Dow jumped 732 (near late day highs), advancers over decliners 4-1 & NAZ climbed 401. The MLP index went up 4+ to the 216s & the REIT index went up 5+ to the 461s. Junk bond funds edged higher & Treasuries rose in price, aggressively bought in the PM. Oil soared 5+ to the 108s & gold shot up 18 to 1888 after the Fed announcement (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 Federal Reserve raiseed interest rates by a ½ point for the first time in 2 decades as policymakers ramp up their fight to cool red-hot inflation, a move that threatens to slow US economic growth & exacerbate financial pressure on Americans. The widely anticipated decision – that the Fed would raise rates by 50 basis points – comes as officials face mounting pressure to move more aggressively to cool demand & slow rising consumer prices, which hit a 40-year high in Mar. The rate liftoff, which puts the benchmark federal funds rate at 0.75-1.00%, is likely just the second in a series of increases intended to curb runaway inflation. Total GDP finished the qtr down 1.4%. "With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2 percent objective and the labor market to remain strong," the Fed said. It noted the committee anticipates "that ongoing increases in the target range will be appropriate." The Fed also announced that it will start reducing its massive $9T balance sheet, which nearly doubled in size during the pandemic as the central bank bought mortgage-back securities & other Treasury to keep borrowing cheap. In a blueprint outlined, the Fed indicated that it will begin winding down the balance sheet on Jun 1 & phase in the run-off over 3 months, a move that will further tighten credit for US households.
Fed raises interest rates as it ratchets up inflation fight
The US trade deficit hit a record $109.8B in Mar as import
purchases spiked, the Commerce Dept announced. Mar
was the first time in US history that a monthly deficit surpassed
$100B. The trade deficit refers to the gap between how much
America purchases from other countries versus what it sells abroad. Mar also saw a record-setting increase in imports as companies seek to restore stockpiles following recent supply chain chaos. The figure beat out predictions, which had placed the Mar deficit at $107B. The
rising deficits have consistently cut away from America's gross
domestic product (GDP), slicing it by 3.2% in Q1-2022.
US trade deficit hits record $109B in March
Inflation has become the number one concern among entrepreneurs, according to a new survey conducted by Capital One Business, in partnership with NextGen Chamber of Commerce & the Capital One Insights Center. Among a sample of 1200 small business owners & 300 auto dealership owners, 48% say inflation is the top business challenge in the past year. Cash flow was the 2nd driving concern at 40%, followed by low sales at 36% & then persisting supply chain issues at 28%. Most small business owners (77%) are concerned about the short-term impacts of inflation, within the next 3 months, as approximately 1/3 are feeling ‘very concerned.’ Entrepreneurs who have taken action to mitigate the potentially negative impacts say they have built up cash reserves (27%), preemptively raised prices (23%) & purchased more inventory (21%). A significant number (34%) of small business owners still say no action has been taken to combat rising prices. Despite the volatile economy, 9-in-10 small business owners are confident their business will be operating in the next six months. While the confidence is there, only 43% of small business owners say business conditions in their area are either excellent or good. This is a steep drop-off compared to Jun 2021, when 59% were satisfied with their conditions. Traversing these difficult financial times has taken a toll on entrepreneurs. 24% of small business owners say they are experiencing burnout, a syndrome resulting from chronic stress at work that is characterized by overwhelming exhaustion, negative attitudes or a lack of commitment. Gen-Z (38%) & millennial (30%) small business owners & dealership owners (41%) are feeling the impacts the most. Looking ahead to the rest of 2022, nearly a qtr of small business owners say they are still mainly focused on profit growth, despite the margin-tightening conditions driven by ongoing inflation.
Inflation worries American entrepreneurs: survey
Pres Biden tried to cast his administration as spending hawks, touting sizable reductions in the federal deficit this fiscal year as a key departure from what he characterized as rampant spending by his predecessor. While the Treasury Dept estimates that this year's budget deficit will decline by $1.5T, the reason for the smaller deficit is a matter of debate. Under former Pres Trump, the US poured Ts into the economy to lessen the impact of Covid-19 lockdowns at the height of the pandemic & to develop & manufacture vaccines, masks & other gear needed to protect health-care workers & others from the virus. As those pandemic-era programs end, the federal gov will spend less — even as the Biden administration works with Sen Mitt Romney on legislation providing another $10B in Covid relief. The pres's more-modest budget proposal doesn't include a majority of the cost of Biden's massive Build Back Better agenda, a transportation & technology infrastructure program that Dems haven't been able to pass. The administration priced the plan at $1.75T, but it phased out some of the programs that would likely be permanent to reduce the price tag on paper. The Congressional Budget Office estimated its costs at around $4.7T if the programs were permanent. The plan also would have included significant tax increases on high-income households to help pay for the programs. “We’re on track to cut the federal deficit by another — another — $1.5 trillion by the end of this fiscal year, the biggest decline in a single year in American history,” Biden said.
Biden touts $1.5 trillion budget deficit reduction — but he’s not telling the whole story
Gold futures ended regular trading with a loss, but ticked higher in activity after the Federal Reserve delivered a ½ percentage point increase to its benchmark interest rate. Gold for Jun delivery at $1873 an ounce. Gold closed ahead of the Fed announcement at $1868 an ounce, down $1. The Fed raised the fed-funds rate by 50 basis points, or a ½ percentage point, while outlining its plan to begin shrinking its nearly $9T balance sheet. The Fed typically moves its benchmark interest rates in qtr-point increments, with its last ½-point hike coming in 2000. The outsize move & investor expectations for more of them in the future, comes as the Fed attempts to rein in inflation running at its hottest since the early 1980s.
Gold lifted in electronic trade as Fed delivers largest rate hike in two decades
Oil futures ended sharply higher, after the EU announced a proposal to phase out Russian oil. West Texas Intermediate crude for Jun rose $5.40 (5.3%) to close at $107.81 a barrel. Jul Brent crude, the global benchmark, gained $5.17 (4.9%) to settle at $110.14 a barrel. European Commission Pres Ursula von der Leyen proposed an embargo of Russian oil imports — seaborne & pipeline — to take effect within 6 months, with a phase out of refined products by the end of the year. The plan is part of a 6th package of sanctions targeting Moscow over its war in Ukraine. Traders have harbored mixed views on whether a ban of Russian oil would materialize from the bloc, though Germany last week dropped its opposition to such a move. Von der Leyen also proposed that Sberbank, Russia's largest bank & 2 other major banks be disconnected from the SWIFT intl banking payment system. Concerns over rising COVID cases & lockdowns in China have also been a worry for energy investors, given the country is the world's largest energy importer. OPEC+ is expected tomorrow to approve a 432K barrel rise in production for May, in keeping with an existing timetable. Oil remained higher after the Energy Information Administration reported a 1.3M barrel rise in US crude inventories last week. The unexpected rise in crude supplies, however, was accompanied by large drops in stocks of distillates & gasoline.
Oil ends sharply higher as EU proposes plan to phase out Russian oil within 6 months
Stocks pretty much zoomed in the last 1+ hour of trading. Investors liked what Powell had to say. Even REITs which borrow a lot were bid higher during the rally. Of course major problems like inflation & economic growth have not evaporated.
Dow Jones Industrials
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