Dow surged 285, advancers over decliners 5-2 & NAZ gained 196. The MLP index went up 2+ to 231 & the REIT index was about even at 371. Junk bond funds were mixed & Treasuries saw more buying which lowered yields. Oil crawled higher, closing above 70, & gold was up 9 to 1927 (more on both below).
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Treasury Secretary Janet Yellen said that she doesn't see a recession on the horizon & instead said the US is on a path to easing inflation without disrupting jobs. Yellen acknowledged that the Federal Reserve's push to reduce inflation by raising interest rates over the last year have led to warnings that a recession could follow. "For a year now, we have heard our fair share of predictions about an imminent U.S. recession – with forecasters projecting one by the end of 2022, then by the start of 2023, then by the middle of this year," Yellen said. "But our economy has proven more resilient than many had thought," she added. "I continue to believe that there is a path to reducing inflation while maintaining a healthy labor market. Without downplaying the significant risks ahead, the evidence that we’ve seen so far suggests that we are on that path." Yellen's predictive powers have been sharply criticized. Last year, she was forced to admit she was wrong after saying for months that rising inflation that started when Pres Biden took office would be "transitory" & short-lived. "I think I was wrong then about the path that inflation would take," she said. "As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn't at the time fully understand." On her latest prediction that the US economy would dodge a recession, Yellen said she's spoken with business execs who feel the same way & said both consumer spending & business investment remain at healthy levels. "Going forward, I expect the current strength of the labor market and robust household and business balance sheets to serve as a source of economic strength, even if our economy does cool a bit more as inflation falls," she continued. She spoke just hours after the gov released data showing that consumer prices are up 3.8% in the year ending in May. That's the slowest year-over-year increase seen in more than 2 years & down from the 7% rise in consumer prices seen in the year ending Jun 2022. Yellen credited some of the massive spending bills that Pres Biden signed into law for the strength of the economy. She cited legislation spending $280B over the next decade to boost domestic tech companies, the $1T infrastructure bill & the $1.7T Inflation Reduction Act, which primarily subsidized Dems' health & clean energy priorities. "These laws together constitute one of the most important economic investments our country has ever made," Yellen added. Yellen said those spending bills are a significant part of what she called "modern supply-side economics," which she described as a set of policies that "prioritize investments in our workforce and its productivity in order to raise the ceiling for what our economy can produce."
Yellen brushes off recession fears as inflation cools
The US consumer is increasingly confident & optimistic that inflationary pressures will ease, though high prices remain a particular cause for concern, results from a University of Michigan survey showed. The survet published its final results on consumer sentiment for Jun, showing an 8.8% increase in confidence from month-ago levels & a 28.8% increase from this time last year. "Overall, this striking upswing reflects a recovery in attitudes generated by the early-month resolution of the debt ceiling crisis, along with more positive feelings over softening inflation," survey director Joanne Hsu said. Broader markets were on edge from late May to early Jun as congressional Reps held fast to their demands for future spending limits in a standoff over the debt ceiling. "Passing this budget agreement was critical," Pres Biden said after the impasse ended in early Jun. "The stakes could not have been higher." Year-on-year inflation to May, meanwhile, came in at 4%, well below the 9.1% level last summer. The May level, however, is twice as high as the target rate set by the Federal Reserve. Survey results show consumers think inflation could fall to 3.3% in Jun, which would be the lowest reading since Mar 2021. "Views of their own personal financial situation were unchanged, however, as persistent high prices and expenses continued to weigh on consumers," Hsu said. The University of Michigan's survey results back sentiment found by The Conference Board earlier this week. In terms of wages, about 30% of those taking part in the survey said they expected to be better off 6 months from now, compared with 14% who said they expected to be worse off.
University of Michigan survey points to increased consumer confidence
Medicare said it will allow pharmaceutical companies to publicly discuss the program's historic drug price negotiations, dropping a confidentiality requirement that the industry argued violated the First Amendment in lawsuits filed this month. In initial guidance released in Mar, Medicare had forbidden the industry from publicly disclosing information on the lower price initially offered by the federal government for drugs targeted under the program, as well as the gov's reasons for selecting that price point. Medicare had also forbidden companies from disclosing any verbal conversations during the negotiation period. It also required companies to destroy any information within 30 days if the drug is no longer selected for negotiations. In revised guidance released, Medicare said a company “may choose to publicly disclose information regarding ongoing negotiations at its discretion.” The Inflation Reduction Act, passed last year, empowered Medicare to directly negotiate with pharmaceutical companies over prices for the first time. The program is the central pillar of the Biden administration's efforts to control rising drug prices in the US. The industry’s lawsuits, however, are also focused on broader claims that the program violates due process & the seizure of private property without just compensation under the Fifth Amendment of the Constitution. Health & Human Services Secretary (HHS) Xavier Becerra vowed to press ahead with the negotiations despite pharmaceutical industry's lawsuits. “Pharmaceutical companies have made record profits for decades,” Becerra said. “Now they’re lining up to block this Administration’s work to negotiate for better drug prices for our families. “We won’t be deterred,” Becerra added. HHS will release a list of 10 high-cost drugs selected for negotiation by Sep. The companies have to decide whether to participate in the negotiations the following month.
Medicare will allow pharmaceutical companies to publicly discuss drug price negotiations
Gold futures finished higher, but posted losses of close to 3% for the month as well as the qtr. As long as the Federal Reserve keeps its benchmark rates well above 5% & delays the prospects of a rate cut, that should extend the wait for bullion bulls before prices can see a meaningful recovery, barring any sudden spike in geopolitical tensions or recession fears in the interim. Gold for Aug climbed by $1 (0.6%) to settle at $1929 an ounce. Prices based on the most-active contract, ended pennies lower for the week & lost 2.7% for the month & 2.9% for the qtr.
Gold futures end higher, but lose nearly 3% for the month and quarter
Oil futures settled higher, posting a gain for the month but a loss for the qtr. Crude prices have found support from the OPEC+ deal & voluntary production cuts made by several members to support the market, including Saudi Arabia. The cuts mean supply could tighten significantly if members comply. At the same time, the market has seen sharp declines in US crude-oil stocks & China's refinery throughput jumped more than 15% in May year on year, its 2nd-highest level on record. Aug West Texas Intermediate crude climbed 78¢ (1.1%) to settle at $70.64 a barrel.
Oil futures end the session and month higher, but fall for the quarter
Nothing like improved inflation data & consumer confidence. Stock buyers kept coming all day. Dow was up about 1440 for the qtr & up 1800 for the month.
Dow Jones Industrials
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