Markets rise as investors digested a fresh inflow of quarterly earnings

Dow went up 150, decliners barely ahead of advancers & NAZ added 118.  The MLP index hardly budged in the 258s & the REIT index slid back 1 to the 373s.  Junk bond funds inched higher & Treasuries had limited buying with yields sliding a little lower.  Oil edged higher in the 75s & gold was up 5 to 2056.

AMJ (Alerian MLP Index tracking fund)

Minneapolis Federal Reserve Pres Neel Kashkari said he expects the central bank to cut rates only a few times this year, contrary to market expectations.  “Sitting here today, I would say, two or three cuts would seem to be appropriate for me right now,” he said.  “But again, I don’t want to prejudge things, but that’s, that’s my gut, based on the data we have so far.”  Markets have been pricing in an aggressive path this year for the Fed, with the first reduction happening as soon as May & 5 total qtr percentage point cuts happening before the end of the year, according to the CME Group's FedWatch measure of futures pricing.  However, multiple Fed officials have been pushing back on that narrative.  Fed Chair Jerome Powell a week ago & again on Sun all but completely took a Mar cut off the table & said he expects policymakers to move carefully as they measure the progress of inflation against broader economic growth.  “We just need to look at the actual inflation data to guide us,” Kashkari said.  “So far, the data has been resoundingly positive. I hope it continues. And then the question will simply be, at what pace do we then start to adjust rates back down?”  He added that there are “compelling arguments to suggest we could be in a longer, higher rate environment going forward.”  Kashkari is a nonvoting member this year on the rate-setting Federal Open Market Committee.  Earlier this week, he penned an essay where he suggested that the real fed funds rate when adjusted for inflation may not be as high as it looks.  In a series of hikes that ran from Mar 2022 to Jul 2023, the FOMC took its benchmark overnight borrowing rate from near zero to a target range between 5.25%-5.50%, the highest in 23 years.  However, economic data has held solid during that time.  Kashkari said the trend indicates that interest rates may not be exerting as much pressure on the economy as expected.  Labor market growth has stayed strong as consumers continue to spend.  “That’s all really good news, and that tells me maybe monetary policy is not putting as much downward pressure on demand as we would otherwise think,” he added.  “That gives us more time to access that data before we start reducing interest rates. So I think this is a good problem to have.”

Fed’s Neel Kashkari expects only two or three interest rate cuts this year

Ford (F) is rethinking its electric vehicle strategies, including “reassessing” the need for vertical integration of batteries, CEO Jim Farley said.  The Detroit automaker previously confirmed plans to delay or cut $12B in spending on all-electric vehicles, but the comments made yesterday are the most detailed about Ford's changing plans for EVs, sales of which are growing at a slower-than-expected rate.  “One of the things we’re taking advantage of in taking some timing delays is rationalizing the level and timing of our battery capacity to match demand and actually reassessing the vertical integration that we’re relying on, and betting on new chemistries and capacities,” Farley said.  He reiterated the company still believes EVs will grow, but noted widespread adoption for mass-market consumers won't happen until the costs are more in line with traditional vehicles.  EVs are typically thousands of $s more expensive than their gas-powered counterparts.  CFO John Lawler said in addition to reassessing the vertical integration in new battery chemistries, the company is further looking into adjusting installed production capacity to match demand & potentially delaying next-generation EVs to “to ensure they meet our criteria for profitability, given the new market reality.”  Its EV business, known as Model e, lost $4.7B last year, including $1.57B during the 4th qtr of 2023, offset by profits in the company's fleet & traditional internal combustion engine units.  Both businesses earned more than $7B each last year.  Lawler said that the unit will have to stand on its own “sooner rather than later.”  He also said the company is pulling a target for its EV unit that called for 8% margin by 2026.  The company had already set a target of 2M vehicles sold annually by that time.  As Ford pulls back & reevaluates the EV business, it intends to lean in on sales of hybrid vehicles, specifically trucks.  The company expects its hybrid sales to increase 40% this year.  It sold 133K hybrid vehicles in the US in 2023.  The stock gained 33¢.

Ford is reassessing its EV plans, including vertical battery integration

Treasury yields held steady as investors considered what could be ahead for monetary policy, especially when interest rates may be cut.  The yield on the 10-year Treasury was up by nearly 2 basis points to 4.11% & the 2-year Treasury  yield was last flat at 4.412%.  Yields & prices move in opposite directions & 1 basis point equals 0.1%.  Uncertainty about the outlook for monetary policy has been widespread, prompting investors to reassess the potential timetable for interest rate cuts.  That comes as comments from Federal Reserve Chair Jerome Powell suggested that rate cuts may not take place until later than many investors had been expecting.  He also indicated that central bank policymakers were looking for further evidence that the economy is easing & would be cautious when it comes to making decisions around interest rates.  Powell's comments not only led investors to believe rates may stay at their current level for longer than anticipated, but also that there may be fewer rate cuts than expected this year.  This fueled concerns about the impact of elevated rates on the economy & if they could lead to a recession in the US.  More Fed officials are due to make remarks today

Treasury yields are little changed as investors weigh monetary policy outlook

Even though the stock averages are higher, advancers versus decliners are about equal.  That is not a good sign.  Also NYCB (NYCB), a regional bank, has had its credit rating downgraded to junk by Moody's, raising fears about the banking industry.  Currently about 1/3 of earnings have been reported & they have generally exceeded expectations.

Dow Jones Industrials