Dow finished the day down 66, decliners ahead of advancers 5-4 & NAZ was off 315. The MLP index gained 5+ to the 195s & the REIT index as off 1 to the 465s. Junk bond funds were purchased after recent selling & Treasuries were sold today. Oil rose 2+ to the 85s & gold jumped 11 to 1853 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The CNBC Fed Survey shows market expectations have turned aggressive for Federal Reserve policy tightening this year & next, with respondents looking for multiple rate hikes & significant balance sheet reduction. The first hike is now firmly seen coming in Mar, compared with a Jun expectation in the Dec survey. Respondents expect 3.5 rate hikes this year, showing that 3 are agreed but there is debate over whether there's a 4th. 18 respondents see 2 or 3 hikes this year the remainder see 4 or 5. An additional 3 hikes are expected next year. That makes the forecast for a funds rate of just over 1% this year, compared to around zero now, 1.8% in 2023 & a terminal rate, or the end-point of the hiking cycle, at 2.4% reached in Mar 2024. The central bank's 2-day meeting ends tomorrow, where it is expected to give more clues as to when it will hike rates & begin shrinking the balance sheet. Chair Jerome Powell will also address the media. The balance sheet runoff is seen beginning in Jul, much earlier than the last survey, which pegged the beginning in Nov. While the Fed has yet to formulate a plan for balance sheet runoff, here is a first look at how respondents believe it could happen:
- $380B to come off the $9T balance sheet this year & $860B in 2023.
- Monthly runoff pace of $73B eventually, far faster than the last runoff in 2018, but the Fed will phase in this monthly pace.
- $2.8T in total runoff or about a 3rd of the balance sheet over 3 years.
Most support the Fed reducing the mortgage portfolio before Treasuries, letting short-term Treasuries runoff before long-term ones & only reducing the balance sheet by not replacing securities that mature, rather than outright asset sales.
CNBC Fed Survey forecasts more aggressive Fed tightening
Mergers & acquisitions are on the table every year for Johnson & Johnson (JNJ), a Dow stock & Dividend Aristocrat,
but amid a stock market selloff & a strengthened balance sheet
position, JNJ may be even more aggressive in deal-making this year,
according to its CFO. “We’re starting to feel
very bullish about the prospects as we see some volatility in the
market,” CFO Joseph Wolk said in an interview. “We think there can be an opportunity for us in 2022 to lean in on the acquisitions front,” Wolk added. The biotech sector
has sold off in recent months & he said its M&A
targets include companies in biotech, but it will also be looking for
deals in the medical technology space. The company invested a record $15B in R&D last year,
eclipsing its 2020 record & is moving closer to a net cash position
as its balance sheet hits the lowest level of net debt in years, Wolk
said — roughly $2B, which is a 5-year low. JNJ has $32B in cash & marketable securities & $34B in obligations. New CEO Joaquin Duato raised the subject of more acquisitions during an earnings call yesterday. “We
are constantly looking at M&A as a key source of growth for our
business. Our position in cash today makes us be more aggressive in that
area,” Duato said on the call. The company expects more than $3B from Covid vaccine sales in 2021, though that continues to be
run on a non-profit basis. In the short-term, there are headwinds
in the overall business segments. Medical technology sales have slowed
as the latest wave of Covid limits elective procedures & that will
linger in the first month, at least, of 2022. Staffing shortages at large hospital systems, where nurses are covering
twice as many patients as normal, will need to be addressed for growth
to resume a more typical pattern. The consumer health
division was hit by supply constrains in raw materials, labor shortages
among 3rd party manufacturers & higher transportation costs. But as case counts go down, he expects H2-2022
to be stronger for the company &, as it has previously forecast,
expects strong growth from its pharmaceuticals business thru 2025. The planned spinoff of the consumer health business will not “slow us down, if we find the right opportunity,” Wolk continued. The stock rose 4.69.
If you would like to learn more about JNJ click on this link:
club.ino.com/trend/analysis/stock/JNJa_aid=CD3289&a_bid=6ae5b6f
Johnson & Johnson more bullish on acquisitions in volatile market: CFO
Even as the housing market entered its traditionally slower season in Nov, home prices showed big gains from a year ago. Prices rose 18.8% year over year on the S&P CoreLogic Case-Shiller National Home Price Index. Yet that was a slower rate than the Oct pace, which was a 19% annual gain. The 10-city composite climbed 16.8% annually, down from 17.2% in the previous month. The 20-city composite grew 18.3%, down from 18.5% in Oct. “Despite this deceleration, it’s important to remember that November’s 18.8% gain was the sixth-highest reading in the 34 years covered by our data (the top five were the months immediately preceding November),” noted Craig Lazzara, managing director at S&P DJI. Some markets are posting some stunning gains. Phoenix, Tampa, Florida & Miami saw the highest year-over-year gains among the 20 cities in Nov, with increases of 32%, 29% & 27%, respectively. Chicago, Minneapolis & DC, showed the smallest annual gains, although they were all still up around 11%. 11 of the 20 cities reported higher price increases in the year ended Nov 2021 versus the year ended Oct 2021. A recent report from Realtor.com found that 14 out of the top 50 largest US cities experienced listing price declines over the prior year in Dec.
Home prices surged in November, but at a slower rate than in October, S&P Case-Shiller says
Gold futures settled at their highest price in more than 2 months, finding support as US stock indices traded lower a day ahead of the Federal Reserve's announcement on monetary policy. Prices for the haven metal also climbed as the IMF cut its forecast for global economic growth this year on the aback of weaker outlooks for China & the US. This week, gold has drawn safe-haven bids amid wild swings in values for stocks & geopolitical tensions in Europe, where there are fears about the annexation of Ukraine by Russia. While the S&P 500 index so far is on track for its worst start to a year on record gold has been buoyant, up 1.1% this week & gaining 1.3% so far in 2022. Feb gold rose $10 (0.6%) to settle at $1852 an ounce, following a 0.5% climb on Mon. The settlement was the highest for a most-active contract since Nov 18. Higher interest rates may undercut support for gold. Investors have grown anxious about how rapidly the Fed will act to combat high inflation by raising interest rates & reducing its nearly $9T balance sheet. The moves for gold yesterday came as the yield for the 10-year Treasury note was up at around 1.773%, while a gauge of the US $, the ICE US Dollar Index was climbing 0.1%. Gold prices briefly pared some of its gains in the immediate wake of US consumer confidence index data showing a fall to 113.8 in Jan from a revised 115.2 in Dec. The forecast called for the index to shrink to 111.7.
Gold posts highest settlement in over 2 months as U.S. stock indexes fall
Oil futures inched higher, underpinned by global supply
concerns, against a background of volatility in global equity markets as
the Federal Reserve began a 2-day policy meeting, while tensions
remain between Russia & NATO over Ukraine. Traders kept an eye on rising tensions over Ukraine & the threat of a
Russian invasion of its neighbor. The threat of a conflict is seen
adding to broad market jitters, while carrying the potential to spark
significant volatility in energy prices given Russia's role as a major
oil producer & as a key supplier of natural gas to Western Europe. West Texas Intermediate crude for Mar fell 19¢ to $82.12 a barrel. Mar
Brent crude the global benchmark, was up 4¢
at $86.31 a barrel. The UAE yesterday said it intercepted 2 ballistic missiles
targeting its capital, Abu Dhabi, with Houthi rebels blamed for brewing
conflict in the region. Oil prices were lifted last week after the
Iran-aligned Houthis claimed responsibility for an attack that targeted a key oil facility in Abu Dhabi, killing 3. On the flip side, there is a Federal Reserve interest rate decision
tomorrow. If a hike in interest rates is determined, look
for selling interest to weigh on prices. Crude futures fell sharply on Mon
as the commodity got caught up in a sharp stock-market selloff that, at
its session lows, saw the Dow drop more
than 1100 before roaring back in late trade to end the day in positive territory.
Early selling today took the Dow down almost 1K. Then buyers returned to trim that loss. However the sellers were selling again in the last hour of trading. That's the definition of a very nervous stock market. Of course, the reduction in the 2022 growth rates for the US & China by the IMF brought on the early selling. Tomorrow everybody will eagerly listen to what the Fed has to say which can cause another day of wild gyrations. Responding to knee jerk reactions is not the sign of a healthy market. Note below, the Dow is back to where it was in early Apr.
Dow Jones Industrials
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