Markets ease lower on supply disruptions in the Red Sea shipping route

Dow finished up 25 with buying into the close, decliners over advancers 4-3 & NAZ dropped 245.  The MLP index continued flat in the 254s & the REIT index went up 4+ to the 399s.  Junk bond funds inched higher & Treasuries were sold, increasing yields.  Oil was pulled back 1+ to go below 71 & gold eased back 1 to 2070, remaining in record territory (more on both below).

AMJ (Alerian MLP Index tracking fund)

Apple (AAPL), a Dow stock, fell after Barclays downgraded the stock to underweight & slightly trimmed its price target from $161 to $160.  Barclay analyst Tim Long wrote that the iPhone 15's current “lackluster” sales, specifically in China, presaged similarly weak iPhone 16 sales, weakness that Long expects will hold true for AAPL's hardware sales broadly.  “We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads and wearables,” Long wrote.  Analysts & investors had noted specific weakness in China iPhone sales as far back as Oct.  Bloomberg has previously reported that the Chinese gov has issued informal guidance forbidding state employees from using iPhones.  The Chinese gov has denied issuing such guidance.  Long expects that AAPL's lucrative services business will also see decelerated growth, in part due to regulatory scrutiny.  Gross margin in its services businesses is roughly double the margin AAPL makes on all its hardware products, & CEO Tim Cook highlighted “better-than-expected” growth in that unit on an earlier investor call.  But Barclays doesn't necessarily believe that growth is reliable in the long term.  “In 2024, we should get an initial determination on the Google TAC, and some app store investigations could intensify,” Long wrote, referring to the payments Google makes to AAPL to retain its default search status.  AAPL stock sank  7.96 (4%).

Apple shares slip after Barclays downgrade

Oil prices rose nearly 2% at the start of the new year amid fears of supply disruptions with the ongoing conflict in the Middle East, as well as expectations for strong holiday demand & an economic stimulus in China, a top importer of crude.  Brent Crude rose $1.28 (1.7%) to $78.32 a barrel while US West Texas Intermediate crude was at $72.69 a barrel, up $1.04 (1.5%).  Economists & analysts forecast that Brent Crude will average $82.56 a barrel in 2024, a slight increase over the 2023 average of $82.17.  Analysts expect weak global growth to limit demand for oil, although geopolitical tensions could provide support.  Oil supply is threatened as Iran-backed proxy forces in the Middle East continue to harass shipping vessels in the Red Sea, increasing risks that the Israel-Hamas war will spiral into a wider regional conflict & disrupt intl trade.  US helicopters repelled an attack yesterday by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea, sinking 3 Houthi ships & killing 10 militants.  "The oil price may be affected by the escalation ... in the Red Sea over the weekend and the peak demand season during China's Spring Festival," said Leon Li, a Shanghai-based CMC Markets analyst said.  Li added that forecasts for increased demand during China's Lunar New Year holiday in Feb were also raising expectations for price increases this month.  China may also introduce new stimulus measures that could potentially boost oil demand after manufacturing activity shrank for a 3rd month in Dec.  Meanwhile, wider conflict in the Middle East could close key shipping lanes for oil transport in the Red Sea & the Strait of Hormuz in the Gulf.  After yesterday's attack, an Iranian warship sailed into the Red Sea.  Tracking data shows that at least 4 tankers transporting diesel & jet fuel from the Middle East & India to Europe are making costly detours around Africa to avoid the Red Sea.  Maersk said yesterday it will once again pause all transits thru the Red Sea & Gulf of Aden.  The announcement came just one week after Maersk officials said it would resume routes through the area which were stopped because of similar attacks.  The Denmark-based shipping giant said routes thru the Bab el-Mandeb Strait were paused in early Dec because of attacks against its ships & the Suez Canal, which is heavily traversed by ships from around the world, became unstable for most routes.

Oil prices up after US strikes back at Houthis in Red Sea

Shares of Moderna (MRNA) jumped after Oppenheimer upgraded the stock to “outperform,” saying the Covid vaccine maker could market 5 products by 2026.  The upgrade follows a dismal 2023 with only commercially available product is its Covid shot.  Oppenheimer analyst Hartaj Singh said the its Covid sales could hit a low point in 2024 due to factors such as vaccine fatigue.  But the firm expects Covid vaccine sales to rise in 2025 & beyond as education about Covid & spending on awareness about the disease increase.  Singh was even more upbeat about MRNA's pipeline potential, highlighting a handful of possible product launches over the next 12-18 months that could boost sales in 2025.  That includes a potential approval this year for an experimental vaccine that aims to protect older adults from respiratory syncytial virus, which typically causes mild, cold-like symptoms but more severe cases in seniors & children.  The company has said that the Food & Drug Administration will make a decision on its RSV vaccine in Apr.  Its experimental flu vaccine could also win approval in 2024 or 2025.  In Sep, the company said its shot produced a stronger immune response against 4 strains of the virus than a currently available flu vaccine in a late-stage trial.  Also, MRNA reiterated that it expects to see sales growth in 2025.  The company highlighted its RSV vaccine & the possible approval for its combination shot targeting Covid & the flu, which could come “as early as 2025.”  MRNA in its 3rd-qtr earnings release said it expects revenue to fall to $4B in 2024 before it grows again in 2025.  The company expects to “break even” in 2026.  The company also said in Nov that it would only hit the low end of its sales forecast of $6-8B for 2023, reflecting weaker demand for Covid vaccines.  MRNA has also said it plans to launch up to 15 products in the next 5 years, a goal it first outlined during its annual research & development day in Sep.  The stock jumped 13.08 (13%).

Moderna stock pops after Oppenheimer says company could launch more products over next two years

Oil futures fell to kick off the new year, giving up the sharp gains seen in early trading after an Iranian warship entered the Red Sea, heightening tensions & fears of potential crude-supply disruptions caused by attacks on shipping vessels by Iran-backed Houthi rebels in Yemen.  West Texas Intermediate crude for Feb was down $1.20 (1.7%) to $70.44 a barrel after trading as high as $73.64.  Mar Brent crude, the global benchmark, fell $1.10 (1.5%) to $75.92 a barrel after setting a session high at $79.06.

Oil prices turn lower despite escalating Red Sea tensions, Maersk’s shipping pause

Gold futures rose on market expectations that the Federal Reserve will soon start cutting interest rates.  The most active gold contract for Feb rose 1 to close at 2073 per ounce.  Market generally expects that the Fed will start cutting interest rates in Mar, therefore the broader prospects of gold remain upbeat.  Gold market should brace for volatility this week as a slew of economic indicators will be released, including the jobs report on Fri. The seasonally adjusted S&P Global US Manufacturing Purchasing Managers' Index (PMI) posted 47.9 in Dec, down from 49.4 in Nov & lower than the earlier released flash estimate of 48.2.

Gold Rises On Fed Rates Cutting Expectations

The bulls did not come out in force, so the bears took stock prices lower although a few returned in the last hour of trading.  The Red Sea is a major shipping route not only for oil, but also for cargo which is carried on huge container ships.  Fighting in that route will damage global trade, starting with oil.

Dow Jones Industrials