Wall Street Breakfast: KaPow!

KaPow! - Jay Powell is clearly the front-runner for another stint as chairman of the Federal Reserve, but he is not assured of a second term. While Powell has the reported support of Janet Yellen and White House aides, President Biden may choose to make his mark on the Fed, especially with the progressive wing of his party demanding a more inclusive American capitalism. Reappointments are also not awarded for past performance in a president's first term as the focus shifts to electoral prospects, policy goals and perceptions about the economy.Snapshot: Fed chairs serve a four-year term after being nominated by the president and confirmed by the Senate. They may serve multiple terms (consecutively or non-consecutively), with William McChesney Martin notching the record as longest serving chair from 1951 to 1970 and Alan Greenspan as a close second. Powell was nominated by President Trump on November 2, 2017, and was sworn in on February 5, 2018. While Powell's term ends in February 2022, Biden is expected to make his decision as early as next month.The Squad takes aim: Some powerful progressives in Congress already don't like Powell's track record on deregulation and weaker bank rules, like Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts. As members of the Banking, Housing, and Urban Affairs Committee, both have a vote on whoever is nominated as the next Fed chair. Other progressive Democrats even went as far as calling on him to be replaced overnight, saying he has "taken very little action to mitigate the risk climate change poses to our financial system."Quote: "As news of the possible reappointment of Federal Reserve Chair Jerome Powell circulates, we urge President Biden to re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice," Reps. Alexandria Ocasio-Cortez, Rashida Tlaib and Ayanna Pressley said in a joint statement. "We urge the Biden Administration to use this opportunity to appoint a new Federal Reserve Chair." All three sit on the House Financial Services Committee, while another committee member Chuy Garcia, as well as Mondaire Jones, also signed on to the letter."At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk," they continued. Powell's leadership has "substantially weakened many of the reforms enacted in the wake of the Great Recession regulating the largest banks, including capital and liquidity requirements, stress tests, the Volcker Rule, and living will requirements." Who is the alternative? Many are pointing to Lael Brainard, the one Democrat on the Fed's Board of Governors and the only non-Trump appointee. Brainard has opposed Powell on numerous occasions, including on matters of big bank oversight, and has found a path to address climate change through the Fed's financial stability mission. She has also advocated for making the financial system more inclusive and is seen as a safe bet that would continue Powell's interest rate policy. (39 comments)

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Top News KaPow! Shutterstock Jay Powell is clearly the front-runner for another stint as chairman of the Federal Reserve, but he is not assured of a second term. While Powell has the reported support of Janet Yellen and White House aides, President Biden may choose to make his mark on the Fed, especially with the progressive wing of his party demanding a more inclusive American capitalism. Reappointments are also not awarded for past performance in a president's first term as the focus shifts to electoral prospects, policy goals and perceptions about the economy. Snapshot: Fed chairs serve a four-year term after being nominated by the president and confirmed by the Senate. They may serve multiple terms (consecutively or non-consecutively), with William McChesney Martin notching the record as longest serving chair from 1951 to 1970 and Alan Greenspan as a close second. Powell was nominated by President Trump on November 2, 2017, and was sworn in on February 5, 2018. While Powell's term ends in February 2022, Biden is expected to make his decision as early as next month. The Squad takes aim: Some powerful progressives in Congress already don't like Powell's track record on deregulation and weaker bank rules, like Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts. As members of the Banking, Housing, and Urban Affairs Committee, both have a vote on whoever is nominated as the next Fed chair. Other progressive Democrats even went as far as calling on him to be replaced overnight, saying he has "taken very little action to mitigate the risk climate change poses to our financial system." Quote: "As news of the possible reappointment of Federal Reserve Chair Jerome Powell circulates, we urge President Biden to re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice," Reps. Alexandria Ocasio-Cortez, Rashida Tlaib and Ayanna Pressley said in a joint statement. "We urge the Biden Administration to use this opportunity to appoint a new Federal Reserve Chair." All three sit on the House Financial Services Committee, while another committee member Chuy Garcia, as well as Mondaire Jones, also signed on to the letter. "At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk," they continued. Powell's leadership has "substantially weakened many of the reforms enacted in the wake of the Great Recession regulating the largest banks, including capital and liquidity requirements, stress tests, the Volcker Rule, and living will requirements." Who is the alternative? Many are pointing to Lael Brainard, the one Democrat on the Fed's Board of Governors and the only non-Trump appointee. Brainard has opposed Powell on numerous occasions, including on matters of big bank oversight, and has found a path to address climate change through the Fed's financial stability mission. She has also advocated for making the financial system more inclusive and is seen as a safe bet that would continue Powell's interest rate policy. (39 comments)       Stocks A winning August The calls of a stock market melt-up are getting louder as the major averages posted another round of solid gains on Monday. The S&P 500 has rallied more than 20% this year after scoring its 53rd record close in Monday's session and is set to close out its seventh consecutive winning month later today. In fact, the benchmark index has scaled the big wall of worry without seeing a 5% pullback for all of 2021. Adding to the sentiment, U.S. stock index futures climbed higher overnight: Dow +0.2%; S&P 500 +0.2%; Nasdaq +0.4%. Many are banking on an economic recovery, low rates through 2022 and stellar corporate earnings to continue to support the bull market. As earnings season winds down, the S&P 500 is on track to post a Q2 earnings growth rate of 95.4% (compared to the pandemic year in 2020), which would be the fastest pace since Q4 of 2009. Analyst commentary: "Despite rising geopolitical risks, peak economic growth concerns, and the Federal Reserve moving closer to tapering its asset purchase program, the steady ascent of stocks continues," said Keith Lerner, chief market strategist at Truist. The market has also been impervious to other bad news, like the Delta variant, higher inflation, Hurricane Ida and the U.S. withdrawal from Afghanistan, which just wrapped up evacuation efforts from Kabul and effectively ended America's longest war. Alarm bells? "Be very much aware of the fact that if and when it reverses, the consequences could be severe," warned long-term bull and BTIG equity and derivatives strategist Julian Emanuel. The market's record price action is mimicking late 1999, he adds, and could spark a 10% to 20% correction within the next month. "If we had said inflation would be at 30-year highs and [10-year Treasury note] yields would be at 1.3% while the S&P would be at this level a year ago, no one would have believed you, me or anyone else." (5 comments)       Sponsored By Fidelity Turbo Charge Your Portfolio with Decision Tech SM Wondering when to buy or sell? Fidelity's real-time trading insights keep you in sync with the markets. Create custom watch lists to track stocks that interest you. Set email and mobile alerts to receive trade notifications, market news and tailored content that will allow you to capitalize on market movements as they are happening throughout the day. And when you trade online U.S. Stocks and ETFs with us, it's commission free. For smarter trading decisions, get Decision Tech SM from Fidelity. Trending Indoor dining at risk The rise in COVID-19 Delta variant cases, combined with a shortage of workers, is putting pressure on restaurant operators at a time when the recovery is supposed to be gearing up. McDonald's (NYSE:MCD) is advising that franchisees in certain areas close indoor seating, reverting to the drive-thru/pick-up model that nearly all restaurants had adopted earlier this year. On a conference call last week, executives reportedly said franchisees should consider shutting indoor dining in counties where COVID cases are 250 per 100K people - based on a three-week rolling average. Quote: "We have a much deeper sense of what actions make a difference for the safety of our restaurant teams and crew," McDonald's USA President Joe Erlinger said at the meeting, according to materials prepared by the fast-food giant for Delta variant safety and obtained by Reuters. If other individual and chain restaurants follow suit, it would raise the issue of vaccination policy for customers again. New York City requires all diners to show proof of vaccination (but as discussed on the last Alpha Talks Editors Roundtable podcast, it's questionable how operators can really verify status).

Filling positions: Restaurants are also having trouble finding staff, with many former workers looking for other opportunities. Health concerns about COVID remain a top reason for that. While the economy keeps adding jobs, the latest JOLTS report showed 10.1M open positions in June, with leisure and hospitality by far the biggest sector needing workers. If the problems with indoor seating persist, the fast-food sector could see an acceleration in building delivery kitchens, a move Wendy's (NASDAQ:WEN) recently embraced. (38 comments)

     

Financials

Payment for order flow

Shares of Robinhood Markets (HOOD) stumbled 7% on Monday, and are down 2% premarket, after SEC Chairman Gary Gensler said a full ban of payment for order flows is "on the table." The controversial practice sends customer orders to wholesale brokers rather than exchanges, which then execute those trades in return for a portion of the profits. It's one of the main ways Robinhood makes money (80% of its revenue) and was flagged in disclosures when the stock-trading app went public last month.

Bigger picture: The system, which results in a handful of financial firms buying most of the retail flow in America, has "an inherent conflict of interest," according to Gensler. "They get the data, they get the first look, they get to match off buyers and sellers out of that order flow. That may not be the most efficient markets for the 2020s."

Proponents of PFOF maintain that it is a way for brokers to make money that doesn't really hurt consumers, and allows apps to charge zero commissions. "Never before has investing in this country been cheaper," said Robinhood CFO Jason Warnick. "We'll be definitely defending our customers and making sure that we don't put up barriers that have been taken down and kept people out."

More trouble on the horizon? Reports yesterday suggested that PayPal (PYPL) was exploring a possible stock-trading platform. The payments giant also recently hired Co-founder of online brokerage TradeKing, Rich Hagen, who is now the CEO of Invest at PayPal, which allows him to explore opportunities in the consumer investment business, according to his LinkedIn page. Keep in mind that PayPal has 400M accounts worldwide, implying plenty of demand to meet if the company were to launch the interface. (41 comments)

     

Today's Markets

In Asia, Japan +1.1%. Hong Kong +1.3%. China +0.5%. India +0.8%.
In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt +0.7%.
Futures at 6:20, Dow +0.2%. S&P +0.2%. Nasdaq +0.4%. Crude -0.9% at $68.56. Gold +0.3% at $1817.40. Bitcoin -1.2% at $47486.
Ten-year Treasury Yield unchanged at 1.28%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
3:00 PM Farm Prices

Companies reporting earnings today »

What else is happening...

Hurricane Ida knocks out 2,000 miles of Entergy's (NYSE:ETR) high-voltage lines.

Refineries assessing damage; Exxon (NYSE:XOM) shuts Baton Rouge units.

Apple (NASDAQ:AAPL) shares reach all-time high on busy day for tech titan.

Warren Buffett turns 91, prepares Berkshire (NYSE:BRK.B) for tech-driven economy.

COVID-19 booster shots get support from CDC expert panel.

Contamination... Japan suspends another 1M jabs from Moderna (NASDAQ:MRNA).

Zoom Video (NASDAQ:ZM) drops 12% after-hours as soft outlook disappoints.

China's video game restrictions are "non-event" for U.S. stocks - Jefferies.

U.S. begins blocking solar panel imports over forced labor concerns.

New iPhone (AAPL) satellite features to focus on emergencies only - Bloomberg.

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