2438
NAS – 7 = 6271
RUT + 4 = 1373
10 Y + .02 = 2.19%
OIL + .24 = 47.64
GOLD – 4.50 = 1286.80
BITCOIN + 0.99% = 4405.76 USD
ETHEREUM + 0.10% = 326.24

Stocks drifted in an aimless manner today, meandering from positive to negative and back and forth again. The good news is that the market has made it through most of August without freaking out – and there have been a few opportunities for a freak. But the markets have been well behaved and orderly, with a slight downward bias.

Soon, August will end and Congress will return and they will have a plate full of issues including the debt ceiling and tax reform. Trump picked a new fight today with fellow Republicans over the debt ceiling, blaming congressional leaders for not including funding for veterans’ affairs as part of the debt ceiling package. Trump tweeted that debt ceiling approval is now a mess.

Earlier in the week, Senate Majority Leader McConnell said the debt ceiling would be raised. Today at a town hall meeting in Washington state, House Speaker Paul Ryan confirmed debt ceiling legislation would be passed in time. And it probably will. It is not complicated. Write a clean bill, no amendments, and it will pass. It should be easy, but…

On the tax reform side, Republican congressional leaders don’t expect to release a joint tax plan with the White House next month, and they’ll rely instead on House and Senate tax-writing committees to solve the big tax questions that remain unanswered.

White House officials and congressional leaders involved in tax negotiations, jointly released a two-page statement in July that outlined a broad set of agreed-upon tax principles.That statement was short on specifics, including such basic matters as where to set the corporate tax rate and how to set up individual tax brackets.

Back in March, White House press secretary Sean Spicer’s said the Trump administration would be “driving the train” on efforts to rewrite the tax code. So far, the train hasn’t left the station. Chief economic advisor Gary Cohn had said previously that a tax framework would be released after Labor Day. More recently, he indicated the White House was pushing tax efforts back to the hill.

House Ways and Means Chair Kevin Brady has said he expects hearings and markups on tax legislation this fall. The Senate Finance Committee is planning to do the same. It might be possible to get tax reform this year but don’t hold your breath.

Tomorrow, Janet Yellen will be giving what could be her last speech Friday as Fed chair at the annual gathering in Jackson Hole, Wyoming. Yellen’s term as Fed chair expires in February and Trump does not seem inclined to re-appoint her.

Yellen has brushed aside questions about her future. She professes to be focused on the job at hand, which is a significant one — namely, guiding the Fed from a path of the ultra-accommodative crisis-era policies to a more normalized stance. That includes higher – though still low – rates and the first steps toward unwinding the $4.5 trillion balance sheet of bonds the Fed accrued during its economic stimulus efforts.

With all that in play, Fed watchers expect Yellen’s speech to be less a valedictory look at the past and more a course-charting path for her successor. Yellen’s speech comes nearly a full decade after the Fed began cutting its benchmark funds rate, in September 2007 in the face of the unfolding financial crisis that threatened the nation’s banking system and ultimately pulled the economy into recession.

By December 2008, the funds rate had been sliced to near zero and the Fed began buying bonds to generate liquidity and keep interest rates low to spur the housing industry. By the time Yellen took over in February 2014, the Fed was still at zero but had pumped up its balance sheet with trillions of bonds.

Stocks were on their way to the second-longest bull market in history, but the rest of the economy remained in question. The Yellen Fed has begun the process of normalization, raising rates 4 times, even though the inflation rate remains stubbornly south of 2%.

In the next few years, the Fed will continue dealing with the low-interest-rate world the financial crisis ushered in, plus the unwinding of the balance sheet, plus a raft of economic challenges to economic growth. Maybe Yellen will offer some advice tomorrow.

Yellen’s remarks are entitled “Financial Stability,” and therefore could skirt direct discussion of monetary policy. But given the nature of the forum and its high-profile audience — academic economists, top central bankers, and a handful of market participants — that is unlikely.

Rather than focusing on monetary policy directly, Yellen is likely to discuss how the Fed is supposed to manage its mandate of maintaining a stable financial system even as it stimulates economic growth to a level that is strong but does not generate undue inflation — or credit bubbles.

In a way, market expectations that the Fed will leave interest rates on hold at its next meeting in September, waiting until at least December to make another move, provide Yellen some breathing room.

Look for Yellen to maintain a slightly dovish tone, but mainly look for her to say nothing that would freak the markets. Nothing to rock the boat. She only must keep the markets and the economy steady and calm for 6 more months, and then it’s someone else’s problem.

Hurricane Harvey is headed for Texas. The hurricane has been gaining strength in the Gulf of Mexico. Only a few oil and natural gas platforms in the storm’s path have been shut, so they are still producing but rainfall threatens to flood refineries in Corpus Christi and Houston. Winds up to 75 mph and as much as 15 inches of rain were forecast. Flooding will be a big problem as the storm hits the Texas coast.

The National Association of Realtors reports sales of previously-owned homes slid to their lowest level of the year in July as the familiar dynamics of tight supply and strong demand continue to strain the housing market.

Existing-home sales ran at a seasonally adjusted annual rate of 5.44 million in July. That was down 1.3% from a downwardly-revised June pace. While July’s pace was 2.1% higher than a year ago, it was the lowest since last August.

Inventory dropped 9% from year ago levels. Strong demand meant listings went into contract in under 30 days. It also pushed prices higher. The median sales price in July was $258,300, a 6.2% increase compared to a year ago.

Amazon.com’s (AMZN) acquisition of Whole Foods (WFM) will close on Monday, and they are going to make changes from Day One. The biggest of the changes seemed aimed at changing the store’s reputation as “Whole Paycheck” — a seller of food that might be wholesome for customers but also devastating to their pocket books.

No more. Amazon said it would offer lower prices on a “selection of best-selling staples across its stores, with much more to come.” Amazon also said that its Prime membership program, which costs $99 a year, will eventually become Whole Foods’ customer rewards program, providing members with further savings in stores. It did not provide any other details about those plans.

Shares of some of the country’s biggest grocery companies fell sharply after Amazon’s announcement. Kroger fell more than 6.5 percent, and Walmart, the nation’s biggest grocer, fell about 2 percent.

The collateral damage among grocers is just the latest example of Amazon imposing its will on an entire industry with a simple corporate announcement, leaving billions of dollars of erased market value in its wake. And there’s nothing to suggest this dynamic will slow down anytime soon. Retailers are being forced into a new reality where the specter of Amazon lurks at every turn.

Abercrombie & Fitch (ANF) posted a smaller-than-expected loss in the second quarter, thanks to strength from its Hollister brand. The teen retailer said same-store sales fell 1%, better than the expected drop of 2.1%.

Revenue topped analysts’ forecasts at $779.3 million. The adjusted loss of 16 cents a share was better than forecasts for a loss of 33 cents. Sales at its Hollister brand rose 5% during the quarter.

Abercrombie shares jumped by 17% today, which seems like an over-reaction.

Sears (SHLD) recorded a smaller-than-expected loss in the second quarter while its revenue beat Wall Street expectations. Sears recorded an adjusted loss of $1.16 a share on revenue of $4.3 billion. Analysts were expecting a loss of $2.48 a share and sales of $4.2 billion.

Even though the department store topped expectations, it’s still struggling to lure shoppers through its doors. Sears announced it plans to close 28 more Kmart stores this year, which is in addition to the 150 Sears and Kmart stores it’s closing by the end of the current quarter.

Sears shares have fallen 39% over the past year.

Tiffany (TIF) reported revenue of $959.7 million, boosted by growth in its fashion and design jewelry, and its profit topped expectations at 92 cents a share.

But it wasn’t all good news for Tiffany, same-store sales fell for the seventh quarter in a row, down 2% worldwide, which is a bigger drop than the 1% decline analysts were expecting.

Tiffany shares have jumped nearly 14% since the start of the year.

Dollar Tree (DLTR) advanced 5.6 as one of the best performers on the S&P 500 after the retailer’s profit and comparable sales beat estimates.

Signet Jewelers (SIG) surged 16.7 percent after the company issued results and said it would buy an online jeweler.