Top News  Shutterstock Stocks ended the day and the week modestly higher Friday, as investors shrugged off a report showing inflation in the U.S. rising 5%, its fastest pace since 2008. The benign reaction in the bond market seemed to reflect agreement with the Federal Reserve's contention that the current burst of inflation is only transitory. The benchmark 10-year Treasury yield dropped to as low as 1.43% on Friday before finishing flat at 1.46%, still its lowest level in three months and down nearly 12 basis points this week. The major stock market averages posted a mixed showing, with the Nasdaq up 1.9% for its fourth straight weekly gain, the S&P 500 eking out a 0.4% gain, and the Dow Jones falling 0.8% for the week.    | TOGETHER WITH  |
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| | Top News Shutterstock Stocks ended the day and the week modestly higher Friday, as investors shrugged off a report showing inflation in the U.S. rising 5%, its fastest pace since 2008. The benign reaction in the bond market seemed to reflect agreement with the Federal Reserve's contention that the current burst of inflation is only transitory. The benchmark 10-year Treasury yield dropped to as low as 1.43% on Friday before finishing flat at 1.46%, still its lowest level in three months and down nearly 12 basis points this week. The major stock market averages posted a mixed showing, with the Nasdaq up 1.9% for its fourth straight weekly gain, the S&P 500 eking out a 0.4% gain, and the Dow Jones falling 0.8% for the week. | |
| Events Ahead of another weekend summit, G7 nations reached an agreement on a global minimum tax following years of discussions at the OECD. At a basic level, the framework would prevent companies from shifting profits to low tax jurisdictions and ensure the biggest multinationals pay more tax in the countries in which they operate. In return, the U.S wants European nations and others to drop their Digital Service Taxes that target American Big Tech companies, but many negotiations still await.
Bigger picture: In its current form, the deal would require that companies pay at least a 15% tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. The rules would apply to multinationals that have a profit margin of at least 10%, while governments would share the right to tax 20% of profits above that threshold. For example, an online company that has no physical presence in a country, but has significant sales there via digital advertising, would be obligated to pay some taxes to the government of that nation.
The debate touches on the ongoing friction in international taxation: whether to tax companies based on the location of their income or the location of their headquarters. While administration officials like Treasury Secretary Janet Yellen said the new framework will halt a global "race to the bottom" on corporate taxes, others feel that it could be hard to enact and enforce on an international scale. The fine print is also in question, such as accounting rules, subsidies and exemptions for R&D and capital investment.
More hurdles: The new tax rules would have to apply globally, meaning the support from other large economies like China and India. Treasury chiefs are hoping for breakthroughs at the G20 and OECD by mid-year, as well as the backing of over a hundred countries that have been negotiating the new rules as part of the so-called Inclusive Framework. Some big obstacles also lie ahead, like in Ireland, which has a low tax rate to encourage foreign investment, and in China, which wants to retain control over its tax policy, but if the effort picks up speed it may be hard not to bow to the pressure.
Go Deeper: The new tax approach could run into opposition in the U.S., where Janet Yellen needs to sell the deal to Congress. The changes could require the U.S. Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. Business groups have also complained that higher taxes could threaten the economic recovery as American companies navigate their way out of the coronavirus pandemic. (10 comments) | |
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| Healthcare The FDA cleared the first new treatment for Alzheimer's in nearly two decades on Monday, sending shares of maker Biogen (BIIB) up 38% and adding $16.5B in market value. The company claims that Aduhelm, which has the molecular name aducanumab, slows down the memory-robbing disease by breaking up clumps of plaque formed on the brain called amyloid. The approval came just in time for Biogen, which is dealing with declining sales and the loss of patent protection for its top-selling drug, Tecfidera, which is used to treat multiple sclerosis.
Wall Street sees a blockbuster: Despite the drug's questionable efficacy, Biogen said it would charge about $56,000 a year per patient (and wouldn't hike prices for four years). Clinical trials also included people suffering from only mild to moderately severe Alzheimer's, though the drug will be available to anyone that has been diagnosed with the disease. The global Alzheimer's treatment market is meanwhile forecast to grow at a compound annual growth rate of 12.8% between 2020 and 2027, reaching more than $5.6B by 2027, according to Acumen Research and Consulting.
"We ultimately decided to use the Accelerated Approval pathway - a pathway intended to provide earlier access to potentially valuable therapies for patients with serious diseases where there is an unmet need, and where there is an expectation of clinical benefit despite some residual uncertainty regarding that benefit," said Patricia Cavazzoni, Research Director for the FDA Center for Drug Evaluation.
Additional details: Unlike other Alzheimer's drugs that come in pills, Aduhelm requires monthly infusions. Before prescribing the drug, doctors will first make sure their patient's brain has amyloid buildup, which typically requires an imaging scan or spinal tap. Patients will also need to be monitored with MRIs, to guard against small brain bleeds, hemorrhages, or an accumulation of fluid. About 6M people are suffering from Alzheimer's in the U.S., and as many as 1.4M could be eligible to take Aduhelm, per estimates from Cigna. (143 comments) | |
| Global It could be one of the last major bipartisan bills of 2021, but the Senate got it over the line. Late Tuesday, the chamber approved the U.S. Innovation and Competition Act, a $250B package aimed at challenging China's technological ambitions. While the bill passed 68-32 in the Senate, it still needs approval in the House, which has been weighing some different approaches but is likely to see wide support. The measure is one of the biggest government interventions in industrial policy in decades, which trounced traditional party differences over economic policy.
What's in the bill? About $190B would be directed at U.S. technology and research to better compete globally, including money for cutting-edge science and artificial intelligence via the National Science Foundation. Another $54B would increase U.S. production and research into semiconductors and telecom equipment, as well as design and manufacturing initiatives. The Commerce Department will also get $10B in funding to designate regional technology hubs for R&D and will be able to match financial incentives offered by states and local governments to chipmakers who expand or construct new factories.
According to some estimates, federal R&D spending in recent years has totaled less than 1% of U.S. GDP, as well as less than 3% of total government spending, the lowest level since the space race in the 1960s. With regards to semiconductor manufacturing, it's been even worse. The Semiconductor Industry Association says the U.S. share of global chip-making capacity has tumbled from 37% in 1990 to 12% at the present. "We are in a competition to win the 21st century and the starting gun has gone off. We cannot risk falling behind," President Biden declared, while Commerce Secretary Gina Raimondo said the funding could result in seven to 10 new U.S. semiconductor plants.
Response from China: While Beijing has long-embraced a top-down approach to investing in favored sectors, it expressed "strong indignation and resolute opposition" to the U.S. bill, which showed "paranoid delusion of wanting to be the only winner." The measure also banned downloads of Chinese-owned TikTok (BDNCE) on all government devices (not only military and Homeland Security phones) and will block purchases of drones manufactured and sold by companies backed by the Chinese government. It further expanded mandatory sanctions on Chinese entities engaged in American cyberattacks or the theft of intellectual property, while reviewing export controls on items that could be used to support human rights abuses. (335 comments) | |
| On The Move To the moon! The meme trade is transforming into something new as retail traders continue to make waves in the broader markets. The ability to pool together their collective research or sentiment is lending credence to a new investment strategy, generating widespread buzz that brokerages and hedge funds didn't see coming. With more stocks being added to the category by the day, volatility is even affecting rebalancing decisions of market indexes like the Russell 2000 (NYSEARCA:IWM), which was once considered a stable benchmark for mutual funds before all the action.
The old meme list that headlined favorites AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME) is changing. Over the past week, we've seen big run-ups and falls in names like Clover Health (NASDAQ:CLOV), Clean Energy Fuels (NASDAQ:CLNE), GEO Group (NYSE:GEO), World Wrestling Entertainment (WWE) and even Wendy's (NASDAQ:WEN). The fast-food chain was added to the group on Tuesday, which marked a notable departure from the classic meme mold that featured high short interest in order to squeeze a stock.
Backdrop: The meme trade began with GameStop back in January and was partly a strategy (short squeeze), partly a gamble (remember binary options?) and partly a middle finger to Wall Street (little guy vs. the suits). The strategy was an outgrowth of the YOLO trade, which was popularized on the WallStreetBets forum to reach financial freedom overnight. Retail bros would throw all of their savings into one stock without caring about risk management or diversification. The method was compounded by waves of swarm trading, as well as gamification of stock apps and access to commission-free trading.
Remember the Hertz (OTCPK:HTZGQ) bankruptcy bid-up that occurred last summer and the Kodak (NYSE:KODK) craze that followed? What about Tesla (NASDAQ:TSLA) once being worth more than every carmaker on Earth despite a fraction of their sales? Do we dare mention Bitcoin (BTC-USD), Dogecoin (DOGE-USD) or other cryptos?
Go deeper: If meme trading is the new casino gambling, then timing is everything until the last trader is left holding the bag. Some still swear by the technicals, which have created countless day trading channels and messaging platforms. Others are quick to point to the eye-popping fortunes being posted online, but don't forget the whopping losses that get far less coverage. It also leads one to wonder about the broader public markets, where every share is only worth as much as people are prepared to pay for it. With the meme trade spreading to new sectors and industries, will stock fundamentals still hold water? Did they ever? (262 comments) | |
| Economy A higher-than-expected inflation print in the U.S. on Thursday showed prices soaring by 5% in May compared with a year ago, marking the biggest increase since the Great Recession. While it was somewhat distorted by the pandemic, dueling narratives are taking shape to what this will mean for the economy going forward. The Consumer Price Index also showed a gain of 4.2% back in April, calling into question current fiscal policies and the direction of interest rates.
The bulls: The Fed is sticking to its "transitory" inflation thesis, which maintains that supply shocks and production bottlenecks have led to recent price pressures. Many are also quick to point out that the recent inflation print was once again driven by a jump in the cost of used cars and trucks, which accounted for about a third of the CPI's monthly advance. Meanwhile, the Biden administration argues that rising inflation is not only temporary, but it is also a feature of a rebounding economy. A broad vaccine rollout and lower COVID-19 case counts have seen Americans return to their old habits by spending months of pent-up savings.
The bears: Many Republicans and some economists acknowledge the post-pandemic supply problems and surging demand, but also flag the cost of the $1.9T stimulus package President Biden signed in March. They further point to coming proposals from the White House, like spending $4T on infrastructure, as a possible risk that could trigger a full-blown recession. While a large share of May's CPI came from the auto market, prices are jumping for many other categories like furniture, airfare and apparel, while labor costs, transport and raw materials are also skyrocketing.
Outlook: Will inflation be here for the long haul? It could take months before it's clear whether the current upsurge is temporary. As the economy reopens, both sides predict that rising costs will continue until supply chains and consumer demand recalibrate, but the real question is how prices will fare after that against a backdrop of massive fiscal and monetary policy support. (22 comments) | |
TOGETHER WITH  U.S. Indices
Dow -0.8% to 34,480. S&P 500 +0.4% to 4,247. Nasdaq +1.9% to 14,069. Russell 2000 +1.9% to 2,331. CBOE Volatility Index -4.7% to 15.65.
S&P 500 Sectors
Consumer Staples -0.7%. Utilities +1.1%. Financials -2.4%. Telecom +0.8%. Healthcare +1.9%. Industrials -1.7%. Information Technology +1.4%. Materials -2.%. Energy -0.6%. Consumer Discretionary +1.6%.
World Indices
London +0.9% to 7,134. France +1.3% to 6,601. Germany flat at 15,693. Japan +0.% to 28,949. China -0.1% to 3,590. Hong Kong -0.2% to 28,870. India +0.7% to 52,475.
Commodities and Bonds
Crude Oil WTI +1.7% to $70.81/bbl. Gold -0.7% to $1,879.3/oz. Natural Gas +6.% to 3.284. Ten-Year Treasury Yield -0.2% to 132.9.
Forex and Cryptos
EUR/USD -0.46%. USD/JPY +0.17%. GBP/USD -0.34%. Bitcoin +0.2%. Litecoin -9.6%. Ethereum -12.6%. Ripple -11.7%.
Top Stock Gainers
Aethlon Medical (NASDAQ:AEMD) +193%. Novan (NASDAQ:NOVN) +88%. Orphazyme (NASDAQ:ORPH) +85%. Baosheng Media Group Holdings (NASDAQ:BAOS) +77%. NextDecade (NASDAQ:NEXT) +75%.
Top Stock Losers
Recon Technology (NASDAQ:RCON) -49%. Curis (NASDAQ:CRIS) -44%. Splash Beverage (NYSE:SBEV) -42%. Hookipa Pharma (NASDAQ:HOOK) -41%. Jiuzi Holdings (NASDAQ:JZXN) -38%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. | |
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