Markets rise after interest rates fall after January retail sales data

Dow rose 165, advancers over decliners better than 3-1 & NAZ fell 30.  The MLP index added 2+ to the 262s & the REIT index rebounded 6+ to the 378s.  Junk bond funds were higher along with the rise in stocks & Treasuries were purchased, lowering yields marginally.  Oil gained 1+ to the 77s & gold was up 9 to 2013.

AMJ (Alerian MLP Index tracking fund)

Americans pumped the brakes on spending in Jan after the pivotal holiday season as they continued to confront high interest rates & steeper prices for everyday goods.  Retail sales, a measure of how much consumers spent on a number of everyday goods including cars, food & gasoline, tumbled 0.8% in Jan, the Commerce Dept said.  That is lower than both the 0.1% decline projected & the revised 0.4% increase recorded in Dec.  It marks the worst month for retail sales since Mar 2023.  Excluding the more volatile measurements of gasoline & autos, sales fell 0.5% last month.  The Jan advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck.  Spending declined mostly across the board, with notable drops in sales at building materials & garden stores, miscellaneous stores, motor vehicle parts & retailers, as well as gas stations, as prices at the pump fell during the month.  Americans also pulled back their spending on online shopping, with spending at non-store retailers sliding 0.8% from the previous month.  Sales fell in 9 of 13 retail categories last month.  However, Americans continued to spend at bars & restaurants, despite the winter chill across large swaths of the country that kept many individuals at home.  A solid job market & big wage increases have helped to buoy consumer spending in recent months, despite high inflation.  However, many economists have been predicting that consumers will grow more cautious as student loan payments resume & high interest rates continue to work their way thru the economy.  Also, Americans are relying on their credit cards to cover necessities.  Credit card debt surged to a new record at the end of 2023, while delinquencies are also on the rise.

Retail sales tumble much more than expected in January

Denmark-based shipping behemoth Maersk is warning customers that the crisis in the Red Sea could continue into the 2nd ½ of the year, a top exec from the firm said.  "Unfortunately, we don’t see any change in the Red Sea happening anytime soon," Charles van der Steene, regional president for Maersk North America, said.  "We’re advising them the longer transit routes could last through Q2 and potentially Q3. Customers will need to make sure they have the longer overall transit time built into their supply chain."  Houthi terrorists based in Yemen have been attacking commercial vessels in the Red Sea since Nov in retaliation for Israel's assault on the Hamas-ruled Gaza Strip.  The attacks have caused major trade disruptions, with many companies pausing or rerouting shipments around the Cape of Good Hope, adding costs & delays.  Maersk first paused its shipping in the Red Sea & the Gulf of Aden in Dec, but briefly resumed operations in the area after the Pentagon announced the formation of an intl mission, Operation Prosperity Guardian, to counter the attacks by the Houthis.  Following an attack on another of its ships, Maersk announced in Jan it would suspend operations in the region for the "foreseeable future."  The US has launched a series of airstrikes against the Houthis in recent weeks in an effort to deter the group's actions, but the terrorist group continues to target ships in the Red Sea.

Shipping giant Maersk says Red Sea diversions could stretch into second half of 2024

Treasury yields fell after weaker-than-expected retail sales data, coming on the heels of a hotter inflation print this week, raised some concern about the strength of the consumer.  The yield on the 10-year Treasury was 6 basis points lower at 4.209% & the 2-year Treasury  yield was last down by more than 3 basis points at 4.542%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Investors assessed the Jan retail sales data, which dropped more than expected.  Retail sales tumbled 0.8% last month, more than the 0.3% decline expected.  That comes after the latest consumer price index on Tues showed prices rose by more than expected in Jan, pushing out expectations for interest rate cuts.  Federal Reserve officials have in recent weeks indicated that they are looking for more evidence of inflation easing.  However, Chicago Fed Pres Austan Goolsbee yesterday suggested that market participants should not to be too concerned about the CPI reading, saying it was still “totally clear” that inflation was easing.  He also said he would not support waiting until the 2% target range for inflation has been met to begin rate cuts.

10-year Treasury yield retreats after much weaker-than-expected retail sales

Bulls will say the sluggish sales may support some on the Fed to think about interest rate cuts while others want to see more data.  The future on changes for rates remains unclear.

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