Markets slip on earnings outlooks and Fed official's comments

Dow dropped 280, decliners over advancers about 4-1 & NAZ was off 63.  The MLP index slid back 1+ to the 254s & the REIT index fell 2+ to the 391s.  Junk bond funds were little changed & Treasuries hardly budged which brought little changes to yields.  Oil rebounded into the 71s & gold added 6 to 2040.

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Governor Michelle Bowman, who had been one of the central bank's staunchest advocates for tight monetary policy, said she's adjusted her stance somewhat & indicated that interest rate hikes are likely over.  However, she said she's not ready to start cutting yet.  Bowman noted the progress made against inflation & said it should continue with short-term rates at their current levels.  “Based on this progress, my view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time,” she said.  “Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive.”  “In my view, we are not yet at that point. And important upside inflation risks remain,” she added.  As a governor, Bowman is a permanent voter of the rate-setting Federal Open Market Committee.  Prior to this speech, she had repeatedly said additional rate hikes likely would be needed to address inflation.  Her comments come a few weeks after the committee,at its Dec meeting, voted to hold the benchmark federal funds rate at its current target range of 5.25-5.50%.  In addition, committee members, thru their closely followed dot-plot matrix, indicated that the equivalent of 3 qtr-percentage point rate cuts could come in 2024.  However, minutes released last week from the Dec 12-13 meeting provided no potential timetable on the reductions, with members indicating a high degree of uncertainty over how conditions might evolve.  Inflation is trending down toward the Fed's target & by 1 measure is running below it over the past 6 months.  Bowman said policymakers will remain attuned to how things develop & are not locked into a policy course.  “I will remain cautious in my approach to considering future changes in the stance of policy,” she said, adding that if the inflation data reverse, “I remain willing to raise the federal funds rate at a future meeting.”

Fed Governor Bowman adjusts stance, says hikes likely over but not ready to cut

Small businesses continued to feel pessimistic about the state of the US economy in Dec, reflecting fears over the persistent worker shortage & chronic inflation.  The National Federation of Independent Businesses (NFIB), a Tennessee-based association of small business owners, said its Small Business Optimism Index rose slightly to 91.9 last month, a 1.3 percentage point decrease from Nov.  Despite the increase, that marks the 24th straight month of readings below the 48-year average of 98.  "Small business owners remain very pessimistic about economic prospects this year," said Bill Dunkelberg, NFIB chief economist.  "Inflation and labor quality have consistently been a tough complication for small business owners, and they are not convinced that it will get better in 2024."  Inflation surpassed worker quality as the biggest threat posed to small businesses in Dec.  About 23% of small business owners cited price increases as the single most important problem in operating their business, up one point from the previous month.  While inflation has fallen considerably from a peak of 9.1%, it remains well above the Federal Reserve's 2% target.  As a result, 36% of small business owners reported raising prices in order to offset the sting of high inflation.  Just 15% reported lower average selling prices.  Another 20% of owners said that labor quality was their biggest problem as low unemployment & rapid wage increases made it harder for the owners of these firms to compete with big companies & hire employees.  About 36% of small business workers reported raising compensation last month, while 29% plan to increase wages in the next 3 months.  About 9% of owners cited labor costs as the top business problem.

Small business owners down in the dumps over state of economy

The global economy is on course to record its worst ½ decade of growth in 30 years, according to the World Bank.  Global growth is forecast to slow for the 3rd year in a row in 2024, dipping to 2.4% from 2.6% in 2023, the organization said in its latest “Global Economic Prospects” report.  Growth is then expected to rise marginally to 2.7% in 2025, though acceleration over the 5-year period will remain almost 3-qtrs of a percentage point below the average rate of the 2010s.  And despite the global economy proving resilient in the face of recessionary risks in 2023, increased geopolitical tensions will present fresh near-term challenges, the organization said, leaving most economies set to grow more slowly in 2024 & 2025 than they did in the previous decade.  “You have a war in Eastern Europe, the Russian invasion of Ukraine. You have a serious conflict in the Middle East. Escalation of these conflicts could have significant implications for energy prices that could have impacts on inflation as well as on economic growth,” Ayhan Kose, the World Bank's deputy chief economist & director of the Prospects Group, said.  The bank warned that without a “major course correction,” the 2020s will go down as “a decade of wasted opportunity.”  On a regional basis, growth this year is set to weaken most in North America, Europe & Central Asia, & Asia Pacific — mainly on account of slower growth in China.  A slight improvement is forecast for Latin America & the Caribbean, coming off a low base, while more marked pickups are expected in the Middle East & Africa.  Still, developing economies are set to be the hardest hit on a medium-term basis as sluggish global trade & tight financial conditions weigh heavily on growth.  “Near-term growth will remain weak, leaving many developing countries — especially the poorest — stuck in a trap: with paralyzing levels of debt and tenuous access to food for nearly one out of every three people,” Gill said.  Developing economies are now expected to grow by just 3.9% in 2024, more than one percentage point below the average of the previous decade.  By the end of the year, people in about one out of every 4 developing countries & about 40% of low-income countries will still be poorer than they were on the eve of the Covid-19 pandemic in 2019, the organization said.  The bank said the data showed that the world was failing in its goal of making the 2020s a “transformative decade” in tackling extreme poverty, major communicable diseases & climate change.  However, it added that there was an opportunity to turn the tide if govs act quickly to increase investment & strengthen fiscal policy frameworks.

Global economy set for its worst half decade of growth in 30 years, World Bank says

Stocks retreated as the tech rally lost steam after a Samsung profit warning took the shine off the sector.  Also, Bowman's comments were not warmly greeted by investors.  So far, Dow is down in Jan.  Not a good start as earnings season begins.

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