Wall Street Breakfast: What Moved Markets

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The stock market closed the week on a relatively risk-off environment even with a much worse-than-expected number of jobs added to the economy. Nonfarm payrolls rose by 235,000 in August to miss the consensus expectation for 720,000 job adds. Delta variant concerns and labor supply issues weighed on the economy during the month. The 10-year Treasury yield gained 28 bps following the report but was still down by ~35bps for the week. The Nasdaq outshined the other major indices this week, up 1.5%. The S&P 500 also closed higher on the week, up 0.6%. Meanwhile, oil prices steadied on Wednesday after OPEC and its allies agreed to stick to their existing policy of gradual oil output increases for an additional 400K barrels of oil production per day to be returned to the market each month.

Infrastructure

Hurricane Ida slammed into Louisiana as a Category 4 storm on Sunday, lashing the coast with 150 mile-per-hour winds, torrential downpours and life-threatening storm surges. By nightfall, power was knocked out to the entire New Orleans metropolitan area, according to Entergy (ETR), with the failure of all eight transmission lines that deliver electricity to Louisiana's largest city. Later in the week, tornado watches and flash flood warnings were issued to parts of the Tri-State Area as remnants of Ida brought in heavy winds and drenching rains that turned major highways into rivers.

Focus on infrastructure: Down in Louisiana, the death toll from Ida rose to at least six (it was 46 in the Northeast) though that pales in comparison to the 1,800 people who perished during Katrina. While both storms were of nearly equal strength, Congress has funded a massive $14.5B concrete-and-steel project since 2005, called the Hurricane and Storm Damage Risk Reduction System. The 133-mile-long system of levees, floodwalls, floodgates and pump stations was built by the U.S. Army Corps of Engineers, with the advice of some expert Dutch engineering firms.

Along with sustained damage in the Northeast, Ida could mobilize lawmakers to pass the bipartisan $1T infrastructure bill, which is making its way through Congress. "If we are going to make our country more resilient to natural disasters wherever they are, we have to start preparing now," Louisiana Senator Bill Cassidy declared. "We can't look in the rearview mirror and say 'boy I wish we were prepared.'" Meanwhile, the majority of U.S. oil and gas production in the Gulf Coast region also went offline. Offshore wells in the area account for 17% of total U.S. crude production and 5% of dry natural gas output, while more than 45% of total U.S. refining capacity is also along the Gulf Coast.

Bill comes due: Ida is estimated to have caused almost $18B in damage that'll be covered by insurers, according to risk-modeling firm Karen Clark & Co. The forecast includes privately insured damage to vehicles, houses and commercial and industrial properties, but does not include boats, offshore properties or losses from the National Flood Insurance Program. Insurers are additionally up against higher costs amid a rising consumer price index, with supply shortages, elevated transportation costs and high demand for materials needed to help repair homes. (63 comments)

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Central Banking

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 this week, 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. (220 comments)

Healthcare

U.S. Bankruptcy Judge Robert Drain on Wednesday approved a sweeping settlement for Purdue Pharma, the maker of OxyContin, which would resolve thousands of lawsuits from state and local governments, Native American tribes, unions and others alleging the company fueled the opioid epidemic. The plan will reorganize the drugmaker into a new charity-oriented company with a board appointed by public officials that will funnel profits into government-led efforts to prevent and treat addiction. It will also set up a compensation fund that will pay some victims of drugs an expected $3,500 to $48,000 each.

As for the Sacklers: They will lose ownership of Purdue and pay about $4.5B to settle opioid claims, which will shield members of the family with broad legal protections against future civil litigation. That provision was objected to by nine states and a division of the U.S. Justice Department, as well as Washington State Attorney General Bob Ferguson, who dubbed the order "insulting to victims of the opioid epidemic who had no voice in these proceedings." Overall, the settlement would allot $10B to fight the opioid crisis which has killed half a million Americans over the past two decades.

While the Sacklers are quitting the drug business, the deal would largely allow them to preserve the bulk of their fortune, worth an estimated $11B. The Sacklers were also not given immunity from criminal charges, though there haven't been signs that they would face any such suits. "Our family cares deeply that OxyContin was part of the opioid crisis, but it was unintentional," said David Sackler, the grandson of late Purdue co-owner Raymond Sackler. "We don't believe our conduct was illegal in any way, and we want to help."

More settlements: While Purdue was by far the biggest fish to catch, other companies have been also caught in the frying pan. In July, McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC) agreed to pay up to $1.2B to resolve claims by New York state and two of its counties over their role in fueling a nationwide opioid epidemic. The same month, Johnson & Johnson (JNJ) agreed to pay $5B as part of an agreement with state attorneys general over its alleged role in the opioid crisis. (17 comments)

Tech

In a major expansion of its app-based services, Apple (AAPL) lined up the first U.S. states to allow drivers to store their licenses within the Apple Wallet app. Arizona and Georgia will be the first to offer the functionality for their drivers, with Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah next in line for the feature. Residents of those states will be able to store their state-issued identification cards in Apple Wallet should they not have a driver's license.

How does it work? Adding a driver's license to Apple Wallet will be similar to scanning a credit card for online purchases. A person will use their iPhone to scan their actual driver's license or state ID card, and take a picture of themself that will be securely provided to their state for verification. Users will also have to complete a set of facial and head movements during the setup process. Once the person is verified by their state, their ID or driver's license will be added to their Wallet app.

"The addition is an important step in our vision of replacing the physical wallet with a secure and easy-to-use mobile wallet," declared Jennifer Bailey, Apple's vice president of Apple Pay and Apple Wallet. The company has also lined up the Transportation Security Administration to support the new ID feature on iPhones. The agency will have specific security checkpoints and lanes at participating airports where travelers use their iPhones to show their ID cards before they get on a plane.

Analyst commentary: Dan Ives, who covers Apple for Wedbush, said that with the company already having more than 1B of its mobile devices in use, adding driver's licenses to Apple Wallet, "is a smart move by Apple, given the digital transformation of consumers in this post-COVID environment." (76 comments)

Economy

A timely event that coincides with Labor Day? Enhanced pandemic unemployment benefits will be coming to an end this weekend. The assistance, which helped out-of-work Americans during the pandemic, were distributed under several programs created by the CARES Act. Among them: Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation and Federal Pandemic Unemployment Compensation.

Historic safety net: States issued $794B in combined state and federal unemployment benefits from March 2020 through July 2021, according to the Labor Department. That included weekly bonus payments, which were raised by $600/week and then lowered to $300/week, as well as unemployment insurance and assistance for gig workers. The long-term unemployed also collected federally financed weeks of benefits when state aid was depleted.

A year into the pandemic, up to 46.2M people had received at least one week of benefits, amounting to about a quarter of the U.S. workforce, per an estimate from The Century Foundation. About half of U.S. states also ended their involvement in some or all federal unemployment programs in June or July, before their official expiration this weekend.

Go deeper: While it's hard to make direct comparisons, the $794B pandemic figure weighs up against the $128B in unemployment benefits distributed in 2009, the year which unemployment peaked during the Great Recession. Back in 2009, only 14.5M Americans collected at least one benefit payment, which was less than a third of the pandemic annual total. The latest figures are even likely to be understated because some states haven't filed regular data for Pandemic Unemployment Assistance.

U.S. Indices
Dow -0.2% to 35,369. S&P 500 +0.6% to 4,535. Nasdaq +1.6% to 15,364. Russell 2000 +0.7% to 2,293. CBOE Volatility Index +0.1% to 16.41.

S&P 500 Sectors
Consumer Staples +1.5%. Utilities +1.4%. Financials -2.5%. Telecom +1.%. Healthcare +1.7%. Industrials -0.4%. Information Technology +0.9%. Materials -0.9%. Energy -1.4%. Consumer Discretionary +1.2%.

World Indices
London -0.1% to 7,138. France +0.1% to 6,690. Germany -0.5% to 15,781. Japan +5.4% to 29,128. China +1.7% to 3,582. Hong Kong +1.9% to 25,902. India +3.6% to 58,130.

Commodities and Bonds
Crude Oil WTI +0.6% to $69.12/bbl. Gold +0.6% to $1,830.3/oz. Natural Gas +7.5% to 4.697. Ten-Year Treasury Yield +0.1% to 134.02.

Forex and Cryptos
EUR/USD +0.72%. USD/JPY -0.1%. GBP/USD +0.81%. Bitcoin +2.9%. Litecoin +20.1%. Ethereum +20.8%. Ripple +12.4%.

Top Stock Gainers
Focus Universal Inc (NASDAQ:FCUV) +152%. Katapult Hldgs Inc (NASDAQ:KPLT) +76%. Innate Pharma S.A. ADR (NASDAQ:IPHA) +74%. Vera Therapeutics Inc Cl A (NASDAQ:VERA) +62%. Cellect Biotechnology Ltd ADR (NASDAQ:APOP) +60%.

Top Stock Losers
Forte Biosciences Inc (NASDAQ:FBRX) -82%. Neurometrix Inc (NASDAQ:NURO) -34%. Ree Automotive Ltd Cl A (NASDAQ:REE) -33%. Joann Inc (NASDAQ:JOAN) -31%. Acasti Pharma (NASDAQ:ACST) -29%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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