Markets zoom, taking the Dow to a new record

Dow soared 395, advancers over decliners 2-1 & NAZ jumped 255.  The MLP index remained in the 253s & the REIT index rose 4+ to the 383s.  Junk bond funds edged lower & Treasuries were flattish, keeping yields little changed.  Oil slid below 74 & gold gained 10 to 2030 (more on both below).

AMJ (Alerian MLP Index tracking fund)

ECB Pres Christine Lagarde said she does not expect a return to economic “normality” in 2024, despite seeing a balancing of certain data points throughout the last 12 months.  Speaking at the World Economic Forum in Davos, Lagarde described the post-pandemic period as “strange, extraordinary and difficult to analyze” & identified three trends that began to normalize last year: consumption, trade & inflation.  The pandemic saw spending fall & people's savings grow, while global trade was also disrupted.  In Oct 2022, euro zone inflation hit 10.6% but dropped off in 2023, coming in at 2.9% in Dec.  “In ’23 we have seen the beginning of normalization,” she said.  “When you look at consumption for instance, around the world … consumption is still a driving force for growth, but the tailwind that we had the benefits of, are gradually fading,” Lagarde said.  Consumption softened as the jobs market became a little less tight & consumers' savings reduced.  Trade, meanwhile, was disrupted by consumers' preference for buying services over goods in 2021 & 2022.  “But it is beginning now to really pick up and in October, we had global trade numbers that for the first time in many months was up.”  The World Trade Organization (WTO) expects trade to increase by 3.3% in 2024, per a forecast released in Oct.  Lagarde also noted the broad fall in inflation in 2023.  “Around the world, inflation is coming down, and we have seen it in November [in] both headline inflation and core inflation,” she added.  “So that’s what I call the normalization that we have observed in ’23,” Lagarde said, adding somewhat cryptically: “And maybe you’ll give me the floor another time to talk about it how it is not normality that we are heading to.”  WTO Director General Ngozi Okonjo-Iweala agreed that the economy is “maybe moving towards normalization” but she described it as “not normal, because trade growth is still trending below GDP growth.”  Okonjo-Iweala noted uncertainties that make forecasting “difficult,” including geopolitical conflicts, disruption in the Red Sea & elections around the world.

Leaders at Davos see a global economy moving toward a new normal

A stealth inflationary cost is biting into corp profits.  While some companies are now seeing lower input & freight costs, one expense is not falling: insurance.  In its earnings report today, Dow component Travelers (TRV) said insurance premiums that it charges are still soaring.  Premiums on business policies jumped 14% in the last qtr.  Consumers are feeling the pinch, too.  Homeowner renewal premiums spiked 21%, while those for auto policies jumped 17%.  Those higher prices aren't deterring demand, though.  The insurer noted “retention remained historically high” & “new business increased significantly.”  Although rising premiums are good news for insurance firms such as Travelers, they are bad news for customers, whether they are individuals or companies.  The stock advanced 13+ (7%).

A stealth inflationary cost is hitting corporate profits and consumer wallets

Stellantis (STLA) won't sell electrified vehicles such as hybrids & all-electric models at a loss like other automakers have, CEO Carlos Tavares said.  Tavares, who has been skeptical about consumer adoption of EVs, said the company is currently making money on its electrified vehicles & will continue to do so with its next-generation vehicles, which STLA released additional details.  “Being in Europe as much as in the U.S., we are making money with the electrified vehicles,” Tavares said.  “We are making money, and it is in our discipline to make sure that whatever we sell we make money with because, if not, then the company will not be sustainable.”  Some automakers, including one of STLA's predecessors, Fiat Chrysler, have sold EVs at a loss to spur sales, meet fuel economy standards or build up capacity in hopes of eventually making the vehicles profitable.  STLA currently has 25 EV models available globally & expects to launch another 23 thru the end of this year.  The company previously announced an all-electric version of the Jeep Wrangler SUV & a Dodge muscle car.  An all-electric version of the Ram 1500 pickup is also expected to be released early next year.  Tavares said the automaker remains committed to its plans to invest €50B ($54.4B) in electrified vehicles & related technologies thru 2030, despite slower-than-expected adoption in many countries.  “There is no such thing as slowing down for the EV road map for Stellantis,” he added.  However, Tavares did say those plans could shift based on consumer demand & potential political changes that could result from elections this year in the US & Europe.  The stock was up 6¢.

Stellantis CEO says automaker won’t sell EVs at a loss like other carmakers

Gold closed higher, backed by a lower $ even as treasury yields moved higher again.  Gold for Feb closed up $7 to settle $2029 per ounce.  The price of the metal is running counter to the rise & fall of the $, touching a record 2093 on Dec 27, when the ICE dollar index dropped to a 5 month low of 100.99.  The index was last seen down 0.22 to 103.32.  Geopolitical worries are also backing the price of the metal, as tensions in the Middle East rise amid Israel's war on Hamas & attacks from Iranian-backed militant groups. Treasury yields rose, raising the carrying cost of owning gold.  The 2-year note was last seen up 6.4 basis points to 4.419%, while the yield on the 10-year note was up 2.3 basis points to 4.169%.

 

Gold Rises Again as the Dollar Weakens and Yields Widen

West Texas Intermediate (WTI) crude oil closed with a loss, with trading continuing in a tight range as weak demand & sufficient supply is balanced with geopolitical worries amid rising Middle East tensions.  WTI crude oil for Feb closed down 67¢ to settle at $73.77 per barrel, while Mar Brent crude, the global benchmark, was last seen down 41¢ to $78.69.  The price of West Texas Intermediate has mostly remained in a tight range of $70-75 since the beginning of Dec as rising Middle East tensions, though supplies in the region have not yet been threatened by the turmoil, & Russia's war on Ukraine, is countered by weak demand as developed economies slow.  The Intl Energy Agency yesterday said its forecast for 2024 demand growth to 1.2M barrels per day over 2023, down from its 2023 estimate of a 2.3M barrel per day rise, while production is expected to increase by 1.5M bpd as output from non-OPEC countries is on the rise.

WTI Crude Oil Closes Lower Despite Rising Tensions as Supply Remains Robust

Tech stocks are back in demand & thoughts about rates cuts by the Fed are bringing out buyers for stocks.  Investors view the outlook for the stock market as the best of all worlds even though there are multiple headwinds around.  Dow finished up 271 for the week. 

Dow Jones Industrials