Markets rise again while gold sets a new record high

Dow climbed 294 (near session highs again), advancers over decliners better than a hefty 5-1 & NAZ went up 78.  The MLP index hardly budged, remaining near 260, & the REIT index jumped 8+ to the 374s.  Junk bond funds were in strong demand & Treasuries had very heavy buying, sharply reducing yields.  Oil was off 1+ to the 74s & gold rocketed ahead to 32 to 2089 for a new record close (more below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Chair Jerome Powell pushed back on market expectations for aggressive interest rate cuts ahead, calling it too early to declare victory over inflation.  Despite a string of positive indicators recently regarding prices, the central bank leader said the Federal Open Market Committee plans on “keeping policy restrictive” until policymakers are convinced that inflation is heading solidly back to 2%.  “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said.  “We are prepared to tighten policy further if it becomes appropriate to do so.”  However, he also noted that policy is “well into restrictive territory” & noted that balance of risks between doing too much or too little on inflation are close to balanced now.  Markets moved higher following Powell's remarks, & Treasury yields sharply lower.  Expectations that the Fed is done raising rates & will move to an easing posture in 2024 have helped underpin a strong rally that has sent the Dow up more than 8% over the past month to a new 2023 high.  His remarks gave some credence to the idea that the Fed at least is done hiking as the string of rate hikes since Mar 2022 have cut into economic activity.  “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” he said.  “As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated,” he added.  “Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand.”  Powell said the current levels are still “well above” the central bank's goal.  Noting that core inflation has run at a 2.5% annual rate over the past 6 months, Powell said, “while the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2 percent objective.”  “Inflation is still running well above target, but it’s moving in the right direction,” he continued.  “So we think the right thing to be doing now is to be moving carefully, thinking carefully about about how things are going on letting letting the data tell us what the story is. The data will tell us whether we’ve done enough or whether we need to do more.”  Expectations that the Fed is done raising rates & will move to an easing posture in 2024 have helped underpin a strong rally that has sent the Dow up more than 8% over the past month to a new 2023 high.  Powell's remarks gave some credence to the idea that the Fed at least is done hiking as the string of rate hikes since Mar 2022 have cut into economic activity.  “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” he said.  “As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated,” he added.  “Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand.”  A Commerce Dept report yesterday showed that personal consumption expenditures prices, the Fed's preferred inflation gauge, were up 3% from a year ago, but 3.5% at a core basis that excludes volatile food and energy prices.  Recent sharp declines in energy have been responsible for much of the easing in inflation.  Powell said the current levels are still “well above” the central bank's goal.  Noting that core inflation has run at a 2.5% annual rate over the past 6 months, Powell said, “while the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2 percent objective.”  “Inflation is still running well above target, but it’s moving in the right direction,” he said.  “So we think the right thing to be doing now is to be moving carefully, thinking carefully about about how things are going on letting letting the data tell us what the story is. The data will tell us whether we’ve done enough or whether we need to do more.” 

Fed Chair Powell calls talk of cutting rates ‘premature’ and says more hikes could happen

Pfizer (PFE) said it would stop developing the twice-daily version of its experimental weight loss pill after obese patients taking the drug lost significant weight but had trouble tolerating the drug in a mid-stage clinical study.  The drugmaker observed high rates of adverse side effects, which were mostly mild & gastrointestinal, among patients.  A significant share of patients also stopped taking the pill, which aims to be a more convenient alternative to highly popular weight loss injections.  “At this time, twice-daily danuglipron formulation will not advance into Phase 3 studies,” the company said.  But PFE said it still plans to release data on a once-a-day version of the drug in the first ½ of 2024, which will “inform a path forward.”  The pharmaceutical giant will wait to see that data before deciding whether to start a phase 3 study on the once-daily pill, which is viewed as a more competitive form of the treatment.  The stock fell 1.58 (5%).

Pfizer to discontinue twice-daily weight loss pill due to high rates of adverse side effects

The Biden administration plans to buy 2.7M barrels of oil to help replenish the nation's much-depleted emergency stockpile.  The planned purchase for the oil is at an average price of $79 per barrel, the Dept of Energy said.  Biden sold off more than 40% of the Strategic Petroleum Reserve last year to help lower gas prices following the Russian invasion of Ukraine.  In total, the White House tapped the reserve 4 times last year, including when Biden ordered a record-setting 180M barrels of oil released from the reserve.  The repeated withdrawals left the stockpile at the lowest level since the 1980s, prompting accusations from Reps that Biden had left the US vulnerable to potential energy threats.  The reserve had 351M barrels in the week ended Nov 24, still near the lowest level since 1984, according to the latest Dept of Energy data.  That is down from about 630M barrels at the beginning of 2020.  Established after a 1973-74 oil embargo by Arab members of OPEC, the reserve has been used in several emergencies, including in 2005 after Hurricane Katrina made landfall & destroyed swaths of the Gulf of Mexico oil infrastructure.  At the time, the Bush administration authorized the release of 20.8M barrels of crude oil to US producers.  Proponents of releasing barrels from the emergency stockpile say that doing so increases oil supplies & reduces prices at the pump, while also generating Bs in revenue for the federal gov.  But critics say that releasing emergency supplies is a short-term fix & does not increase the country's oil production capabilities.  The White House announced plans earlier this year to replenish the oil reserve with a call for bids to repurchase 60M barrels of oil, roughly 1/3 of the emergency supply released by the pres in 2022.

Biden administration plans to buy 2.7M oil barrels to refill emergency stockpile

Gold futures rallied, with prices reaching record settlement & intraday highs.  Gold prices surged as the market reacted to the escalating tensions in the Middle East.  The escalation has helped extend gold's uptrend of the last 2 months as traders take into account changing expectations regarding monetary policy.  Feb gold rose $32 (1.6%) to settle at $2089 an ounce after trading as high as $2095.  Prices based on the most-active contract marked their highest settlement & intraday price levels on record.

Gold Futures Climb Nearly 2% to Their Highest Levels on Record

West Texas Intermediate (WTI) crude oil closed lower for a 2nd day on disappointment over the scope of the voluntary production cuts announced a day earlier by OPEC+.   WTI crude oil for Jan closed down $1.89 to settle at $74.07 per barrel, while Feb Brent crude, the global benchmark, was last seen down $1.65 to $79.21.  OPEC+ yesterday staged its delayed ministerial meeting by videoconference & ended the meeting with individual members announcing voluntary cuts of 2.2-M barrels per day thru the end of the first qtr of 2024.  The cuts consist of the roll over of Saudi Arabia's 1M barrels per day reduction thru the end of Mar, while Russia will raise its purported 0.3-M barrel per day cut to 0.5M over the qtr by restricting export of 0.2-M bpd of refined products.  The UAE, Iraq, Kuwait, Kazakhstan, Algeria & Oman will also make smaller cuts & all are voluntary.

WTI Crude Oil Falls for a Second Day as OPEC+ Voluntary Production Cuts Fall Short of Expectations

Powell's speeches can bring on selling, but not today.  Investors liked what they heard & bid prices higher.  Meanwhile gold set a new record on growing tensions in the MidEast.  Next week should be an interesting time for the financial markets.

Dow Jones Industrials