Markets fall on inflation and growth concerns

Dow dropped 375 (but 330 above early lows), decliners over advancers 2-1 & NAZ fell 100.  The MLP index was steady in the 284s & the REIT index fell 2+ to the 357s.  Junk bond funds remained weak & Treasuries saw more selling which interest rates higher.  Oil rose fractionally to the 83s after a late day rally & gold was up 6 to 2345 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Mortgage rates climbed again this week, exacerbating the home affordability crisis that is stifling the housing market.  Freddie Mac's latest Primary Mortgage Market Survey, released Thursday, showed that the average rate on the benchmark 30-year fixed mortgage jumped to 7.17% this week from 7.1% last week. The average rate on a 30-year loan was 6.43% a year ago.  The average rate on the 15-year fixed mortgage rose to 6.44% from 6.39% last week. One year ago, the rate on the 15-year fixed note averaged 5.71%.

Mortgage rates continue upward climb to 7.17%

Comcast (CMCSA) beat first-qtr earnings expectations as broadband drove revenue even as the company & its peers have seen customer growth slow.  For the qtr that ended Mar 31, EPS was 97¢ compared with $91¢ a year earlier.  Adjusted earnings before interest, taxes, depreciation & amortization, or EBITDA, slid 0.6% to roughly $9.4B.  Revenue grew 1.2% to $30.06B compared to the same period last year.  Revenue from the domestic broadband customers segment boosted that growth as rates increased, even as CMCSA lost 65K customers during the qtr.  The slowdown in buying & selling of houses due to high interest rates has led to a decline in new home internet connections.  Cable providers have also been hit with heightened competition for home broadband from wireless companies.  Pres Mike Cavanagh said that the market is “extremely competitive,” especially for “cost-conscious customers.”  Earlier this month, COMO said it would launch NOW, a prepaid & month-to-month low-cost internet & phone plan program.  The plan is designed to provide fixed wireless options at a low cost.  Company execs do not expect an improvement in the near term, particularly with the expected end of the federal gov's Affordable Connectivity Program (ACP) which offers a $30 discount on broadband services to qualifying low-income households, in Apr.  CMCSA wireless business saw a 21% increase in customers during the quarter to 6.9M total lines.  The company lost 487K cable TV customers during the qtr as consumers continued to cut the cord in favor of streaming.  The stock fell 2.34 (6%).

Comcast beats earnings estimates even as it sheds more broadband subscribers

Treasury yields rose after the first-qtr GDP report showed slowing growth & rising consumer prices.  The benchmark 10-year Treasury yield rose 5 basis points to 4.704%, while the rate on the 2-year Treasury rose 6.3 basis points to 5%.  At their session highs, the yields on both notes hit their highest levels since Nov.  The GDP report showed growth of 1.6%, which was lower than the 2.4% expected.  Along with the downbeat growth rate for the qtr, the report showed consumer prices increased at a 3.4% pace, well above the previous qtr's 1.8% advance.  This raised concern over persistent inflation & put into question whether the Federal Reserve will be able to cut rates anytime soon, even with the economy slowing.  The Fed is due to convene for its policy meeting next week.  Markets are widely expecting interest rates to remain unchanged then, with traders pricing in the first rate cut for Sep, according to CME Group’s FedWatch Tool.  However, investors will be closely watching for any fresh clues from policymakers about when they expect rates to be cut & how many reductions they expect to take place this year.

10-year Treasury yield leaps to highest level in more than 5 months after GDP report

Front  month gold for Apr gained $5 per troy ounce to $2329 today.  The largest 1 day $ & percentage gain since Fri, Apr 19, snaps a 3 session losing streak.  Gold was off 2.9% from its 52-week high of $2398 hit last Fri & up 28.2% from its 52-week low of $1816 hit Oct 5, 2023.  All prices are calculated based on the settlement price of the current front.

Comex Gold Settles 0.2% Higher at $2329

Oil erased earlier losses to top $83 a barrel as a weaker $ boosted commodities priced in the currency.  Strengthening equities markets also supported crude futures, which spent much of the session trading in a narrow range after a closely watched measure of US inflation soured sentiment.  Oil markets are still trying to find an equilibrium price due to the lack of geopolitical headlines & data releases.  Crude remains higher this year, aided by supply curbs from OPEC+ & tensions in the Middle East, although prices have pulled back from recent highs as geopolitical risks eased.  The options skews remain in a bearish tilt toward puts, while the world's biggest oil exchange-traded fund, the US Oil Fund, posted its largest daily outflow on record.  The demand outlook also remains clouded, with a weakness showing in some refined products.  Profit margins for turning crude into diesel in Asia were near the lowest level in nearly a year.  WTI for Jun rose 76¢ to settle at $83.57 a barrel & Brent for Jun settlement rose 99¢ to settle at $89.01 a barrel.

Oil Rises as Weaker US Dollar Vies With Slower Economic Growth

Today questions were raised about the health of the US economy in the face of persistently high interest rates.  US GDP growth came in at a 1.6% annualized pace in the first qtr, falling well short of expectations of 2.5%.  This comes amid ongoing debate about the path of the Federal Reserve's interest rate campaign.  Treasury yields rose after the GDP data, with the benchmark 10-year yield surging to its highest levels of the year, around 4.71%.  These are troubling times for investors.

Dow Jones Industrials

Markets plummet as US GDP growth slows significantly in Q1

Dow tumbled 647, decliners over advancers 5-1 & NAZ gave back 265.  The MLP index lost 1+ to the 282s & the REIT index fell 3 to the 356s.  Junk bond funds were sold along with stocks & Treasuries retreated, bringing higher yields.  Oil declined almost 1 to the low 82s & gold rebounded 9 to 2047 after recent selling.

AMJ (Alerian MLP Index tracking fund)

The US economy grew at a slower pace than expected at the beginning of 2024 as consumers pulled back on spending in the face of higher inflation.  Gross domestic product (GDP), the broadest measure of goods & services produced across the economy, grew by 1.6% on an annualized basis in the 3-month period Jan-Mar, the Commerce Dept said in its first reading of the data.  That is much lower than the 2.4% increase forecast & marks a sharp slowdown from the 3.4% pace seen during the 4th qtr & is the slowest pace of growth in 2 years.  Consumer spending, which accounts for about 2/3 of GDP, moderated during the first qtr.  It rose 2.5% for the period, down from the 3.3% figure recorded the previous qtr amid signs the Federal Reserve's fight against inflation has stalled.  The report showed that an inflation gauge closely watched by the Fed rose 3.4% during the first qtr, the largest gain in a year.  Excluding food & energy, prices jumped 3.7%.  Both figures point to inflation that is still running well above the Federal Reserve's 2% target even as the economy starts to slow in the face of higher interest rates.  The economy has remained solid even as experts predicted that the Federal Reserve's aggressive interest rate hike campaign would send it spiraling into a recession.  For all of 2023, the economy expanded 3.1%, up less than 1% in the previous year.  However, there are signs that growth is finally beginning to slow in the face of tighter monetary policy.  Job growth is moderating.  The housing market, which is vulnerable to higher interest rates, is trapped in a prolonged downturn & consumer spending has shown signs of cooling off.  Many economists expect to see further cooling in coming months as higher interest rates continue to work their way thru the economy.

US economic growth falls short of expectations at start of 2024 amid inflation pickup

Meta (META) shares tumbled 13% after the company issued weak revenue guidance that overshadowed its first-qtr earnings beat.  The company reported EPS of $4.71 on $36.46B in revenue for the qtr, exceeding the $4.32 expected EPS & $36.1B in expected sales.  The stock sell-off gained pace after CEO Mark Zuckerberg discussed spending in areas such as artificial intelligence & mixed reality that are not currently profitable.  META expects 2nd-qtr revenue of $36.5-39.0B.  The midpoint of the range, $37.75B, falls short of analysts' estimate of $38.3B.  The stock sank 64 to 429.

Meta tumbles 11% on weak revenue forecast and Zuckerberg’s comments on spending

Merck (MRK), a Dow stock, first-qtr revenue & adjusted earnings topped expectations as it posted strong sales of its blockbuster cancer drug Keytruda & vaccine products.  The pharmaceutical giant also raised & narrowed its full-year revenue & adjusted earnings forecasts.  MRK expects 2024 sales to come in at $63.1-$64.3B, up from previous guidance of $62.7-64.2B.  The company expects full-year adjusted EPS of $8.53 - $8.65, up from its prior forecast of $8.44 - $8.59.  That outlook includes a 1-time charge of roughly 26¢ per share related to its acquisition of Harpoon Therapeutics in Jan.  The company develops immune-based cancer drugs.  The guidance also includes a negative impact of 30¢ per share from foreign exchange changes.  The company posted EPS of $1.87 for the first qtr.  That compares with EPS of $1.11 during the year-earlier period.  Excluding acquisition & restructuring costs, EPS was $2.07.  Both adjusted & nonadjusted profit for the period include the charge related to the Harpoon deal.  MRK raked in $15.8B in revenue for the quarter, up 9% from the same period a year ago.  Those results come as MRK shows substantial progress in preparing for Keytruda's patent expiration in 2028.  The loss of exclusive rights to the drug will likely cause sales to fall, forcing the company to draw revenue from elsewhere.  The stock rose 2.07 in a down market.

Merck beats earnings expectations, raises outlook on strong Keytruda and vaccine sales

The GDP news was very disappointing to investors.  Slower economic growth may help make the case for interest rate cuts coming a little sooner than expected.  But that is difficult to see after negative data from this report.  Dow has sunk 2000 in Apr.

Dow Jones Industrials 

Markets wobble ahead of more tech earnings

Dow was off 42, decliners over advancers 3-2 & NAZ added 16.  The MLP index inched up 1+ to the 284s & the REIT index continued even in the 359s.  Junk bond funds crawled higher & Treasuries had more selling which increased Treasury yields.  Oil slid back below 83 & gold fell 8 to 2333 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Boeing (BA), a Dow stock, reported a better-than-expected qtr but continued to burn cash as it tries to stabilize production following a near-catastrophic door blowout on a 737 Max earlier this year.  BA burned thru $3.9B in the first qtr, beating a previous company forecast & analysts' expectations for a cash burn of as much as $4.5B for the 3-month period.  “Near term, yes, we are in a tough moment,” CEO Dave Calhoun, who announced in Mar that he would step down by year-end, said.  “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else. We are absolutely committed to doing everything we can to make certain our regulators, customers, employees, and the flying public are 100 percent confident in Boeing.”  Calhoun reiterated that the company's 737 Max production has dropped below 38 Max jets per month & the company said the rate would stay there for at least thru the first ½ of the year.  Deliveries have slowed sharply this qtr.  BA earlier this week told staff that it expects slower production increases & deliveries of its 787 Dreamliners because of parts shortages.  Its all-important commercial airplane unit revenue dropped 31% to $4.65B in the qtr compared with last year, with negative margins widening to 24.6% from 9.2%.  “We are using this period, as difficult as it is, to deliberately slow the system, stabilize the supply chain, fortify our factory operations and position Boeing to deliver with the predictability and quality our customers demand for the long term,” Calhoun said.  “As these efforts begin to take hold, we’re seeing early signs of more predictable, stable and efficient cycle times in our 737 factory, and expect this will continue to slowly improve.”  BA lost 56¢ per share in the first qtr, down from a 69¢ per-share loss a year earlier.  Excluding one-time items, including pension costs, the company lost $1.13 a share.  Revenue fell 8% to $16.5M, slightly ahead of estimates.  Calhoun stood by the company's goal of $10B in annual free cash flow in the 2025-2026 period, but said hitting that target would likely be delayed by about six months.  The stock was down 4.84.

Boeing reports better-than-feared quarter, says supply chain is stabilizing amid 737 Max crisis

Owning a home has long been considered the main pillar of the American dream, but the vast majority of aspiring homeowners in the US say they simply cannot afford it.  A new survey released by Bankrate found 78% of would-be homebuyers cited financial factors when asked what was holding them back from making a purchase.  The most common challenges cited by respondents were insufficient income (56%), followed by home prices being too high (47%) & the inability to afford down payments & closing costs (42%).  The findings come as a housing affordability crisis in the US continues to escalate with no end in sight.  As mortgage rates topped 7% last week for the first time this year, a separate report from Redfin found that the combination of steep mortgage rates & elevated home prices has pushed the median monthly housing payment to a new record of $2775, an 11% increase from the same time last year.  The high costs have pushed homeownership out of reach for many Americans & have left the housing market stalled for months as many would-be buyers & sellers remain on the sidelines waiting for affordability to improve.  Bankrate's latest survey found that nearly 7 in 10 Americans said they were willing to take at least one step necessary to find affordable housing.  44% of respondents said they could downsize their living space, while 34% said they would either move out of state or buy a fixer-upper.  "Owning a home is still the centerpiece of the American dream, but affordability is the main obstacle to making that a reality," said Bankrate Chief Financial Analyst Greg McBride.  "With the cumulative rise in home prices, rents and insurance costs, downsizing space may not yield a proportionate downsizing of costs."

Vast majority of aspiring homeowners say they cannot afford the American dream

Biogen (BIIB) first-qtr profit topped estimates as the company's cost-cutting efforts took hold & sales of its closely watched Alzheimer’s drug, Leqembi, came in higher than expected.  BIIB & Eisai's Leqembi became the first drug found to slow the progression of Alzheimer’s disease to win approval in the US in Jul.  The treatment’s launch has been sluggish, but uptake appeared to accelerate towards the end of the first qtr.  Leqembi brought in about $19M in sales for the qtr, up from the $10M the drug generated last year.  That blows past the $11M that had expected.  The number of patients on the therapy increased nearly 2.5 times since the end of 2023, according to BIIB.  The company added that the number of new patients who started Leqembi jumped in Mar, making up more than 20% of the cumulative patients now on the treatment.  BIOG did not provide a specific number of patients using Leqembi.  But in Feb, CEO Chris Viehbacher said that there were around 2000 patients currently on Leqembi.  BIIB & Eisai had previously aimed to treat 10K patients by Mar, but indicated in Feb that it would not meet the target.  BIIB is seeing an “awful lot of momentum” in the Leqembi rollout & expects qtr-over-qtr growth in the number of patients, but that increase may not be linear, Viehbacher said.  He noted that BIIB plans to expand its US marketing force by 30% to support Leqembi's launch.  BIIB sales were $2.29B for the qtr, down 7% from the same period a year ago.  EPS was $2.70, up from $2.67 for the same period a year ago.  Adjusting for one-time items, the company reported EPS of $3.67.  BIIB reiterated its full-year 2024 adjusted EPS forecast of $15-16.  Analysts had expected full-year EPS guidance of $15.49.  The company also reiterated its 2024 sales guidance of a low- to mid-single-digit percentage decline compared with last year.  BIIB stock shot up 8.81 (5%)

Biogen tops profit estimates as cost cuts take hold, Leqembi launch picks up

Gold prices fell for a 3rd session, partly because hedge funds reduced their holdings amid easing concerns of a major escalation of the Middle East crisis, while investors awaited key US economic data for interest-rate clues.  Spot gold fell 0.3% to $2315 per ounce, after having hit its lowest since Apr 5 in the previous session.  US gold futures fell 0.6% at $2328.  The $ regained some ground while benchmark Treasury yields also rose, making the $-priced bullion less attractive for other currency holders & as an investment option compared with debt.  Gold prices have dropped more than 3% since the start of this week.  However, strong demand from Asia, primarily China, along with the desire of central banks in emerging markets to diversify more in gold, is preventing prices from falling further.

Gold Extends Slide as Middle East Crisis Escalation Fears Ease

Oil prices fell 1% as worries over conflict in the Middle East eased & business activity in the world's largest oil consumer slowed, however, a fall in US crude oil inventories put a floor on those losses.  Brent crude futures were down 73¢ (0.8%) to $87.69 a barrel, while US West Texas Intermediate crude futures fell 84¢ (1.0%) to $82.52.  That reversed some of Brent's gains earlier in the week, buoyed by a weaker $.  It appears the fundamentals are leaning towards a little settling down in the Middle East.  US crude stockpiles fell by 6.4M barrels to 453.6M barrels last week the EIA said, compared with expectations for a 825K-barrel rise.

Oil Settles Lower as U.S. Business Activity Cools, Concerns Over Middle East Ease

Little was decided in choppy trading today.  Tech stock earnings reports shortly will get investor attention along with the GDP for Q1 & inflation data.  Dow is up 476 this week.

Dow Jones Industrials 

Markets pause as Treasury yields rise to multi month highs

Dow fell 84, decliners over advancers 2-1 & NAZ gained 56.  The MLP index was even in the 283s & the REIT index was off 1 to 359.  Junk bond funds fluctuated & Treasuries ran into more selling which raised yields (more below).  Oil slid back to 83 & gold was of 1 to 2340.

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) shares surged after CEO Elon Musk said the electric-vehicle company plans to begin production of new affordable EV models by early 2025.  His comments came during TSLA's earnings call after the company reported disappointing first-qtr numbers.  Revenue fell 9% year over year, its steepest annual decline since 2012.  The company previously expected to start production of the new EV models in the 2nd ½ of 2025.  Tesla reported 45¢ in adjusted EPS on $21.3B in revenue, falling short of the 51¢ expected & $22.1B in expected sales.  Revenue dropped from $23.3B a year before & from $25.17B in the previous qtr.  Analysts of Bank of America said that TSLA's first-qtr results & leadership's commentary “addressed key concerns” & “revitalized the growth narrative,” prompting them to upgrade the stock from neutral to buy while maintaining their $220 price target.  They also expressed bullish optimism that TSLA demonstrated a positive business outlook as it prepares to launch new vehicle models & license its driver assistance system.  “In the near-term the tide in news flow appears to suggest the risk to the stock is skewing more positively,” the analysts wrote.  UBS analysts reiterated their neutral rating of TSLA stock & lowered their price target to $147 from $160, saying they remain skeptical of the company's talk.  “Increasingly, TSLA is a play on autonomy, and while progress is being made, we are cautious on near-term viability,” they wrote.  “We see limited growth for current lineup and lack of clarity on what these ‘new vehicles’ could bring.”  The stock jumped 17+ (12%).

Tesla surges after Elon Musk says new affordable EV models coming

Mortgage rates rose for the 3rd straight week last week, hitting the highest level since Nov.  As a result, mortgage application demand dropped 2.7% compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) increased to 7.24% from 7.13%, with points increasing to 0.66 from 0.65 (including the origination fee) for loans with a 20% down payment.  Applications to refinance a home loan, which are most sensitive to weekly moves in interest rates, fell 6% for the week & were 3% higher than the same week 1 year ago.  Applications for a mortgage to purchase a home fell 1% for the week & were 15% lower than the same week one year ago.  As home prices rise along with interest rates, potential buyers' purchasing power are suffering a double whammy.  “Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply,” said Joel Kan, MBA's deputy chief economist.  As often happens when affordability takes a hit, the adjustable-rate mortgage share of applications rose last week to 7.6%.  ARMs offer lower rates & can be fixed for up to 10 years, although they are considered riskier.

Mortgage demand drops as interest rates soar over 7%

Treasury yields rose as investors considered the latest economic data & weighed the state of the economy.  The 10-year Treasury yield was last up by 6.6 basis points to 4.664% & the 2-year Treasury yield was last more than four4 basis points higher to 4.946%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors weighed economic data as uncertainty about the state of the economy and how this could affect Federal Reserve monetary policy decisions continued.  The S&P Global Flash manufacturing PMI for the US. came in at a 4-month low of 49.9 for Apr.  Readings below 50 indicate that the sector is contracting.  The data therefore suggested to investors that the economy may be easing slightly.  More economic data is due as the week continues, including durable goods orders tomorrow, ahead of a first-qtr domestic product reading on Thurs & the personal consumption expenditures price index on Fri.  The forecast expects the economy grew at a 2.4% annualized pace in the first qtr, while consensus street estimate forecast for the PCE inflation rate was 2.6% in Mar.  Expectations for when interest rates will be cut by the Fed have moved backward in recent weeks & questions have emerged about whether there could be fewer cuts than anticipated this year.

Treasury yields rise as investors weigh economic outlook

TSLA's announcement about new cars next year brought excitement.  But that didn't affect the rest of the stock market.  More earnings are coming & next week the FOMC meets although little joy is expected as high interest rates are expected to last for some time. 

Dow Jones Industrials 

Markets march higher as tensions in the Mid-East lessen

Dow advanced 263, advancers over decliners almost 5-1 & NAZ was up 245.  The MLP index added 1+ to the 283s & the REIT index went up 3+ to 360.  Junk bond funds remained higher & Treasuries continued to be purchased, taking yields a little lower.  Oil gained 1+ to the 83s & gold was off 10 to 2335 (more on both below).

AMJ (Alerian MLP Index tracking fund)

PepsiCo (PEP), a Dividend Aristocrat, quarterly earnings & revenue that beat expectations, despite weaker US demand caused by Quaker Oats recalls & backlash to higher prices for its drinks & snacks.  First-qtr EPS rose to $1.48, up from $1.40 per share a year earlier.  Excluding items, EPS was $1.61.  Net sales rose 2.3% to $18.2B. Organic revenue, which excludes acquisitions, divestitures & foreign exchange, increased 2.7% in the qtr.  But volume is still under pressure.  PEP, along with many of its rivals, has seen its volume fall in response to higher prices for its Gatorade, Fritos & other products in its portfolio.  Chinese consumers are cautious & saving more money, but they're still buying more of its products, according to CEO Ramon Laguarta.  Even in Europe, which has also struggled with higher grocery prices, beverage volume increased 7% & snack volume rose 2%.  PEP also reiterated its 2024 outlook.  For the full year, the company is expecting organic revenue will rise at least 4% & core constant currency EPS will climb at least 8%.  “As we look ahead, we continue to expect a normalization and moderation in category growth rates versus the last few years,” PEP execs said.  “We also continue to expect that consumers will remain watchful with their budgets and choiceful with their purchases.”  The stock fell 5.13.

PepsiCo earnings beat but recalls, weak lower-income consumer hurt U.S. sales

Kimberly-Clark (KMB), a Dividend Aristocrat, posted first-qtr 2024 results, with the bottom line increasing year over year & surpassing the estimate.  The top line also surpassed the consensus mark but declined year over year.  Taking into account a solid start to fiscal 2024, management raised its annual guidance.  Adjusted EPS was $2.01, surpassing the forecast of $1.61.  The bottom line increased 20% year over year, courtesy of higher adjusted operating profit.  Reduced net interest, effective tax rate as well as increased equity income were upsides.  Total sales totaled $5.149M, surpassing the estimate of $5,075M.  The metric inched down 1% compared with the year-ago period's figure. Unfavorable foreign currency rates affected sales by nearly 5% & the divestiture of its tissue & K-C Professional business in Brazil dented sales by about 1%.  Organic sales increased 6% on the back of a 4% rise in price stemming from pricing actions undertaken to tackle increased local costs in hyperinflationary economies, especially across Argentina.  Product mix & volume were favorable by 1% each, with strength across North America, Developing and& Emerging (D&E) markets, & Developed Markets.  Management anticipates organic net sales to increase in mid-single-digit percentage compared with the earlier view of low-to-mid single-digit growth.  Reported net sales growth is likely to reflect an unfavorable currency impact to the tune of nearly 400 bps & a 120-bps headwind from divestitures.  The adjusted operating profit is projected to grow at a low-teens percentage rate at a constant-currency (cc) basis in 2024.  Earlier, the company had projected the metric to grow at a high single-digit to low double-digit rate on a cc basis.  Adjusted EPS is now anticipated to grow at a low-teens percentage rate at cc compared with the previous expectation of a high single-digit growth.  The stock rose 7.07.

Kimberly-Clark (KMB) Tops Q1 Earnings Estimates, Ups FY24 View

JetBlue (JBLU) lowered its 2024 revenue forecast, a setback as it tries to return to profitability.  The carrier said 2nd-qtr revenue would likely drop as much as 10.5% on the year, more than double the decline analysts expected.  JBLU forecast full-year sales would drop in the low single digits, also below expectations, after estimating flat sales for the year in its Jan report.  It has been on a cost-cutting spree, culling unprofitable routes, & focusing on those with steady demand & high sales for premium seats. The carrier last month called off its merger agreement with budget carrier Spirit Airlines (SAVE) after a judge blocked that $3.8B deal on antitrust grounds.  Today's outlook update shows a growing divide between JBLU & its larger rivals that have big intl networks which have forecast profits, strong revenue & record demand this summer.  “As we look to the full year, significant elevated capacity in our Latin [America] region, which represents a large portion of JBLU's network, will likely continue to pressure revenue and we expect a setback in our expectations for the full year,” Joanna Geraghty, who became CEO in Feb, said.  “We have full confidence that continuing to take action on our refocused standalone strategy is the right path forward to ultimately return to profitability again.”  Geraghty said the airline expects lower capacity next year.  In the first 3 months of 2024 JBLU lost $2.11 per share, compared with a loss of 58¢ a share, in the same period of 2023.  Adjusting for one-time items, including break-up charges related to the failed SAVE merger, JBLU lost 43¢, narrower than the 52¢ adjusted loss expected.  Revenue dropped 5.1% from last year to $2.2B, matching revenue expectations.   “As we look to the full year, significant elevated capacity in our Latin [America] region, which represents a large portion of JetBlue’s network, will likely continue to pressure revenue and we expect a setback in our expectations for the full year,” Joanna Geraghty said.  “We have full confidence that continuing to take action on our refocused standalone strategy is the right path forward to ultimately return to profitability again.”  JBLU stock fell 1.41.

JetBlue shares tumble 15% after airline lowers 2024 revenue outlook

Gold prices steadied after hitting a more than 2-week low on diminishing fears about an escalation of tensions in the Middle East, with investors awaiting key economic data for further clarity on the timeline on US interest rate cuts.  Spot gold was little changed at $2327 per ounce after earlier hitting its lowest since Apr 5.  Bullion's Mar to Apr rally drove it up by nearly $400 to an all-time high of $2431 on Apr 12.  Gold futures settled 0.2% lower at $2342.  Israeli strikes intensified across Gaza in some of the heaviest shelling in weeks, but with fears of a wider conflict receding after Iran said last week it had no plan to retaliate following an apparent Israeli drone attack, financial markets showed signs of sharper appetite for risk.  That has meant gold, traditionally seen as a haven from risk, has lost ground.

Gold Holds Steady as Focus Turns to U.S. Economic Data

Oil futures finished higher as traders continued to monitor developments in the Middle East & weighed the potential that tensions in the oil-rich region could lead to disruptions in the world's crude supplies.  West Texas Intermediate crude for Jun climbed by $1.46 (1.8%) to settle at $83.36 a barrel.  Jun Brent, the global benchmark, added $1.42 (1.6%) to $88.42 a barrel.  Brent & WTI both settled at their highest in a week.  The conflict in the Middle East has undoubtedly exacerbated tensions in an already volatile region.  While the recent attacks have been downplayed, the potential for further escalation cannot be entirely dismissed.  However, there's a lesson to be gleaned from this situation, particularly in how swiftly demand responded to higher oil & gasoline prices, as evidenced by the increase in US oil stockpiles.

Oil prices finish higher as traders weigh potential for disruptions to Middle East supplies

Fighting in the Mid-East has settled, at least to some degree.  Obviously the future remains uncertain which has ended gold's rally while stimulating interest in risky investments (stocks).  More earnings are coming, especially from the big name tech companies.

Dow Jones Industrials 

Markets climb after new earnings reports

Dow rose 201, advancers over decliners more than 5-1 & NAZ was up 197.  The MLP index added 1 to the 283s & the REIT index went up 4+ to 361.  Junk bond funds inched higher & Treasuries had some buying which reduced yields (more below).  Oil was up fractionally to the 82s & gold retreated 12 to 2334 after yesterday's dramatic selloff.

AMJ (Alerian MLP Index tracking fund)

Apple (AAPL), a Dow stock, iPhone sales dropped sharply in China in the first qtr of this year as the company saw strong competition from domestic brand Huawei, according to a new report from market research firm Counterpoint Research.  Sales of its iPhones fell 19.1% in the first 3 months of the year, Counterpoint’s data showed, as Chinese telecommunications & consumer electronics giant Huawei saw a resurgence in its smartphone business.  The China-based firm saw sales of its smartphones surge a whopping 69.7% in the first qtr, Counterpoint added.  This was thanks in no small part to the launch of Huawei's Mate 60 smartphone, which comes with a high-end chip that supports next-generation 5G mobile connectivity.  Huawei is staging a comeback.  The company is the 4th-largest smartphone maker in China, according to Counterpoint's research note, piling the pressure on AAPL, which ranks as 3rd-biggest.  Overall, smartphone sales in China grew 1.5% year-on-year in the first 3 months of the year, marking the 2nd qtr of positive growth for the industry.  Counterpoint said it anticipates low single-digit year-on-year growth for China's smartphone market in 2024.  AAPL stock was up 65¢.

Apple iPhone sales fall 19% in China as demand for Huawei devices soars: Research

General Motors (GM) raised its 2024 guidance after beating top- & bottom-line expectations for the first qtr.  The automaker said it was boosting its forecast after strong North American operations offset losses elsewhere during the first qtr.  The company expects adjusted EPS of $9-10, up from a previous range of $8.50 - $9.50.  GM also raised expectations for adjusted automotive free cash flow to $8.5-10.5B, up from an earlier forecast of $8-10B.  Revenue during the first 3 months of this year was up 7.6% from roughly $40B a year earlier & net income rose 26% to $2.95B.  Net income attributable to stockholders, which excludes some div payouts, was up 24.4% to $2.98B ($2.56 per share) from the first qtr of 2023 when the company reported net income attributable to stockholders of about $2.4B ($1.69 a share).  Adjusted earnings before interest & taxes were $2.62 per share, during the first qtr.  The company still plans to produce between 200-300K EVs during 2024.  The stock rose 2.01.

General Motors raises 2024 guidance after big first-quarter earnings beat

Treasury yields fell as investors parsed fresh manufacturing data & awaited further insight into the state of the economy from reports due out later in the week.  The yield on the 10-year Treasury was down by less than 3.9 basis points to 4.584% & the yield on the 2-year Treasury was last at 4.937% after rising by 3.4 basis points.  Yields & prices have an inverted relationship basis & 1 point is equivalent to 0.01%.  The S&P Global Flash US manufacturing PMI came in at 49.9, hitting a 4-month low 4 down from 51.9 in Mar.  A reading below 50 indicates an economic contraction within the sector.  “All told, then, S&P’s survey reinforces the case for thinking markets will be caught out by how quickly the economic data swing to supporting the case for reducing interest rates soon,” said Ian Shepherdson, chair & chief economist at Pantheon Macroeconomics.  Fed policymakers have in recent weeks suggested that there is no rush to cut interest rates & have repeatedly said that rate cuts would begin only when they are confident that the economy is easing.

Treasury yields slip after the release of fresh manufacturing data

Earnings reports should dominate the news (especially from the big tech companies) in the next couple of days.  Some easing in tensions in the Mid-East has brought back stock buyers this week.  Next week brings the important FOMC meeting.

Dow Jones Industrials 

Markets jump as gold nosedives to below 2400

Dow soared 259 (off 200 from session highs), advancers over decliners 3-1 & NAZ advanced 169.  The MLP index  was up 2+ to the 282s & the REIT index added 2+ to 356s.  Junk bond funds crawled higher & Treasuries had a little selling, bringing slightly higher yields.  Oil was off chump change to the high 82s & gold plunged 69 to 2344 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The yield on the 10-year Treasury rose as investors looked to economic data in the week ahead that could provide fresh hints about the state of the economy & the outlook for interest rates.  The yield on the 10-year was up by 2 basis points to 4.647% & the 2-year Treasury yield was last 2.6 basis points lower at 4.97%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors awaited fresh economic data as uncertainty about the outlook for the US economy & Federal Reserve monetary policy persisted.  Several key data points are slated for later this week, including the personal consumption expenditures price index for Mar, which is due Fri.  The PCE is the Fed’s favored inflation gauge & could inform policymakers' thinking about what could lie ahead for interest rate cuts ahead of the next Fed policy meeting on Apr 30-May 1.  Markets have pushed out their expectations for when the Fed will start lowering rates, following recent economic data that reflected sticky inflation & resilience from the economy, as well as comments from central bank officials.  Policymakers including Chair Jerome Powell last week indicated that there was no urgency for rates to be cut & that the timeline for rate cuts would depend on how the economy develops.  The Fed has now entered the blackout period before its next meeting.

10-year Treasury yield rises as investors look to key economic reports this week

Verizon (VZ), a Dow stock, lost fewer-than-expected wireless subscribers in the first qtr thanks to its flexible plans & streaming bundles offering discounted pricing for services.  It lost 68K monthly bill-paying wireless phone subscribers in Jan-Mar, a seasonally soft period for the industry after the holiday qtr.  That compared with an estimated loss of 100K & a loss of 127K in the first qtr of 2023.  Its consumer business saw its best first-qtr performance since 2018, with 158K wireless retail postpaid phone net losses, compared with 263K losses a year ago.  “We are on track to meet our financial guidance and to deliver positive consumer postpaid phone net adds for the year,” CEO Hans Vestberg said.  The firm reported revenue of $33B for the qtr, compared with an estimate of $33.2B, as phone upgrade levels continued to drift lower.  VZ reported EPS of $1.15, beating the estimate of $1.12.  The stock fell 1.87.

Verizon reports fewer quarterly subscriber losses on flexible plan demand

Crude oil futures edged lower after Iran said it would not escalate the conflict with Israel.  The West Texas Intermediate contract for May gained 8¢ to $83.21 a barrel, while Jun Brent futures fell 27¢ to $87.02 a barrel.  US crude oil & Brent fell 3% last week after 2 benchmarks are up about 16% & 13% this year, respectively.  Iranian Foreign Minister Hossein Amirabdollahian said the country does not plan to respond to Israel's retaliatory strike launched on Fri.  “As long as there is no new adventurism by Israel against our interests, then we are not going to have any new reactions,” Amirabdollahian said.  Traders have dismissed fears that tit-for-tat strikes between Iran & Israel will escalate into a war, with the market focus likely to shift back to supply & demand fundamentals this week.  “The market reaction to the rise of geopolitical temperature in the region was yet another example that it is only reasonable to expect a protracted oil price rally in case of blocking the Strait of Hormuz or if Saudi Arabia is directly drawn into the conflict,” Tamas Varga, an analyst with oil broker PVM, said.

U.S. crude oil hovers above $83 after Iran says it will not escalate conflict with Israel

Gold traded sharply lower as geopolitical worries ease, cutting the need for the metal's safe haven.  Gold for Jun was last seen down $66 to $2347 per ounce, dropping off a record close of $2413 on Fri.  The drop comes as worries war would spread in the Middle East faded after Israel offered a restrained response to Iran's missile & drone attack earlier this month, while investor risk appetite is slowing ahead of Fri's release of US PCE data, the Federal Reserve's preferred inflation measure.  The ICE dollar index was last seen down 0.3 points to 106.13.  Treasury yields edged down, with the 2 year note last seen paying 4.976%, down 2.3 basis points, while the yield on the 10-year note was down 0.2 basis points to 4.624%.

U.S. crude oil hovers above $83 after Iran says it will not escalate conflict with Israel

West Texas Intermediate (WTI) crude oil closed with a loss on a deflating risk premium & adequate supply.  WTI crude for May delivery closed down 29¢ to settle at $82.85 per barrel, while Jun Brent crude, the global benchmark, was last seen down 35¢ to $86.94.  The drop follows on Israel's muted retaliation last week to a missile & drone attack from Iran this month that caused only minor damage, easing fears of a wider Middle East war that could disrupt oil supplies.  Today's drop also comes as spring demand remains light, with the Energy Information Administration reporting the 4th-straight rise in US oil inventories, even as 2.2M barrels of voluntary production cuts from OPEC+ continue.  The cartel will meet in early Jun to decide whether to unwind the cuts or extend them into the 3rd qutr.  The IMF last week noted Saudi Arabia needs oil prices of at least $96.20 per barrel to balance its budget after cutting its production to 9.3M barrels per day, suggesting the lead OPEC member will look to push the cartel to continue restraining output to support high prices.

WTI Crude Oil Closes with a Loss on a Weakening Risk Premium and Adequate Supply

The bulls finally returned after being away for more than a week.  Their concerns over a spreading regional war in the Middle-East have faded.  Gold was sold from in an overbought market & that money went into risky assets (i.e. stocks) today.  Earnings reports will drive the stock market followed by the PCE on Fri.  This could be a very wild week in for the stock market if today is any indication.

Dow Jones Industrials 

Markets were under pressure on uncertainty about interest rate cuts

Dow gained 211, advancers over decliners 2-1 & NAZ dropped 319.  The MLP index jumped 3+ to 281 & the REIT index crawled up 1+ to the 353s.  Junk bond funds had modest demand & Treasuries saw buying which reduced yields.  Oil was fractionally higher to the 83s & gold went up 4 to 2402 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The cost of buying a new house just hit a fresh record as mortgage rates rose to the highest level this year, according to a new report.  Findings from Redfin show the combination of steep mortgage rates & elevated home prices has pushed the median monthly housing payment to a record $2775, an 11% increase from the same time last year.  "Market conditions for homebuyers remain challenging with few homes listed and costs for ownership still climbing," said Ben Ayers, Nationwide senior economist.  "Despite strong fundamentals for demand from demographics and a strong labor market, many first-time buyers are being shut out of the market by elevated financing rates and rising prices."  There are a number of driving forces behind the affordability crisis.  Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates & expensive construction materials.  Higher mortgage rates over the past 3 years have created a "golden handcuff" effect in the housing market.  Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further & leaving few options for eager would-be buyers.  Economists predict that mortgage rates will remain elevated for the first ½ of 2024 & that they will only begin to fall once the Federal Reserve starts cutting rates.  Even then, rates are unlikely to return to the lows seen during the pandemic.  On top of that, investors are growing skeptical about the odds of a Fed rate hike this year given the string of hotter-than-expected inflation reports at the beginning of the year.  "Some house hunters are hoping to buy now because they’re concerned rates could rise more, and others have grown accustomed to elevated rates and pushed down their home-price budget accordingly," the Redfin report added.  Mortgage buyer Freddie Mac said that the average rate on a 30-year loan this week crossed the 7% threshold for the first time this year, jumping from 6.88% to 7.1%.  While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.  Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.  Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a separate Zillow survey.  Currently, about 80% of mortgage holders have a rate below 5%.

The cost of buying a house hit another record high as mortgage rates spike again

Tesla (TSLA) has issued a voluntary recall of 3878 Cybertrucks to fix a “stuck pedal” issue that had been depicted in a viral TikTok video posted last week by owner Jose Martinez.  A pad on top of the Cybertruck's accelerator pedal could come loose & get trapped in the interior trim causing unintended acceleration, a TSLA filing with the National Highway Traffic Safety Administration acknowledged.  TSLA's service department plans to replace or repair the accelerator pedal assembly, free of charge for owners.  In a defect notice, TSLA revealed that an “unapproved change introduced lubricant (soap) to aid in the component assembly of the pad onto the accelerator pedal. Residual lubricant reduced the retention of the pad to the pedal.”  TSLA first became aware of this issue on Mar 31.  After assessing the problem, TSLA on Apr 12 decided to issue a voluntary recall of the Cybertrucks, the filing says.  Deliveries of the Cybertruck have been low, with under 4000 units shipped since CEO Elon Musk kicked off deliveries at an unveiling event on Nov 30, 2023.  The company reported disappointing first-qtr vehicle deliveries for 2024, totaling 387K cars.  That represented a drop of 8.5% from the same quarter last year.  The stock fell 2.88.

Tesla recalls Cybertruck over ‘trapped pedal’ issue seen in owner’s viral TikTok video

Lululemon (LULU) is planning to shut down its Washington distribution center & lay off 128 employees after opening a massive new warehouse outside of Los Angeles, the company confirmed.  The athletic apparel retailer filed a WARN notice with the state’s Employment Security Dept yesterday, notifying it of its plans to close its distribution center in Sumner, located about 35 miles south of Seattle, & cut 128 jobs.  Layoffs will begin on Jun 21 & the facility is expected to close by the end of the year.  “As we continue to deliver on our growth strategy to meet the needs of our guests, we regularly evaluate our distribution network to help shape and support the future vision of our business. Following a review of our current infrastructure and the evolution of our fulfillment strategy, which includes a multi-year investment to increase overall capacity and support our growth, we have made the decision to close one of our smaller distribution centers — located in Sumner, WA,” the spokesperson said.  “While some employees will be retained and will relocate to other facilities, including our recently opened distribution center in the greater Los Angeles area, the optimization will result in the reduction of just over 100 positions within the existing Sumner distribution center,” the person added.  “We are committed to supporting our impacted employees through this transition.”  As of Jan 31, 2021, Lululemon leased & owned 1.12M square feet of distribution centers across Canada & the US.  By the end of this Jan, that footprint grew to nearly 4M square feet.  Recently, its growth in North America, its largest region by sales, has started to stagnate.  In Mar, it reported holiday earnings that beat expectations, but it issued disappointing guidance after seeing slow sales in the US.  In the 3 months that ended Jan 28, sales grew 9% in the Americas, compared to 29% growth in the year-ago period.  The stock rose 4.96.

Lululemon to shutter Washington distribution center, lay off 128 employees

Gold prices rose for a 5th straight week of gains, as investors rushed to the safe-haven asset as escalating tensions between Iran & Israel fueled fears of a wider regional conflict.  Spot gold closed up 7% at $2395 after rising to as high as $2417 earlier in the session & prices were up over 1% this week.  Explosions echoed over an Iranian city on Fri in what was described as an Israeli attack, but Tehran played down the incident & indicated it had no plans for retaliation.  The geopolitical situation with retaliation of Iran & the latest attack in the Iranian state has raised the risk that the conflict will escalate & is helping safe-haven gold.  Meanwhile,  Federal Reserve policymakers have coalesced around the idea that there is no urgency to cut interest rates, given the slow progress on inflation & a resilient US. economy.

Middle East Turmoil Sets Gold on Track to Fifth Straight Weekly Gain

West Texas Intermediate (WTI) crude oil closed higher as the geopolitical risk premium rose after Israel launched a retaliatory attack on Iran, but one that caused little damage.  WTI crude oil for May closed up 41¢ to settle at $83.14 per barrel, the lowest since late Mar, while Jun Brent crude, the global benchmark, was up 33¢ to $87.44.  The rise came after Israel carried out drone attacks near the Iranian city of Isfahan that caused little reported damage.  The attacks were a response to Iran's weekend attempt to strike Israel with drone & missiles that also had little effect, with most of the weapons shot down by aircraft & air-defense systems.  A report said the Iranian gov is downplaying the attack & quoted an Iranian official said the country has no immediate plans to retaliate.  Oil prices spiked higher following the attack, with Brent crude briefly rising back above $90 in overnight trade before quickly retreating, as traders returned to bidding down oil's risk premium even as Israel's continues its war in Gaza while Yemen's Houthi militants are still attacking Red Sea shipping.

WTI Oil Rises As Risk Premium Moves Higher After Israeli Attack on Iran

With Israel's strike on Iran, there was a lot for traders to think about.  Trading was choppy with Dow posting a solid gain while stocks on NAZ were hit with heavy selling.  Don't see that too often.  Today's rally for the Dow brought it up to even for the week.  Earnings should drive the stock market next week.

Dow Jones Industrials