November 24, 2020

Stocks Rebound at Midday From Early Losses

Commodities like corn and cotton rose more than 3 percent in morning trading, helping send materials companies up 1.3 percent, the most of the 10 industry groups that make up the Standard Poor’s 500-stock index.

The Dow Jones industrial average rose 41 points, or 0.3 percent, to 12,637 in morning trading. The S. P. 500-stock index rose 4 points, or 0.3 percent, to 1,341. The Nasdaq composite fell 5 points, or 0.1 percent, to 2,823. The Dow had been down by more than 50 points earlier in the day following an earnings miss by a big retailer and new concerns about Europe’s debt crisis.

The home improvement company Lowe’s fell nearly 3 percent in early trading after its quarterly report missed Wall Street’s estimates and the company cut its outlook for the year. The company said that its profit fell 6 percent in the first quarter because of the combination of bad weather and a decline in consumer spending.

But J. C. Penney rose nearly 4 percent after the retailer said that cost-cutting and a line of exclusive merchandise helped its profit rise nearly 7 percent in the first quarter. The company also raised its full-year profit estimates.

The stock market has lost some of its momentum lately after finishing its best first quarter since 1998. Companies in so-called defensive industries like health care, utilities and consumer staples have outperformed lately, part because of concerns that high gas prices will slow the economy and cut into corporate profits.

Investors are growing increasingly concerned as well over the prospect of an unprecedented default by the United States on its debt. Treasury Secretary Timothy F. Geithner told Congressional lawmakers in a letter Monday that the agency is using accounting measures to postpone hitting the federal debt limit until August.

Stocks in Europe fell broadly after the arrest of Dominique Strauss-Kahn, the chief of the International Monetary Fund, in New York on charges he sexually attacked a hotel maid. Mr. Strauss-Kahn had been heavily involved in trying to solve the debt crises in Portugal and Greece. The Euro Stoxx 50, an index of large companies in countries that use the euro, lost 1.1 percent. Greece’s stock market fell nearly 2 percent.

In the United States, the parent company of the New York Stock Exchange fell nearly 11 percent after competitors Nasdaq OMX Group and ICE announced that they had withdrawn their hostile bid for the company. NYSE Euronext had angered its shareholders by refusing to meet with the two companies, which offered a higher price than what NYSE received from a German exchange operator. The withdrawn offer clears one hurdle to the proposed combination of the NYSE and its German counterpart.

Oil was among the few commodities that failed to rise Monday, falling 0.5 percent to remain below $100 a barrel. The drop in oil prices has helped airline companies because it cuts one of their biggest costs. AMR, the parent company of American Airlines, gained 5 percent. JetBlue Airways and Delta Air Lines rose more than 3 percent.

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Economix: Fear the Bond Market

James Carville famously said that if reincarnated, he’d like to come back as the bond market, since “you can intimidate everybody.”

“Everybody” includes politicians, with good cause.

A showdown over the debt limit is coming down the pike, and despite warnings from Timothy F. Geithner, Ben S. Bernanke and many  economists about the potential catastrophe that could result, the game of chicken has continued. But it appears that bond traders are now weighing in.

Politico reports:

Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on financial markets in the United States.

House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said.

Ezra Klein notes that Republicans may back down because they do not want to upset Wall Streeters, who have donated large sums to the G.O.P. (and Democrats too, really).

But there’s a more fundamental cost at stake: If there is fear that the government will default on its debt, the costs for the government to borrow will go way up, as would be the case with any borrower. The Politico article cites this potential consequence:

“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.

What do higher government borrowing costs mean?

For one,  the federal debt will become even harder to pay off, which is obviously not the desired effect.

And two,  a rise in long-term interest rates could derail the recovery. Treasury yields are used as a benchmark for all borrowing, and so higher interest rates for the government could make it more expensive for other parties (including consumers and small businesses) to borrow, too. A botched economic recovery affects not just Wall Streeters and the size of their donations, but voters everywhere across the country.

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