Markets waver after GDP data for the third quarter

Dow inched up 13 after selling in the last 2 hours of trading, advancers over decliners about 2-1 & NAZ slid back 23.  The MLP index rose 2 to the 255s & the REIT index remained higher, up 2+ to the 362s.  Junk bond funds rose along with the stock market rise & Treasuries had more buying which lowered yields.  Oil rose 1+ to the high 77s & gold was up 7 to 2067 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Richmond Federal Reserve Pres Thomas Barkin said that policymakers need to retain the option of raising interest rates if inflation doesn't show enough progress coming down.  Markets largely expect the Fed has stopped raising rates & will start cutting in 2024.  But Barkin said he's not ready to commit to a particular policy path with so much uncertainty in the air.  “If inflation comes down naturally and smoothly, awesome, you know, there’s no particular need to do anything with interest rates if inflation steps down,” he said.  “But if inflation is going to flare back up, I think you want to have the option of doing more on rates,” Barkin added.  “I guess the bigger point is, there’s no precision that anyone can point to at exactly what the level of rates that exactly handles inflation and exactly the way you want to handle it. So you’re constantly trying to adjust on the fly as you learn more about the economy.”  Barkin spoke shortly after the Commerce Dept reported that the economy grew at a 5.2% annualized pace in the 3rd qtr.  As growth has held strong, inflation is still above the Fed's 2% annual target, though it has shown a consistent progression lower in recent months.  The Fed's preferred inflation measure of core personal consumption expenditures showed a 12-month rate of 3.7% in Sep & is expected to show a slightly lower reading in Oct.  Pricing in futures markets indicates the Fed could cut rates as much as 4 times, or a full percentage point, next year.  Fed Governor Christopher Waller said yesterday that he'd consider cuts if the inflation data shows progress over the next several months.  However, Barkin called the possibility of easing policy “a forecasting question” that he's not ready to answer.  “I don’t see it as a there’s a right answer on rates or a wrong answer on rates,” he said, adding that he’s “skeptical” about inflation and thinks it’s going to be “stubborn” ahead.  Atlanta Fed Pres Raphael Bostic also offered commentary, saying in an essay that he sees economic growth slowing substantially & believes inflation will come down further as well.  “Altogether, the research, data, survey results, and input from business contacts tell me that tighter monetary policy and tighter financial conditions more broadly are biting harder into economic activity,” Bostic wrote.  “At the same time, I don’t think we’ve seen the full effects of restrictive policy, another reason I think we’ll see further cooling of economic activity and inflation.”  Bostic said his staff expects the inflation rate to decline to 2.5% by the end of 2024 & then get back to the Fed's 2% target by the end of 2025.  Both Bostic & Barkin will be voters in 2024 on the rate-setting Federal Open Market Committee.

Fed’s Barkin says hikes still on the table if inflation doesn’t continue to ease

General Motors (GM) is working to regain confidence heading into 2024 with several investor-focused initiatives following a tumultuous year of labor strikes & setbacks in its plans for electric & autonomous vehicles.  The automaker plans to increase its quarterly div next year by 33% to 12¢ per share; initiate an accelerated $10B share repurchase program; & reinstate its 2023 guidance to include an estimated $1.1B in earnings before interest and tax, or EBIT-adjusted, impact from roughly 6 weeks of US labor strikes by the United Auto Workers (UAW) union.  GM CEO Mary Barra said the company is finalizing a budget for next year that will “fully offset the incremental costs of our new labor agreements.  “The long-term plan we are executing includes reducing the capital intensity of the business, developing products even more efficiently, and further reducing our fixed and variable costs,” she said.  GM’s reinstated 2023 guidance also includes:

• Net income attributable to stockholders of $9.1-9.7B, compared with a previous outlook of $9.3-10.7B.
  
• Adjusted EBIT of $11.7-12.7B, compared with the previous outlook of $12-14B.
• Adjusted EPS of roughly $7.20-7.70 including the stock buyback, compared with the previous outlook of $7.15-8.15.
• EPS in of $6.52-7.02, including the stock buyback, compared with the previous outlook of $6.54-7.54.
• Adjusted automotive free cash flow of $10.5-11.5B, compared with the previous outlook of $7-9B.
• Net automotive cash provided by operating activities of $19.5-21B, compared with the previous outlook of $17.4-20.4B.

Before the UAW strikes, CFO Paul Jacobson said the company was on track to achieve “toward the upper half” of its earnings forecast.  Today the automaker said new labor deals in the US & Canada are expected to increase costs by $9.3B & add approximately $575 in costs per vehicle.  A majority of that impact is from the UAW deal, which expires in Apr 2028.  The stock rose 3.83 (16%).

GM shares jump 10% on stock buyback, dividend hike and 2023 guidance

Foot Locker (FL) posted surprise earnings & sales beats & said it saw strong results over the Thanksgiving weekend.  The sneaker & sportswear retailer narrowed its full-year forecast, reflecting slightly better sales trends.  It said it now expects sales to drop by 8-8.5% for the year, compared with a previously issued forecast of an 8-9% decrease.  It projects a same-store sales decline of 8.5-9%, compared with its previous guidance of a 9-10% drop.  Yet FL lowered the high end of its adjusted EPS guidance, dropping to $1.30-1.40 per share, down from the previous $1.30-1.50.  CEO Mary Dillon said the company has made progress with its turnaround initiatives.  She pointed to a new marketing deal with the NBA & said the holiday qtr is off to a strong start.  Over Thanksgiving week, FL saw solid traffic & sales in stores & online, with some gains in the amount that customers spent & number of items they put in their baskets.  Dillon added shoppers have shown they're willing to pay full price for items “when the product is new, compelling, and trend right.”  But she said it is still early.  “We know we’re vying for wallet share with a value-conscious consumer this holiday season,” Dillon added.  “While our customers remain discerning with their discretionary dollars and we expect that will continue to through the season, we’re also seeing them respond to newness at key moments.”  In the fiscal 3rd qtr, EPS was 30¢, compared with $1.01 in the year-ago period.  Total revenue fell about 8.6% from $2.18B in the year-ago period.  Same-store sales fell 8% year over year, which the company said reflected “ongoing consumer softness,” a change in its mix of vendors & a 3% negative impact as it closes some Champs stores.  Even so, that was slightly better than the 9.7% drop expected.  Digital sales fell by 5.6% year over year, Chief Commercial Officer Frank Bracken said.  Yet excluding Eastbay, a digital brand that the company wound down last year, digital sales rose 0.4%.  The stock jumped 2.70 (9%).

Foot Locker shares jump after earnings beat, more upbeat sales outlook

Gold closed at the highest in more than 3 years as the $ gave up early gains after US 3rd-qtr GDP growth was revised even higher than the 4.9% increase initially reported, while lower treasury yields also offered support.  Gold for Feb closed up $6 to $2067 per ounce, the highest since more than 3 years.  US 3rd-qtr GDP growth was revised up to 5.2% by the Bureau of Economic Analysis, above consensus expectations for a 5% increase.  The $ rose early following the data, but fell back in later trade.  The ICE dollar index was last seen down 0.1 points to 102.74.  Treasury yields weakened, lowering the carrying cost of owning gold.  The 2-year note was last seen down 7.5 basis points to 4.66%, while the 10-year note was paying 4.268%, down 5.7 basis points.

Gold Climbs to the Highest in More than Three Years as the Dollar and Yields Ease

West Texas Intermediate (WTI) crude oil closed higher for 2nd day despite rising US oil inventories following a report OPEC+ plans 1M barrels per day of new production cuts at its  meeting.  WTI crude oil for Jan closed up $1.45 to settle at $77.86 per barrel, while Jan Brent crude, the global benchmark, closed up $1.42 to $83.10.  Delegates to a meeting said OPEC+ may production by another 1M barrels per day to support prices, on top of 5-million bpd in current cuts.  The meeting was delayed from Nov 26 amid internal squabbling as Angola & Nigeria sought higher quotas, while the UAW is also seeking to raise output.  In its weekly survey, the Energy Information Administration said US oil inventories rose by 1.6-M barrels. the 6th-straight rise & counter to a survey from the American Petroleum Institute released a day earlier that showed an 817K-barrel drop in stocks.  Prices are also being supported by a winter storm in the Black Sea region that has disrupted more than ½ of Kazakhstan's production & slowed seaborne exports from Russia.

WTI Crude Oil Rises Again Following a Report OPEC+ Plans Another Production Cut

The stock market had a solid rally today but gave most of that back in the last 2 hours.  However Dow has had a very good month, up over 2300.  Gold is also doing well, up 70 taking it close to its record.   Hmmm!!               

Dow Jones Industrials