Markets jump on signs the Fed may be easing rate hikes

Dow zoomed 700 (near session highs), advancers over decliners 6-1 & NAZ climbed 264.  The MLP index added 4+ to the 222s & the REIT index soared 10 to the 378s as yields plummeted.  Junk bond funds rose in price & Treasuries were heavily purchase causing the yield on the 10 year Treasury to plunge 15 basis points to  3.56%.  Oil edged higher in the 73s & gold advanced 33 to 1873 (more on both below).

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Atlanta Federal Reserve Pres Raphael Bostic said that Dec's jobs report, with its slowdown in wage increases & better-than-expected employment growth, doesn't change his view on monetary policy.  He still sees interest rates rising, up past 5% for the Fed's benchmark funds rate, where he sees it staying for a prolonged period.  “It doesn’t really change my outlook at all,” Bostic said.  “I’ve been looking for the economy to continually slow from the strong position it was at in the summertime. This is just the next step in that.”  Nonfarm payrolls added 223K positions last month & the unemployment rate fell to 3.5%, the Labor Dept reported.  That was slightly better than respective estimates for 200K & 3.7%.  Perhaps more importantly, average hourly earnings rose just 0.3% for the month & 4.6% from a year ago, both below expectations & an indicator that the inflation spiral gripping the economy for the past year & a ½ may be easing.  Still, Bostic said he expects another rate increase of either a ¼ - or ½-percentage point when the Fed releases its decision Feb 1.  The funds rate is currently targeted 4.25-4.5%.  Bostic is a nonvoting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.  Open jobs still outnumber available workers by nearly 2 to 1, & wage growth is well above where it was before the Covid pandemic.  Bostic added that he doesn't think wages have been a key driver of the inflation that escalated in mid-2021 toward its highest level in more than 40 years.  “We’ve got to stay the course,” he said. “Inflation is too high. We need to reduce those imbalances so it moves more rapidly to our 2% [inflation] target.”

Raphael Bostic says Fed needs to ‘stay the course’ despite lower wage gains

The Centers for Disease Control & Prevention (CDC) revised downward its estimate of how much the omicron XBB.1.5 subvariant is circulating across the US, though it continues to spread at a faster pace than other versions of Covid-19.  XBB.1.5 made up 27.6% of sequenced Covid cases nationally for the week ending Jan 7 compared with 18.3% for the prior week.  The CDC previously reported that XBB.1.5 made up about 41% of sequenced cases for the week ending Dec 31, more than any other variant.  Although the agency has revised its estimate downward, XBB.1.5 remains the only omicron subvariant showing significant growth in the US & is 2nd only to omicron BQ.1.1, which currently makes up 34% of sequenced Covid cases in the US.  XBB.1.5 makes up more than 70% of sequenced cases in the northeastern US, which is often a bellwether for the rest of the country.  The World Health Organization has described XBB.1.5 as the most transmissible version of Covid yet.  Scientists say XBB.1.5 has a mutation that makes it bind to human cells better, which may make it better at infecting people than other variants.  Dr Ashish Jha, who heads the White House Covid taskforce, said that the XBB.1.5 subvariant is probably more immune evasive & may also be inherently more contagious because it binds more tightly to human cells.  Jha said It’s unclear whether XBB.1.5 is more dangerous than past variants.  But Dr Robert Califf, who heads the Food & Drug Administration, noted that for now, cases are increasing with no evidence of increased severity of illness.  Jha warned that people who last had a Covid shot before Sep or who had an infection before Jul  probably do not have strong protection against XBB.1.5.  Seniors who are not up to date on their shots are increasingly vulnerable to serious illness, Jha added.

Omicron XBB.1.5 is rising in U.S. though revised CDC data shows slower increase than before

Ford (F) sales were up in Dec as a 223% spike in electric vehicle sales helped expand market share in 2022 for the 2nd-largest US automaker.  Sales of electric vehicles more than doubled last year, with 61K vehicles sold making Ford the 2nd-largest builder of electric vehicles while helping expand Ford's overall share of the market by 0.7 percentage points in 2022.  Conquesting sales were over 60%, also helping the automaker expand market share.  Andrew Fick, VP of sales, distribution & trucks said, "Delivering on our strategy, share expansion came from broad-based growth from our SUV lineup and all our new EV’s growing at twice the rate of the overall EV segment."  The Ford F-Series outsold its 2nd-place competitor the Chevy Silverado by 140K.  Sales for the Ford F-Series reached 654K in Dec to make the line America’s best-selling truck for the last 46 years in a row & its best-selling vehicle the last 41 straight.  Also in Dec, overall sales were up 3.2% from the same month last year, rising to 179K units.  Sales for the Mustang Mach-E jumped 103% & sales of the Ford Bronco kicked up nearly 4 percentage points from Nov.  Ford it betting heavily on electric vehicles.  The automaker has committed over $50B to electrify its lineup with new products & the factories needed to build them.  The stock rose 32¢.
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Ford’s rising EV sales boost market share big time

Gold futures climbed to post a weekly gain of more than 2%.  The precious metal got a boost after a solid US nonfarm payrolls report with cooling wages supported the idea that the Federal Reserve is almost done with raising rates.  The ISM Services index, meanwhile, confirmed that US economy is showing further signs of weakening as the service sector shrinks, which should support the case for holding gold.  Gold for Feb rose $29 (1.6%) to settle at $1869 an ounce.  Prices based on the most-active contract climbed 2.4% for the week.

Gold futures tally a weekly gain of more than 2%

US oil futures pared much of their early gains to finish the session modestly higher, down more than 8% for the week.  At the end of what has been a brutal week for crude oil, with prices on course for the worst start to the year since the 1990’s, there are signs of a modest stabilization in prices in the past couple of days.  The early year weakness appears to be driven by concern that demand is likely to be weak over the first part of the year & a warning from the IMF that a 3rd of the global economy could fall into recession during 2023.  The US benchmark WTI crude for Feb rose 10¢ to settle at $73.77 a barrel.  Prices for the front-month contract lost 8.1% for the week.

U.S. oil futures pare gains to finish the week with a more than 8% loss

Selling at the opening fate quickly.  Buyers kept coming all day.  Thanks to today's rally, Dow was up 480 in the new year.  But the Fed's next meeting is over 3 weeks away so investors will watch for more comments on interest rates.

Dow Jones Industrials