Dow sank 543 near session lows, decliners over advancers better than 5-1 & NAZ pulled back 237. The MLP index was off 1 to the 226s & the REIT index dropped 8+ to the 373s. Junk bond funds fluctuated & Treasuries rose in price in the PM, reducing yields. Oil fell 1+ to the 75s & gold advanced 16 to 1835 (more on both below).
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Federal Reserve Chair Jerome Powell's prepared speech this week to Congress took just a few minutes, but it changed everything. In those remarks, the central bank leader set out a new paradigm for how the Fed views its policy path, one that apparently will see even higher interest rates for a longer period of time than previously thought. The aftermath has forced the market, which long had been looking for the Fed to blink in its inflation fight, to recalibrate its own views to coincide more with policymakers who have been warning about a higher-for-longer approach to interest rates. As part of his mandated semiannual testimony on monetary policy, Powell spoke Tues before the Senate Banking Committee then the day after to the House Financial Services Committee. Heading into the appearances, markets had been looking for the Fed to raise its benchmark interest rate by 0.25 percentage point at its meeting later this month, then perhaps 2 more moves before stopping, with the end point around 5.25%. That changed after Powell's appearance, during which he cautioned that if inflation data remains strong, he expects rates to go “higher than previously anticipated” & possibly at a faster pace than a quarter point at a time. Markets now strongly expect a ½-point increase in Mar & the peak, or terminal rate, to hit close to 5.75% before the Fed is finished.
Powell changed everything this week on market’s view of interest rates
The number of Americans filing for unemployment benefits unexpectedly ticked higher last week, hitting the highest level in 3 months. Figures released by the Labor Dept show initial claims last week rose to 211K from the 190K recorded a week earlier. That marks the highest level since the end of Dec, although it is still below the 2019 pre-pandemic average of 218K claims. Continuing claims, filed by Americans who are consecutively receiving unemployment benefits, rose slightly to 1.72M, an increase of 69K from the previous week. One year ago, nearly 1.9M Americans were collecting unemployment benefits. The labor market remains an unsolved puzzle in the Federal Reserve's campaign to raise interest rates & slow the economy. Layoffs are on the rise, but job openings remain near a record high. Private-sector hiring rose faster than expected in Feb, but jobless claims are also ticking higher. Central bank 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. Job losses are "very likely," Fed Chair Jerome Powell conceded this week during congressional testimony. Projections from the 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%. That could mean more than 1M Americans lose their jobs between now & the end of 2023. "The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said this week. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes." Fed officials will be closely watching the Feb jobs report tomorrow for additional insight into the labor market's health. The report is expected to show the unemployment rate held steady at 3.4%, a ½-century low & that employers added 203K new jobs.
Jobless claims rise sharply to highest level since December
General Motors (GM) will offer voluntary buyouts to a “majority” of its 58K US
white-collar employees, as it aims to cut $2B in structural costs
over the next 2 years, according to a letter sent to workers from CEO Mary Barra. The
“Voluntary Separation Program,” or VSP, will be offered to all US
salaried employees who have spent 5 or more years at the company as
of Jun 30. Outside of the US, the automaker will offer buyouts to
execs with at least 2 years of time at the company. GM expects to take a pretax charge of up to $1.5B related to the buyouts, according to a public filing. The majority of the charges are expected to be all-cash &
occur during the first ½ of the year, the company said. Barra,
in the letter said the program is “designed to accelerate
attrition in the U.S.,” assisting the company in potentially avoiding
“involuntary actions” in the future. The buyout offer comes after the automaker said last week it would terminate about 500 salaried positions globally. The last time GM offered such a large buyout program was for roughly 18K North American salaried employees in 2018-2019. “Employees
are strongly encouraged to consider the program,” GM said in an emailed
statement. “By permanently bringing down structured
costs, we can improve vehicle profitability and remain nimble in an
increasingly competitive market.” GM announced the $2B cost-cutting program
in Jan, saying 30-50% of the savings were expected
during 2023. At the time, execs said they were planning head count
reductions through attrition rather than layoffs. The stock fell 1.94 (5%).
If you would like to learn more about GM, click on this link:
club.ino.com/trend/analysis/stock/GM=6ae5b6f7
GM offers buyouts to ‘majority’ of U.S. salaried workers
Gold futures finished with a gain, after posting declines in each of the last 2 trading sessions. Federal Reserve Chair Jerome Powell's testimony to Congress raised the possibility for a more aggressive pace of interest-rate hikes, providing overall support to the $ this week. For gold to make a stronger recovery, a surprise miss will be needed in tomorrow's US nonfarm payrolls report. If that happens, it could support stocks, gold & bonds as traders question the likelihood of such an aggressive hike. Gold for Apr rose $16 (0.9%) to settle at $1834 an ounce.
Gold futures finish higher after a two-session decline
Oil prices finished lower, extending their losses into a 3rd straight session. Federal Reserve Chair Jerome Powell's testimony to Congress this week boosted the possibility of more aggressive interest-rate hikes by the central bank, which could lead to a recession. For now, traders, are likely positioning ahead of tomorrow's US jobs report. Apr West Texas Intermediate crude fell 94¢ (1.2%) to settle at $75.72 a barrel.
Oil futures extend losses into a third straight session
Investors continue to be nervous about the future of interest rates & if raising rates further could bring on a recession. GM's announcement today did not calm investors & they bought safe haven gold & Treasuries. Meanwhile the Dow does not stray far from 33K (shown below). Tomorrow's jobs report will get a lot of attention.Dow Jones Industrials
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