Markets struggle while stock indices and gold are near record levels

Dow was up 51, advancers over decliners better than 2-1 & NAZ slid back 10.  The MLP index crawled up to the 255s & the REIT index edged higher to the 397s.  Junk bond funds continued to be in demand & Treasuries saw more buying which reduced yields (more below).  Oil was fractionally lower to 75 & gold rose 17 to 2087 (in record territory).

AMJ (Alerian MLP Index tracking fund)

Treasury yields moved lower, as investors considered the outlook for monetary policy & financial markets for the coming year.  The yield on the 10-year Treasury fell nearly 4 basis points to 3.85% & the 2-year Treasury yield was less than a basis point lower at 4.283%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  In the last week of trading for 2023, investors considered the path ahead for interest rates & how this could impact the US economy & financial markets.  Earlier this month, the Federal Reserve indicated that interest rates will be cut 3 times next year, with further reductions expected in 2025 & 2026, as inflation has “eased over the past year.”  The US personal consumption expenditure price index, an inflation gauge closely followed by the Fed, rose just 0.1% on the month in Nov & was up 3.2% from the same period of 2022.  A recent survey showed that increases of 0.1% & 3.3%, respectively, were expected.  Many investors interpreted the data as a sign that the Fed would be able to stick to its monetary policy expectations for next year.  Uncertainty remains about when the central bank will start cutting rates.  According to CME Group's FedWatch tool, markets are expecting rates to be left unchanged at the Jan Fed meeting, but are pricing in an over 84% chance of rate cuts at the following reunion in Mar.

10-year Treasury yield dips as investors weigh the 2024 interest rates outlook

A growing number of working Americans expect to receive Social Security when they retire, according to a recent Gallup survey.  ½ of the respondents expect the Social Security system to pay them a benefit when they retire, while 47% do not.  In 3 prior readings from 2005 & 2015, non-retirees were more inclined to predict they would not receive Social Security retirement benefits.  Moreover, 53% of current US retirees believe they will continue to receive their full Social Security benefits, up from 37% in 2010 & 49% in 2015.  The improvement comes despite projections that show Social Security benefits could be cut by 20% as soon as 2034 if no changes are made to the system, according to the annual trustees' report recently released by the Treasury.  In 2034, the system is projected to be able to pay 80% of benefits to recipients.  "President Joe Biden brought up the future of the system in his 2023 State of the Union speech and appeared to receive support from both parties to protect Social Security from near-term cuts in federal budget negotiations," the Gallup survey said.  "It is unclear to what extent this recent display of bipartisan consensus on the issue has influenced Americans' opinions about their future Social Security benefits. Greater optimism about the future of Social Security in recent years comes at a time when Americans' satisfaction with the Social Security system has also been higher."  One in 5 (21%) adults age 50 or older said they have no source of retirement income besides Social Security, up from 13% in 2014, the Nationwide survey said.  A decade ago, 48% of respondents in this age group said they had a pension in addition to Social Security, compared to just 31% in 2023.  However, only 8% of respondents understood how to maximize their Social Security benefits.  For instance, only 13% of adults correctly guessed their full retirement age based on their birth year.  On average, Americans said it was 60 years of age; Generation Z & millennials thought 54 & 55, respectively.  The correct age is 66 or 67, depending on the year a person is born.

Americans are feeling more optimistic about the future of Social Security: survey

Yemen’s Houthi rebels launched fresh attacks on cargo ships in the Red Sea, while the US carried out strikes against targets in Iraq, amid fears that the war in the Gaza Strip could engulf the Middle East.  The US military carried out retaliatory strikes against 3 installations in Iraq linked to Kataib Hezbollah on Mon, the Pentagon announced, after 3 American service personnel were injured in a one-way drone attack carried out by the Iran-aligned militant group.  Secretary of Defense Lloyd Austin said that there is “no higher priority” than the protection of American troops & interests.  “While we do not seek to escalate conflict in the region, we are committed and fully prepared to take further necessary measures to protect our people and our facilities,” Austin added.  The Iraqi gov criticized the US strikes as “an unacceptable violation of Iraqi sovereignty” & emphasized that attacks by armed groups against military bases that house US-led coalition advisors are deemed to be hostile acts & violate Iraqi sovereignty, a gov statement said.  Tensions continued to stoke in the Red Sea.  Yesterday, Houthi militants, also backed by Iran, launched a fresh drone attack against a container ship operated by MSC that was heading for Pakistan.  “The naval forces of the Yemeni Armed Forces carried out a targeting operation against the commercial ship, ‘MSC UNITED,’ with appropriate naval missiles,” Yahya Sare'e, spokesperson for the Yemeni Armed Forces, said in a post.  “The Yemeni Armed Forces affirm their continued support and solidarity with the Palestinian people in consistent with their religious, moral and humanitarian duty.”  The US Central Command also announced that a US destroyer & F/A-18 fighter jets shot down 12 attack drones, 3 anti-ship ballistic missiles & 2 land attack cruise missiles that were fired by Houthi militants over the southern Red Sea across a 10-hour period yesterday.  There was no damage to ships in the area or reported injuries, the Pentagon said.  Drone & missile attacks by the militant group in recent weeks have upended shipping thru the Red Sea & Suez Canal, a narrow waterway thru which some 10% of the world's trade sails.

Houthi attacks and U.S. strikes add to concerns of broader conflict in the Middle East

Stocks continue to meander, looking for direction.  Chances are this trend will continue for the last days of 2023, unless there is more drama from the MidEast.  Also, the GDPNow model by the Fed estimate for real GDP growth (seasonally adjusted annual rate) in the 4th qtr of 2023 is 2.3% on Dec 22, down from 2.7% on Dec 19.  GDP for Q3 was lowered to 4.9% in its 2nd revision.

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