Dow fell 117, advancers over declines better than 3-1 & NAZ rose a very big 348. The MLP index added 1+ to 231 & the REIT index soared 11+ to 421. Junk bond funds were in demand again & Treasuries had more buying, taking yields lower (more on Treasuries below). Oil slid below 76 & gold was off 4 to1938.
AMJ (Alerian MLP Index tracking fund)
US manufacturing contracted further in Jan as higher interest rates stifled demand for goods, but factories did not appear to be laying off workers in large numbers. The Institute for Supply Management (ISM) said that its manufacturing PMI dropped to 47.4 last month from 48.4 in Dec. The 3rd straight monthly contraction pushed the index to the lowest level since May 2020 & below the 48.7 mark viewed as consistent with a recession in the broader economy. The forecast called for the index falling to 48.0. A PMI reading below 50 indicates contraction in manufacturing, which accounts for 11.3% of the US economy. The Federal Reserve's fastest interest rate-hiking cycle since the 1980s as it fights inflation is undercutting demand for goods, which are mostly bought on credit. The $'s past appreciation against the currencies of the US'S main trade partners & a softening in global demand are also hurting manufacturing. Spending is shifting back to services. The weakness in the ISM mirrored a deterioration in the so-called hard manufacturing data. Manufacturing production declined at a 2.5% annualized rate in Q4, data from the Fed showed last month. The ISM survey's forward-looking new orders sub-index plunged to 42.5 in Jan from 45.1 in Dec. It was the 5th straight month that this measure has contracted. Weakening demand & improved raw material supplies have reduced the backlog of unfinished work at factories. The survey's measure of supplier deliveries edged up to 45.6 from 45.1 in Dec. A reading below 50 indicates faster deliveries to factories. Stretched supply chains early in the COVID-19 pandemic as ms of Americans worked from home was one of the major drivers of inflation last year. The combination of better supply & ebbing demand has resulted in a significant slowdown in consumer & wholesale inflation, with outright declines in monthly goods prices. The ISM survey's measure of prices paid by manufacturers rose to 44.5 from 39.4 in Dec.
US manufacturing sector sinks further in January
Labor Dept data shows initial unemployment claims for last week fell to 183K from the unrevised 186K recorded a week earlier. That is below the 2019 pre-pandemic average of 218K claims& the lowest since Apr 2022. Continuing claims, filed by Americans who are consecutively receiving unemployment benefits, fell slightly to 1.6M, a decrease of 11K from the previous week. One year ago, nearly 1.9M Americans were collecting unemployment benefits. The labor market remains a bright spot in the economy, but there are some early signs that it is beginning to soften. The economy added just 223K jobs in Dec, the smallest gain in 2 years. A plethora of big tech companies have also announced thousands of job cuts in recent weeks as they brace for a possible recession. Policymakers have already approved 8 consecutive rate increases & signaled at the conclusion of their meeting yesterday that additional hikes are on the table this year as they try to cool the economy & the labor market. Fed officials have made it clear that they expect unemployment to climb as a result of higher rates, which could force consumers & businesses to pull back on spending. "I would say it is a good thing that the disinflation that we have seen so far has not come at the expense of a weaker labor market," Chair Jerome Powell said yesterday. "But I would also say that the disinflationary process that you now see underway is really at an early stage." Projections from the central bank's Dec meeting show that officials expect unemployment to rise to 4.5% by the end of next year, up from the current rate of 3.5%.
Jobless claims unexpectedly drop to lowest level in 9 months
Treasury yields held steady as investors digested the Federal Reserve's interest rate decision & assessed the outlook for monetary policy. The yield on the 10-year Treasury was flat at 3.398% & the 2-year Treasury yield was little changed at 4.108%. Yields & prices have an inverted relationship & one basis point is equivalent to 0.01%. Yesterday, the Fed concluded its first meeting of the year with a 25 basis point rate hike. That marked a slowdown of the pace of rate hikes compared to previous increases. The central bank had hiked rates by 50 basis points at its last meeting in Dec & implemented 75 basis point increases at each of its previous 4 meetings. The central bank also indicated that rates would rise further, reigniting concerns about whether the pace of rate increases & keeping rates elevated for longer could drag the US economy into a recession. The Fed has been hiking interest rates in an effort to curb persistently high inflation, which it said yesterday was cooling slightly.
Treasury yields hold steady as investors digest Fed rate decision
There is sort of a tech stock rally today, but Dow is not participating. Investors are still assessing post meeting comments while the inverted curve (shown above), which signals a coming recession, is in effect. And gold remains popular with nervous investors.Dow Jones Industrials
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