Markets slide after strong retail data

Dow dropped 94 with buying into the close , decliners over advancers better than 3-1 & NAZ was off 88.  The MLP index fell 3+ to the 254s & the REIT index slumped 7+ to the 381s.  Junk bond funds remained mixed & Treasuries continued weak, raising yields.  Oil settled slightly higher in the 72s & gold lost 21 to 2009 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Holiday sales rose 3.8% year over year to $964B, according to the National Retail Federation (NRF), as consumers spent on gifts & celebrations even after enduring a prolonged period of higher prices.  The tallied results, released by the NRF & based on retail sales data from the Commerce Dept, were roughly in line with the major trade group's expectations.  The holiday sales total was not adjusted for inflation & included both in-store & online purchases.  Ahead of the holiday season, NRF had predicted that sales in Nov & Dec would rise 3-4% year over year to $957-$967B in spending.  The forecast & holiday total exclude sales at automobile dealers, gas stations & restaurants.  The results echo findings of the CNBC/NRF Retail Monitor, which showed that holiday shoppers closed out the year on a positive note.  In the 2 key months of the season, Nov & Dec, the Retail Monitor rose 3.7% & core retail gained 3.3% year over year, excluding autos & gas.  NRF's chief economist Jack Kleinhenz said easing inflation & a strong labor market helped prop up holiday shopping.  “Consumer spending was remarkably resilient throughout 2023 and finished the year with a solid pace for the holiday season,” he said.  Nearly every retail category saw year-over-year gains.  Electronics & appliance stores & health & personal care stores led the way with sales gains of 9.3% & 9%, respectively.  Online sales & other nonstore sales rose 8.2% year over year.  On the other hand, sales at sporting goods stores were roughly flat, & sales at building materials & garden supply stores fell 3.9%.  Sales at furniture & home furnishing stores declined 6.2%.  Despite the solid peak season, economists & retailers are weighing whether consumers' resilience will continue in 2024.  The new year brings dynamics that could drive or dampen spending, such as a divisive presidential election cycle, cooling inflation & the Federal Reserve's decision about whether & when to cut interest rates.  Retailers are also navigating supply chain disruptions in the Red Sea that have raised the risk of higher energy & shipping costs.

Holiday sales climb, boosting retailer hopes for uncertain 2024

Confidence among builders in the US housing market rose in Jan for the 2nd straight month as high mortgage rates continued to fall.  The National Association of Home Builders/Wells Fargo Housing Market Index (NAHB), which measures the pulse of the single-family housing market, rose 5 points to 44, more than expected.  The increase followed a 3-point gain in Dec.  Any reading below 50 is considered negative.  "Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs," said Alicia Huey, NAHB chair.  Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers.  But borrowing costs have retreated over the past 2 months as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign, & will soon pivot to cutting rates.  Rates on the popular 30-year fixed mortgage are currently hovering around 6.66%, according to Freddie Mac, down from a high of 7.79% at the end of Oct but well above the pre-pandemic average of 3.9%.  The recent decline has prompted a burst of optimism among homebuilders that the worst may be over.  However, the housing market is facing new headwinds heading into 2024, including higher prices & shortages of labor & lumber.  "Mortgage rates have decreased by more than 110 basis points since late October, lifting the future sales expectation component into positive territory for the first time since August," said NAHB chief economist Robert Dietz.  "As home building expands in 2024, the market will see growing supply-side challenges."

Homebuilder sentiment roars back to life in January

JPMorgan (JPM) CEO Jamie Dimon said he remains cautious on the US economy over the next 2 years because of a combination of financial & geopolitical risks.  “You have all these very powerful forces that are going to be affecting us in ’24 and ’25,” Dimon said at the World Economic Forum in Davos, Switzerland.  “Ukraine, the terrorist activity in Israel [and] the Red Sea, quantitative tightening, which I still question if we understand exactly how that works,” Dimon said.  Quantitative tightening refers to moves by the Federal Reserve to reduce its balance sheet & rein in previous efforts including bond-purchasing programs.  Dimon has advocated caution over the past few years, despite record profits at JPM, the nation's largest bank & a US economy that has defied expectations.  Despite the corrosive impact of inflation, the American consumer has mostly remained healthy because of good employment levels & pandemic-era savings.  In Dimon's view, the relatively buoyant stock market of recent months has lulled investors on the potential risks ahead.  “I think it’s a mistake to assume that everything’s hunky-dory,” Dimon said.  “When stock markets are up, it’s kind of like this little drug we all feel like it’s just great. But remember, we’ve had so much fiscal monetary stimulation, so I’m a little more on the cautious side.”  Dimon is no stranger to dire predictions: In 2022, he warned investors of an economic “hurricane” ahead because of quantitative tightening & the Ukraine conflict.  Today Dimon discussed his views on Ukraine, former Pres Trump, immigration, commercial real estate & bitcoin.  “We have to teach the American public that this is about freedom and democracy for the free world, and that’s why the battle is being fought,” Dimon said about the Ukraine conflict.

Jamie Dimon warns ‘all these very powerful forces’ will impact U.S. economy in 2024 and 2025

Gold prices dropped to more than 1-month low as the $ gained in strength amid fading prospects of an early interest rate cut by the Federal Reserve after data showed a bigger than expected increase in US retail sales in the month of Dec. The dollar index, which surged to 103.69, was at 103.57 a little while ago, gaining about 0.21%.  Gold futures for Feb ended down $23 (1.2%) at $2006 an ounce.  Data from the Commerce Dept showed retail sales in the US climbed by 0.6% in Dec after rising by 0.3% in Nov.  The forecast had expected retail sales to advance by 0.4%.  A report released by the Federal Reserve showed industrial production in the US inched up 0.1% in Dec.  Hawkish signals from Fed & ECB officials have raised more doubts about the prospects for early rate cuts.

Gold Futures Settle At Over 1-month Low As Dollar Rises Again

West Texas Intermediate (WTI) crude oil closed with a small gain despite weak economic data from China, the largest importer, even as OPEC left its 2024 demand forecast unchanged in its influential Monthly Oil Market Report.  WTI crude oil for Feb closed up 16¢ to settle at $72.56 per barrel, while Mar Brent crude, the global benchmark, was last seen down 34¢ to $77.95.  China reported a 5.2% rise in 4th-qtr gross domestic product, under a consensus estimate for a 5.3% rise, while concerns over the health of the country's real-estate sector continue.  The weak data comes as concerns over sagging demand continue amid geopolitical worries as tensions rise in the Middle East.  Israel's war against the Hamas militant group continues, while Yemen's Houthis attack shipping in the Red Sea & Iran carries out missile strikes in Pakistan & Iraq.

WTI Crude Oil Edges Higher Despite Weak China Data as OPEC Leaves its 2024 Demand Forecast Unchanged

Traders are plagued by thoughts that the Fed will not cuts rates as fast as they would like.  The latest monthly manufacturing data has been sluggish.  The conflict in the MidEast looks like it could play out for months in Gaza & the Red Sea.  After the recent spectacular rally, stocks remain overbought & Dow is down 423 YTD.

Dow Jones Industrials