Dow went up 37, advancers over decliners better than 3-2 & NAZ slid back 87. The MLP index was steady in the 279s & the REIT index fell 2+ to the 386s. Junk bond funds crawled higher & Treasuries were sold, increasing yields. Oil jumped 2+ to the high 79s & gold recovered 14 to 2180 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Treasury Secretary Janet Yellen said that inflation could face a bumpy return to normal after back-to-back reports showed that price pressures within the US economy rebounded at the start of the year. Yellen pushed back against stagflation concerns & maintained that progress on inflation has not stalled. "I wouldn't expect this to be a smooth path month to month, but the trend is clearly favorable," she said. "That said, Pres Biden's top priority is addressing the issue of high costs that concerns so many Americans." Prices for everything including groceries, new cars & health insurance surged in 2021 & 2022 as the result of rampant inflation, which was caused by COVID-19 pandemic-induced disruptions in the global supply chain, an extremely tight labor market & increased consumer demand fueled in part by stimulus cash. While inflation has fallen considerably from a peak of 9.1% notched during Jun 2022, it remains above the Federal Reserve's 2% goal. And when compared with Jan 2021, shortly before the inflation crisis began, prices are up a stunning 18.49%. But progress on inflation has largely flatlined since Jun, with the consumer price index hovering at or above 3% for the past 9 months, stoking concerns over the possibility of "stagflation." Stagflation is the combination of economic stagnation & high inflation, characterized by soaring consumer prices as well as high unemployment. Stagflation fears surged in 2022 as the Fed began aggressively hiking interest rates to quell raging inflation, but those mostly dissipated last year amid signs that price pressures were subsiding without a substantial hit to economic growth. Although there have been some signs recently that inflation is proving to be stickier than expected, Yellen pushed back against those worries. "I don't think we're going to see stagflation," she said. "Most forecasters believe we're on a path where inflation will come down over time." Yellen also said she expects the cost of rental housing, which was one of the largest drivers of inflation in Jan & Feb, to fall in the coming months as tenants sign leases with lower rents. "I have every expectation that the single biggest contributor to inflation is going to be moving down over this year," she added.
Janet Yellen warns inflation decline might not be 'smooth'
The buzz around electric vehicles is wearing off. For years, the automotive industry has been in a state of EV euphoria. Automakers trotted out optimistic sales forecasts for electric models & announced ambitious targets for EV growth. Investors boosted valuations for legacy automakers & startup entrants alike, based in part on their visions for an EV future. Now the hype is dwindling & companies are again cheering consumer choice. Automakers are scaling back or delaying their electric vehicle plans. Even US EV leader Tesla (TSLA), which is estimated to have accounted for 55% of EV sales in the country in 2023, is bracing for what “may be a notably lower” rate of growth, CEO Elon Musk said in late Jan. The broad return to a more mixed offering of vehicles, with lineups of gas-powered vehicles alongside hybrids & fully-electric options, still assumes an all-electric future, eventually, but at a much slower pace of adoption than previously expected. “What we saw in ’21 and ’22 was a temporary market spike where the demand for EVs really took off,” said Marin Gjaja, chief operating officer for Ford's (F) EV unit. “It’s still growing but not nearly at the rate we thought it might have in ’21, ’22.” Ford is significantly increasing its production & sales of hybrid models, which can help ease the transition to electrified vehicles for drivers who may not be ready for fully electric models. They can also help companies meet tighter federal standards for carbon emissions. The buzz around electric vehicles is wearing off. Now the hype is dwindling & companies are again cheering consumer choice. GM, which was the first traditional automaker to go all in on EVs, plans to roll out plug-in hybrid electric vehicles for consumers alongside EVs & gas cars. Others, such as Hyundai Motor, Kia, Toyota Motor (TM) &, potentially, Volkswagen, plan to offer different levels of electrification across their lineups. “I think the balanced approach is the best way,” VW of America CEO Pablo Di Si said, adding he is in discussions to bring hybrid vehicles to the US. The automaker currently sells hybrid vehicles in Europe, but none stateside.
EV euphoria is dead. Automakers are scaling back or delaying their electric vehicle plans
Microsoft (MSFT), a Dow stock, is rolling out an unorthodox pricing model for its new security chatbot that becomes available to the public on Apr 1. As part of a swarm of generative artificial intelligence announcements last year, MSFT introduced a preview last Mar of Copilot for Security, which taps large language models to help cybersecurity professionals understand critical issues. MSFT said it will use a consumption-based model,
charging $4 per “security compute unit.” Andrew Conway, VP
of security marketing at MSFT, said the types of prompts &
summaries will vary dramatically in size, depending on the customer &
type of workload. “Customers can buy what they need, and that can easily be changed over time without friction,” Conway added. Security
is a significant business for MSFT, accounting for more than $20B in revenue in 2022, making it larger than gaming or search
advertising at the time. Gaming is now bigger with the acquisition late
last year of Activision Blizzard. MSFT has broadly been working to add generative AI from OpenAI into Windows, Dynamics
business applications & other products. Traders have been eager to
see how MSFT will be able to make money from AI after investing Bs of $s in OpenAI & AI-related data center equipment. The stock fell 18¢.
Microsoft says new AI security chatbot pricing model lets customers ‘buy what they need’
Gold closed with a gain as treasury yields rose while the $ weakened. Gold for Apr closed up $14 to settle at $2180 per ounce. The rise follows on a drop yesterday following 7 sessions that posted fresh record highs after the US reported inflation continued to run hot in Feb, raising fresh doubts the Federal Reserve will soon be ready to lower interest rates. The US consumer price index rose 3.2% annualized in Feb, up from 3.1% a month early & ahead of the forecast for a 3.1% rise. The central bank's Federal Open Market Committee (FOMC) meets next week, with no change to current rates expected. The $ weakened early, making gold more affordable for intl buyers, with the ICE dollar index last seen down 0.24 points to 102.72. However treasury yields rose, bearish for gold since it offers no interest. The 2-year note was last seen paying 4.622%, up 3.6 basis points, while the yield on the 10-year note was up 2.9 basis points to 4.189%.
Gold Steady After Record Run as Traders Await Data for Rate Cues
West Texas Intermediate (WTI) crude oil closed up 2.8% after a report showed an unexpected drop in US oil inventories. WTI crude for Apr closed up $2.16 to settle at $79.72 per barrel, while May Brent crude, the global benchmark, was last seen up $2.00 to $83.92. The rise comes after the Energy Information Administration reported US oil inventories fell by 1.5M barrels last week, under the 5.5M barrel drop reported a day earlier by the American Petroleum Institute, while the estimate by analysts called for a 1.3M rise in stocks. Gasoline inventories were also lower despite higher production of the fuel, showing solid demand. Prices have continued to be rangebound, with West Texas Intermediate swinging in a $10 range for most of this year as OPEC+'s 2.2M barrels per day of voluntary cuts are balance by rising production outside of the cartel & demand from China, the #1 importer, remains weak as growth there slows.
WTI Crude Oil Rises as a Report Shows US Inventories Unexpectedly Fell Last Week
Investors shrugged off sticky inflation data to focus on fresh economic updates ahead. Janet's comments did not bring cheer to the stock market. The popular stock indices are at or near record highs. Tomorrow the producer price index data will be reported & is likely to show more of the same, mildly higher inflation data. Policymakers are likely to stay cautious about easing up on borrowing costs when the Fed holds its monthly policy meeting next week.
Dow Jones Industrials
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