Markets rise after Powell said rate cuts likely at 'some point' this year

Dow rebounded 216, advancers over decliners 3-1 & NAZ went up 124.  The MLP index gained 3+ to the 381s as MLPs are back in favor by investors & the REIT index added 1+ to the 387s.  Junk bond funds crawled higher & Treasuries saw limited buying which lowered yields.  Oil jumped 2+ to go over 80 after Saudi Arabia raised prices to Asia & gold advanced another 10 to 2152.

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Chair Jerome Powell said that policymakers expect to cut interest rates sometime in 2024, but are not ready to do so until they are confident inflation is tamed.  In remarks prepared for testimony before the House Financial Services Commitee, Powell said Fed officials are trying to balance the risks between cutting interest rates too soon, which risks setting off inflation again, or waiting too long to cut rates, which could weigh on the economy and possibly trigger a recession.  "We believe that our policy rate is likely at its peak for this tightening cycle," he added.  "If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured."  He is on Capitol Hill for the first of 2 days of his semi-annual monetary policy testimony & is slated to appear before the Senate Banking Committee tomorrow.  Most investors expect the Fed to begin rate cuts in Jun & are betting the central bank will reduce borrowing costs 3 or 4 times over the course of the year.  While inflation has cooled considerably in recent months, it remains up 3.1% compared to the same time a year ago, according to the most recent Labor Dept data.  Hiking interest rates tends to create higher rates on consumer & business loans, which then slows the economy by forcing employers to cut back on spending.  Higher rates have helped push the average rate on 30-year mortgages above 8% for the first time in decades.  Borrowing costs for everything from home equity lines of credit, auto loans & credit cards have also spiked.  Yet the rapid rise in rates has not stopped consumers from spending or businesses from hiring.  Fed officials have said that higher interest rates are still working their way thru the economy & will eventually weigh on growth.  Until that happens, policymakers have indicated they will keep interest rates elevated.

Powell says Fed won't rush to cut interest rates until inflation is conquered

Private sector job growth improved during Feb though growth was slightly less than expected, payrolls processing firm ADP reported.  Companies added 140K positions for the month, an increase from the upwardly revised 111K in Jan but a bit below the estimate for 150K.  Job gains came across multiple areas, led by leisure & hospitality with 41K & construction, which added 28K positions.  Other industries showing solid gains included trade, transportation & utilities (24K), finance (17K) & the other services category (14K).  Of the total, 110K came from the services sector while goods producers added 30K.  Growth was concentrated among larger companies, as establishments with fewer than 50 employees contributed just 13K to the total.  Along with the job growth, annual pay increased 5.1% for those staying in their jobs, which ADP said was the smallest rise since Aug 2021, a potential indication that inflation pressures are receding.  The report comes with the labor market getting added attention for signals of whether US economic growth will stall this year after GDP posted a solid 2.5% annualized gain in 2023.  “Job gains remain solid. Pay gains are trending lower but are still above inflation,” said ADP's chief economist, Nela Richardson.  “In short, the labor market is dynamic, but doesn’t tip the scales in terms of a Fed rate decision this year.”

Private payrolls rose by 140,000 in February, less than expected, ADP reports

Nordstrom (JWN) holiday-qtr sales topped expectations, but the retailer gave a muted outlook for the year ahead.  It plans to open new Nordstrom Rack stores & drive higher online & in-store sales in the coming year.  Yet full-year revenue, including retail sales & credit cards, will range from a 2% decline to a 1% gain compared with the previous year.  That forecast includes a more than 1% hit from having one less week in the fiscal year.  It expects EPS of $1.65- $2.05 for the full year.  That would be higher than its most recent fiscal year, which saw EPS of $1.51.  JWN has felt the squeeze from consumers becoming choosier & more price-conscious while dealing with inflation & higher interest rates.  It has also struggled with company-specific problems, such as lagging sales at its off-price retailer, Nordstrom Rack, & too much of the wrong inventory, which led to higher levels of markdowns.  In the last fiscal qtr that, JWN's quarterly revenue rose about 2% from $4.3B in the year-ago period.  It attributed approximately $190M of those sales to having an extra week in the fiscal year.  EPS was 82¢ versus 74¢ a year earlier.  Excluding a charge associated with relocating the company's fulfillment center, as well as other adjustments, EPS was 96¢.  Net sales for the company’s namesake banner declined 3% in the 4th qtr compared with the year-ago period.  That includes a 4.1% lift from the extra week of the fiscal year.  The retailer plans to open 22 new Nordstrom Rack stores in 2024.  Erik Nordstrom said the chain is “a growth engine for our company” & JWN's “largest source of new customer acquisition.”  He said roughly a qtr of retained Rack customers migrate to the JWN banner within 4 years.  The stock fell 2.88 (14%).

Nordstrom shares fall 10% as retailer warns of potential sales declines in 2024

Powell's comments were well received.  Of course if there are 4 rate cuts this year that means rates will still be high (only 1% below current levels).  And Fed officials will be looking for GDP growth to slow.  In the meantime stock averages are essentially at records levels while gold is at new records from heavy demand.  Tomorrow Powell will have more to say.

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