Markets plummet while yields rise ahead of Fed meeting

Dow tumbled 570 (session low), decliners over advancers an impressive about 5-1 & NAZ sank 325.  The MLP index sank 5+ to 280 & the REIT index slid back 3+ to the 359s.  Junk bond funds continued lower & Treasuries saw more selling which increased yields.  Oil slid fractionally to 82 & gold plunged, down 51 to 2306 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Some small business owners are pointing their fingers at one big macroeconomic change that has left them feeling more pessimistic about their futures than ever.  "The rising cost of goods is out of this world at the moment. I can't afford to raise my prices any more than I already have," Stephanie Coco, owner of Steph’s Creativity Corner, said.  "Our cost of goods has increased 20 to 40% depending on which items you're purchasing, and the customers aren't really following that trend," Just Baked Bakery & Deli owner Katlyn Swaffer added.  "They're not willing to pay 20 to 40% more now than they were four years ago."  Rising everyday costs & seemingly sticky inflation have left these business owners struggling to cover costs, making it one of the "hardest" years of operation.  Their concerns were echoed by the recent Small Business Optimism Index from the National Federation of Independent Businesses (NFIB), which reported a decrease in Mar by 0.9 of a point to 88.5, which is the lowest reading since 2012 & marks the 27th consecutive month with the index below the 50-year average of 98.  ¼ of small business owners said inflation was the most important problem in operating their business due to higher input and labor costs – up 2 percentage points from Feb & 1 percentage point from 24% a year ago.  "I have a really good relationship with my customers, and I feel that if I continue to raise my prices, they're going to be looking elsewhere and going for the easy fix like Amazon, Walmart or Target," Coco added.  "I don't really feel like this economy that we're in is very favorable towards small businesses, and it's not favorable to support local either," Swaffer chimed in.  "The large grocery stores, they can sell a cake for a lot cheaper than I can sell a cake."  In line with concerns about inflation, the percentage of owners who reported that they average selling prices rose by 7 points from Feb to a net 28% on a seasonally adjusted basis.  The net percentage of small business owners who said they expect real sales to be higher decreased by 8 points from Feb to a net negative 18%.  Currently, in her 9th year as an owner-operator, Coco claimed she's had to flex her creative muscle as an artist more than ever to mitigate inflationary pressures.  "Add more personalization, offer free gift wrapping to pull in my customers to make it more enticing for them to come to me, rather than the big box stores that are getting a much bigger break," she explained.  "It's hard for small businesses because people want it instantly. And as a small business, it's just my mom and I, with my dad helping out occasionally," Swaffer added to the argument.  "And we also have a deli, so I can't pop out a cake in five hours or whatever people are wanting."

Small business owners reveal ‘out of this world’ impact to their bottom lines

Walmart (WMT), a Dow stock & Dividend Aristocrat, will close all of its health-care clinics across the country, a stunning reversal of its plans to bring its low-priced reputation to the dentist & doctor's office along with the grocery aisle.  The big-box retailer said it would also shutter its telehealth provider, which it acquired for an undisclosed amount in 2021.  It will close 51 clinic locations across Arkansas, Florida, Georgia, Illinois & Texas, plans that won't affect the company’s 4600 pharmacies & more than 3000 vision centers. The clinics will close over the next 45-90 days.  WMT blamed its plans to shutter clinics on a broken business model.  It described the move as “a difficult decision,” but said it couldn't operate a profitable business because of “the challenging reimbursement environment and escalating operating costs.”  The shortage of health-care workers in the US has also increased the company's labor costs.  The announcement comes just a month after WMT said it planned to double the size of its clinic footprint by opening up 22 new locations this year & more in 2025.  This announcement is also another sign of how challenging it is to disrupt & radically improve American health care – an expensive, complicated & entrenched system of doctors, insurers, drug manufacturers & other players that costs the nation more than $4T a year.  WMT stock fell 82¢.

Walmart to shutter health centers, virtual care service in latest failed push into health care

Meta (META) was hit by the European Commission, the exec body of the European Union, with a major investigation into its compliance with the EU's strict internet content rules.  The commission said it is investigating Meta over concerns the company hasn't done enough to ensure effective combating of disinformation ahead of upcoming European Parliament elections.  The European Parliament elections are due to take place on Jun 6-9.  The commission said it suspects META is incompliant with DSA (Digital Services Act) obligations regarding tackling deceptive advertisements, disinformation campaigns & coordinated inauthentic behavior in the EU.  The commission also said Meta may have infringed the DSA by demoting political content in the recommendation systems of Instagram & Facebook, which it said may have violated transparency requirements.  “We have a well-established process for identifying and mitigating risks on our platforms,” a META spokesperson said.  “We look forward to continuing our cooperation with the European Commission and providing them with further details of this work.”  META qualifies as a Very Large Online Platform (VLOP) under the EU’s DSA law, meaning it faces stricter controls from regulators & potentially heftier fines if it deviates from the rules in the region.  Failure to comply with the rules could lead to fines of up to 6% of the firm's global turnover &, ultimately, could lead to a temporary ban from operating in the region.  The commission said it will continue to gather evidence from META, for example by sending additional requests for information or conducting interviews and inspections.  The bloc said it can take further enforcement steps including interim measures & noncompliance decisions, if it deems such a step necessary, or accept commitments made by META to remedy issues raised in the proceedings.  The stock fell 1.16.

Meta hit with major EU probe into disinformation handling ahead of European elections

Gold traded sharply lower early with the $ & yields rising as the Federal Reserve's policy committee begins its 2-day meeting that is expected to end with interest rates unchanged.  Gold for Jun was last seen down $39 to $2318 per ounce.  The Federal Open Market Committee's 2-day meeting begins today with inflation still running above the central bank's 2% target as reports show the economy continues to run hot.  The market's focus will be on a dimming outlook for a cut to rates this year because of the still-high inflation readings.  The focus is on whether (Fed) Chair Powell makes a hawkish pivot.  The $ rose early, with the ICE dollar index last seen up 0.32 points to 105.9.  Treasury yields were also higher, bearish for gold since it offers no interest.  The 2-year note was last seen paying 5.025%, up 3.8 basis points, while the yield on the 10-year note was up 5.3 basis points to 4.671%.

Gold Falls as the Dollar, Yields Move Higher Ahead of a Fed Interest Rate Decision

West Texas Intermediate (WTI) crude oil closed lower with the $ spiking higher as the Federal Reserve's policy committee begins its 2-day meeting widely expected to end with no change to interest rates, though geopolitical worries continue to offer support.  WTI crude for Jun closed down 70¢ to settle at $81.93 per barrel, while Jun Brent crude, the global benchmark, was last seen down 54¢ to $87.86.  The drop comes as the $ moved sharply higher & the Federal Open Market Committee meets, with market watchers waiting for any clues from the Fed on timing around lower rates.  The ICE dollar index was last seen up 0.61 points to 106.19.

WTI Crude Oil Closed Lower as the Dollar Rises

The bulls were nowhere to be seen today & the Dow retreated a hefty 2K in Apr.  Stock averages are heavily overbought & it looks like news going forward will be on the gloomy side.  Weakness for small business is a worrisome sign.

Dow Jones Industrials 

Markets skid on sluggish earnings and inflation data

Dow retreated 134, decliners over advancers 5-2 & NAZ was off 59.  The MLP index dropped 3+ to the 282s & the REIT index was off 2+ to the 359s.  Junk bond funds were mixed & Treasuries saw selling which raised yields.  Oil fell 1+ to the 81s & gold sank 46 to 2311.

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Employee compensation costs jumped more than expected to start the year, providing another danger sign about persistent inflation.  The employment cost index (ECI), which measures worker salaries & benefits, gained 1.2% in the first qtr, the Labor Dept reported.  That was higher than 0.9% in the 4th qtr of 2023 & above the estimate for a 1% increase.  In the larger picture, the rise added to concerns that a string of 11 Fed interest rate hikes has not done enough to ease price pressures & likely helps keep the central bank on hold before it can start easing monetary policy.  The Fed watches the ECI as a significant measure of underlying inflation pressures.  The rate-setting FOMC begins its 2-day meeting today.  Markets have priced in virtually no chance that the FOMC will change the target for its overnight borrowing rate of 5.25%-5.50%.  After the ECI index release, traders changed their outlook on the first cut coming in Sep, moving the odds to about a coin flip, according to the CME Group's FedWatch measure of fed funds futures pricing.  The implied probability of no cuts this year also rose to about 23%, after being near zero just a month ago.  On a year-over-year basis, compensation costs for civilian workers increased 4.2%, still above a level the Fed feels is consistent with its 2% inflation goal, though down from 4.8% a year ago.   Wages & salaries rose 4.4% while benefits costs increased 3.7%.  State & local gov workers saw their compensation costs rise 4.8%, down just narrowly from the same period in 2023.  The bigger increase likely was attributable to the high level of that group belonging to unions, which saw compensation costs increase 5.3%, compared with just a 3.9% gain for nonunion workers.

Worker pay rose more than expected in Q1 in another sign of persistent inflation

Coca-Cola (KO), a Dow stock & Dividend Aristocrat, reported quarterly earnings & revenue that beat expectations as consumers drank more of its Fanta & Fairlife beverages.  The beverage giant also raised its full-year outlook for organic revenue.  For the first qtr, EPS was 74¢, up from 72¢ a year earlier.  The company also recorded a $760M non-cash impairment charge for Bodyarmor, the company fully acquired the sports drink brand in 2021 for $5.6B.  CFO John Murphy said the charge reflects revised projections & a higher discount rate since the acquisition.  Excluding that charge & other items, EPS was 72¢ per share.  Net sales rose 3% to $11.3B & organic sales, which strip out the impact of acquisitions, divestitures & foreign exchange, climbed 11% in the qtr.  Its global unit case volume increased 1%, but its North American volume was flat for the qtr.  The metric excludes pricing & foreign currency.  For the full year, KO is now expecting organic revenue growth of 8-9%, up from its recent forecast of 6-7%.  The company said it anticipates price hikes in certain markets experiencing “intense inflation,” leading in part to its new outlook.  KO reiterated its outlook for full-year comparable earnings growth of 4-5%.  In the 2nd qtr, the company expects that its comparable revenue will include a 6% currency headwind & a 5-6% hit from acquisitions, divestitures & structural changes.  Currency fluctuations are also expected to pose a 8-9% headwind to its comparable EPS.  The stock fell 21¢.

Coca-Cola tops earnings estimates, hikes revenue outlook on higher prices

Home prices rose to a new record in Feb amid an ongoing housing shortage, even as high mortgage rates pushed affordability out of reach for more Americans.  Prices increased 6.4% nationally in Feb when compared with the previous year, the S&P CoreLogic Case-Shiller index showed.  That is up from the 6% annual increase recorded the prior month & marks the fastest pace of growth since Nov 2022.  On a monthly basis, prices climbed 0.4%, according to the index.  "Home prices continue to defy expectations in the face of high mortgage rates and worsening affordability," said Lisa Sturtevant, Bright MLS chief economist.  The 10-city composite, which encompasses Los Angeles, Miami and New York, rose 8% annually, compared with an increase of 7.4% in Jan.  The 20-city composite, which also tracks housing prices in Dallas & Seattle, posted an annual gain of 7.3%, which also marks an increase from the 6.6% figure recorded the previous month.  Prices rose in 18 of the 20 major metro markets tracked by the index.  The largest price gain took place in San Diego, which recorded a year-over-year increase of 11.4%.  It was followed by Chicago & Detroit, each with an 8.9% increase.  Home prices in San Diego, Los Angeles, DC & New York all hit an all-time high in Feb.  "Following last year’s decline, U.S. home prices are at or near all-time highs," said Brian Luke, head of commodities, real & digital assets at S&P DJI.  "Since the previous peak in prices in 2022, this marks the second time home prices have pushed higher in the face of economic uncertainty."  There are a number of driving forces behind the affordability crisis.  Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates & expensive construction materials.  Higher mortgage rates over the past 3 years have also created a "golden handcuff" effect in the housing market.  Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further & leaving few options for eager would-be buyers.

Home prices surge to another record high in February

Dow began the day trading in the red & buyers are staying away.  Earnings reported later in the cycle tend to be not so favorable.  Tomorrow, Powell will give results from the FOMC meeting.

Dow Jones Industrials 

Markets rise while Treasury yields slide lower

Dow gained 147, advancers over decliners 2-1 & NAZ edged up 55.  The MLP index crawled higher to the 285s & the REIT index was up 3 to 361.  Junk bond funds had limited buying & Treasuries saw more buying which reduced yields.  Oil remained weak, down 1+ to the  82s, & gold added 2 to 2349 (more on both below). 

AMJ (Alerian MLP Index tracking fund)

American (AAL) said Boeing's (BA), a Dow stock, 787 Dreamliner delivery delays are forcing it to cut some long-haul flights in the 2nd ½ of the year & into early 2025, the latest carrier to change its schedule tied to the plane-maker's production problems.  AAL expects to receive 3 Dreamliners this year, down from 6, it said in a filing.  BA said earlier this week that parts shortages will prevent it from ramping up production of the wide-body planes.  “We’re making these adjustments now to ensure we’re able to re-accommodate customers on affected flights,” AAL added.  “We’ll be proactively reaching out to impacted customers to offer alternate travel arrangements. We remain committed to our customers and team members and mitigating the impact of these delays while continuing to offer a comprehensive global network.”  AAL will suspend some routes to Europe at the end of the summer.  The airline is further evaluating its schedule because of BA 737 Max delays.  AAL stock was up a dime & BA stock rose 6.24. 

American cuts some international flights into 2025, cites Boeing delivery delays

Some strategists are growing concerned the US economy could be headed toward a 1970s-style stagflation scenario amid recent signs of stubbornly high inflation & a cooling economy.  A string of inflation reports during the first 3 months of 2024 all came in above estimates, fueling fears that inflation could prove more difficult to conquer than previously believed.  On top of that, economic growth during the first qtr unexpectedly faltered, rising at an annualized pace of just 1.6%, the slowest rate since 2022.  "This was a worst of both worlds report: slower than expected growth, higher than expected inflation," said David Donabedian, chief investment officer of CIBC Private Wealth US, of the latest GDP data.  "The biggest setback is the acceleration in core inflation, and in particular, the services sector rising above a 5% annual rate."  That combination of economic stagnation & high inflation is what's known as "stagflation," which is regarded as a worst-case outcome for the Federal Reserve.  The phenomenon ravaged the US economy in the 1970s & early 1980s as spiking oil prices, rising unemployment & easy monetary policy pushed the consumer price index as high as 14.8% in 1980, forcing Federal Reserve policymakers to raise interest rates to nearly 20% that year.  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.  However, there have been some signs recently that inflation is proving to be stickier than expected, even as economic growth decelerates.  While inflation has fallen considerably from a peak of 9.1%, progress has largely flatlined since the summer.  The latest gov data shows the consumer price index jumped 3.5% in Mar, the highest level in 6 months.  JPMorgan Chase CEO Jamie Dimon is among the experts who have sounded the alarm recently over a possible return to the stagflation scenario seen in the 1970s.  "I think there’s a chance that can happen again," Dimon, the chief executive of America's largest bank, said last week.  "I worry it looks more like the '70s than we've seen before."  Fed Chair Jerome Powell recently lamented a "lack of further progress" this year on inflation as he cast doubt on the outlook for interest rate cuts this year.  While officials have kept the option of rate reductions on the table, they have said there is no urgency given the surprising strength of the economy & the risk of reigniting inflation.

Stagflation fears come back with a vengeance

Over time, higher costs & sluggish wage growth have left more Americans financially vulnerable, with many known as “ALICEs.”  Nearly 40M families, or 29% of the population, fall in the category of ALICE, Asset Limited, Income Constrained, Employed, according to United Way's United for ALICE program, which first coined the term to refer to households earning above the poverty line but less than what’s needed to get by.  That figure doesn’t include the 37.9M Americans who live in poverty, comprising 11.5% of the total population, according to data from the Census Bureau.  “ALICE is the nation’s child-care workers, home health aides and cashiers heralded during the pandemic — those working low-wage jobs, with little or no savings and one emergency from poverty,” said Stephanie Hoopes, national director at United for ALICE.  The term ALICE “essentially describes what people in the lower middle class have seen for decades, they can just cover current needs but not easily generate a surplus to cover the cost of a home or investments like stocks or bonds,” said Columbia Business School economics professor Brett House.  “It’s an acute situation for more people now than a few years ago,” House added.  Stubborn inflation has driven many households near the breaking point, but the pain of high prices has not been shared equally.  By most measures, low-income households have been hardest hit.  The lowest-paid workers spend more of their income on necessities such as food, rent & gas, which also experienced higher-than-average inflation spikes.  “The ALICE households, in particular, have borne the brunt of inflation,” said Greg McBride, chief financial analyst at Bankrate.   “Even though we’ve seen wage growth on the low- to moderate-income scale, that’s also where inflation has hit the hardest.”

29% of U.S. households have jobs but struggle to cover basic needs

Gold traded higher as the $ & yields fell ahead of this week's meeting of the Federal Reserve's policy committee.  Gold for Jun was last seen up $6 to $2353 per ounce, still down from the record close of $2413 on Apr 19.  The Federal Open Market Committee will begin its 2-day meeting tomorrow & is widely expected to leave rates unchanged. The CME Fedwatch Tool sees a 97.1% probability the central bank will keep rates unchanged, while the spotlight will be on when & if rates cuts will begin as inflation remains above the 2% target.  The $ was lower, making gold more affordable for intl buyers.  The ICE dollar index was last seen down 0.36 points to 105.58.  Treasury yields also weakened, lowering the carrying cost of owning gold.  The 2-year note was last seen paying 4.983%, down 2.1 basis points, while the yield on the 10-year note was down 4.4 basis points to 4.625%.

Gold Rises as the Dollar and Yields Drop Ahead of This Week's FOMC Meeting

West Texas Intermediate (WTI crude oil closed lower despite tight supply as investors turn cautious ahead of this week's Federal Reserve policy meeting that is expected to end with no change to interest rates while geopolitical risks are also easing.  WTI crude for Jun closed down $1.22 to settle at $82.63 per barrel, while Jun Brent crude, the global benchmark, was last seen down $1.22 to $88.28.  The Federal Open Market Committee will begin its 2-day meeting tomorrow & is widely expected to leave rates unchanged.  The CME Fedwatch Tool sees a 97.1% probability the central bank will keep rates unchanged, while the spotlight will be on when & if rates cuts will begin as inflation remains above the 2% target.  Geopolitical concerns are also easing, as reports said Hamas will attend cease-fire talks in Cairo, while Secretary of State Antony Blinken will travel to the region as he looks to convince Israel and Hamas to reach a truce agreement.

WTI Closes Lower Ahead of This Week's Fed Meeting; Geopolitical Risks Ease

Dow remained higher all day, but without conviction.  Everybody is waiting to hear from the Fed at midweek.  It's all but certain that interest rate will not be changed, but traders hope to hear guidance on what lies ahead for rate cuts.

Dow Jones Industrials 

Markets struggle ahead of the Fed meeting on Wednesday

Dow went up 70, advancers over decliners about 3-1 NAZ rose 31.  The MLP index stayed in the 284s & the REIT index added 2+ to 360.  Junk bond funds crawled higher & Treasuries saw buying which reduced yields (more below).  Oil fell 1+to the 82s (more below) & gold was even at 2347.

AMJ (Alerian MLP Index tracking fund)

Treasury yields declined as investors looked ahead to the Federal Reserve policy meeting & economic data scheduled for this week.  The yield on the 10-year Treasury fell about 5 basis points to 4.62% & the 2-year Treasury yield was last almost 3 basis points lower to 4.973%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors are awaiting the Federal Reserve's meeting, which is set to begin tomorrow & conclude with an interest rate decision & press conference about discussions on Wed.  While markets are widely expecting interest rates to remain unchanged, traders will be closely watching for policy guidance from the central bank.  At the top of investors' minds are questions around how many rate cuts will take place this year & when they might begin.  This comes as recent economic data has suggested resilience from the economy amid persistent inflationary pressures.  Several key data releases are also slated for the week ahead, including the Apr jobs report.  This covers nonfarm payrolls as well as the latest unemployment figures & will provide fresh insights into how the labor market, & wider economy, is faring amid elevated interest rates & sticky inflation.

Treasury yields fall as investors look to Fed meeting

Crude oil futures fell today as the Secretary of State made a renewed diplomatic push in the Middle East to secure a cease-fire in Gaza & head off an Israeli offensive against Rafah.  A successful cease-fire agreement would likely further ease the geopolitical risk premium factored into oil prices on fears that the war in Gaza could trigger a broader conflict in the Middle East that disrupts crude supplies.  West Texas Intermediate Jun contract: $83.16 a barrel, down 69¢ (0.8%) &YTD US oil has gained 16%.  Brent Jun contract: $88.66 a barrel, down 84¢ (0.94%) & YTD the global benchmark has risen nearly 15% to Fed meeting.  A successful cease-fire agreement would likely further ease the geopolitical risk premium factored into oil prices on fears that the war in Gaza could trigger a broader conflict in the Middle East that disrupts crude supplies.  Israel is waiting for Hamas to respond to a cease-fire proposal in which 33 hostages would be released in exchange for Palestinian prisoners.  A Hamas delegation is expected in Cairo today to discuss the cease-fire proposal.

Oil prices fall as Secretary of State Blinken pushes for Gaza cease-fire

US cloud infrastructure provider Oracle (ORCL) is boosting its generative AI capabilities as cloud competition intensifies & more companies jump into AI.  The AI boom, fueled by the launch of chatbot ChatGPT in Nov 2022, is driving an increase in demand for cloud computing services & data centers, as large amounts of data are required in AI model training & the cloud provides access to vast data sets.  ORCL has been introducing generative AI capabilities into its cloud infrastructure & applications to complement the traditional AI already embedded in them.  “The classic AI is very good in terms of detecting patterns or predicting numbers ... but you cannot use large language models to predict numbers,” Rondy Ng, exec VP of applications development at ORCL, said.  “So we combined the predictive numbering capability with the explained ability in words. So the two together become very powerful and you need both. In the past many years, the number prediction part is already very mature. As part of the product we continue to evolve that and it’s not going to stop. Generative AI is basically the talk of the town right now,” Ng added.  In Mar, ORCL announced additional generative AI features embedded across applications in finance, supply chain, human resources, sales, marketing & service.  The generative AI capabilities can perform tasks such as generating financial reports & drafting job ads, improving productivity & reducing business costs, ORCL said.  “Generative AI services [are] basically a huge advantage comparing with our competition. The competition needs to work with different companies and cloud providers for that infrastructure and those kinds of services. We actually take everything into an integrated stack, and we consume that,” Ng said.  The stock fell 1.22.

Oracle boosts its generative AI capabilities as cloud competition heats up

This is an unexciting time while traders are waiting to learn more about what Fed members have to say about the future of interest rates at midweek.

Dow Jones Industrials 

Markets rise with Big Tech NAZ stocks leading the charge

Dow gained 153, advancers over decliners about 3-1 & NAZ advanced 316.  The MLP index hovered in the 284s & the REIT index crawled up 1+ to the 358s.  Junk bond funds continued higher, along with the stock market, & Treasuries were in demand which reduced yields.  Oil crawled a little higher in the 83s & gold was up 8 to 2351, still near record highs (more on both below).

AMJ (Alerian MLP Index tracking fund)

Intel (INTC), a Dow stock, reported first-qtr earnings that beat expectations for EPS, but came up light in sales.  It also gave a weak forecast for the current qtr.  For the 2nd qtr, INTC expects EPS of 10¢ on revenue of $13B at the midpoint.  That forecast compares to analysts' expected EPS of 25¢ on $13.5B in sales.  In the first qtr, NTC reported a net loss 9¢ per share, versus a net loss of 66¢ per share, last year.  Revenue was $12.7B versus $11.7B a year ago, a 9% year-over-year increase.  CEO Pat Gelsinger said  to focus on the company's long-term potential.  “We are one of two, maybe three, companies in the world that can continue to enable next-generation chip technologies,” he said.  Its biggest business remains the chips it makes for PCs & laptops, which is reported as Client Computing sales.  Those chip sales totaled $7.5B, up 31% from a year earlier.  Earlier this month, INTC said that it would release a new AI processor for servers called Gaudi 3, intended to compete against Nvidia's (NVDA) popular graphics processing units, although it won't ship until later this year.  INTC expects more than $500M in sales from its Gaudi 3 chips in the 2nd ½ of the year.  The stock dropped 3.45 (10%).

Intel shares fall after company provides weak forecast for the current quarter

While the spring housing market has been plagued with low supply, high prices &d spiking interest rates, would-be homebuyers are focusing on new construction.  The reason is that new homes have more incentives & availability than previously owned ones.  “There’s more opportunity in new construction,” said Nicole Bachaud, a senior economist at Zillow Group.  About 693K new single-family houses were sold in Mar, up 8.3% from a year ago, according to the Census Bureau & the Dept of Housing & Urban Development.  The median sales price was $431K.  Meanwhile, sales for previously owned homes dropped by 3.7% from March 2023, the National Association of Realtors found.  Many areas in the US face a low inventory of existing homes as the mortgage rate lock-in effect, or the golden handcuff, keeps “existing owners from becoming sellers,” Bachaud explained.  With 30-year fixed-rate mortgage rates sitting above 7%, homeowners who bought at much lower rates in recent years don't like the prospect of trading in their low rate for a higher one.  Meanwhile, buyers are turning to builders, who are typically more flexible with pricing.  Homebuilders offer buyers incentives like rate buy-downs & price cuts.  Homebuilders can even pay for closing costs, experts say.  “This has been helping incentivize some potential buyers to turn to the new home sales market,” said Matthew Walsh, assistant director & economist at Moody's Analytics.  While new builds are still sold for slightly more than existing homes, the price gap has significantly narrowed since the fall.  “Prices are much closer to parity than during any point in the last three decades,” Walsh said.  Over the last 6 months, the median price for a new home is only about 4% higher than the median price of an existing house. That level is significantly lower than before the pandemic when the median price of a new home was more than 40% higher than an existing house, Walsh explained. 

New home sales inch higher despite 7% mortgage rates: ‘There’s more opportunity,’

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, reported first-qtr earnings that missed expectations as the industry came under pressure from eroding refining margins & collapsing natural gas prices.  The nation's largest oil company reported EPS of $2.06, a 28% decrease from $2.79 in the same period a year ago.  Revenue beat expectations, coming in at $83.1B, but was lower than a year ago, when the company reported $86.6B.  CEO Darren Woods said the results were in line with the company's plan, attributing the earnings miss to noncash tax & inventory adjustments.  “In fact, in some cases they outperformed,” Woods said.  “You can see that in our cash flow from operations, which exceeded consensus by about a billion dollars.”  The stock fell 3.02.

Exxon stock falls as earnings miss on lower natural gas prices and squeezed refining margins

Gold prices held gains after data showed that US inflation rose in line with expectations, but the safe-haven metal was on track for a weekly fall as some geopolitical risk premiums eased.  Spot gold was 0.3% higher at $2339 per ounce.  However, prices were poised to mark their worst week since Dec after a major escalation in the Middle East crisis was avoided.  US gold futures rose 0.4% to $2351.  US personal consumption expenditures (PCE) price index increased 0.3% last month, in line with forecasts, a development that is unlikely to change expectations that the Federal Reserve will hold off cutting interest rates until Sep.  Treasury yields slipped after the data was released, making bullion more attractive.

Gold Holds Firm After U.S. Inflation Data

Oil rose this week amid signs of a tightening physical market while traders continue to assess lingering Middle East risks.  West Texas Intermediate edged higher to settle just below $84 a barrel, concluding a weekly advance of 2% for the Jun contract.  A report earlier this week showed US crude stockpiles dropping to the lowest since Jan, while gauges such as the WTI cash roll & key timespreads are signaling supply constraints.  The roll, which reflects supply-demand balances at Cushing, Oklahoma, climbed to the highest in 2 years. Meanwhile, WTI's prompt spread, the gap between its 2 nearest contracts, has strengthened to 72¢ in backwardation, up from 55¢ last week.   Crude's gains are being restrained by US economic data showing inflation rose in Mar, reinforcing concerns of persistent price pressures.  The data followed weaker US economic growth & traders paring back expectations for the timing of a Fed rate reduction.  Crude has advanced this year, supported by supply cuts from OPEC+ & political risks in the Middle East, including heightened tensions between Israel & Iran that helped lift Brent above $90 a barrel earlier this month.  Israel is stepping up preparations for a potential all-out war with Hezbollah.  WTI for Jun rose 0.3% to settle at $83.85 a barrel & Brent for Jun settlement rose 0.6% to settle at $89.50 a barrel.

Oil Posts Weekly Advance Amid Signs of a Tightening Market

Dow advanced at the opening & then stayed near elevated levels for the rest of the session.  Interest rates remain at high levels & that should continue until Sep at the earliest.  On the earnings front while some high profile tech companies gave good reports, but many other corps had earnings which were not well received.  Next week brings the FOMC which is not expected to be cheery, along with more earnings reports & they tend to be the weaker ones.  Dow managed to report a modest advance of 253 this week.

Dow Jones Industrials 

Markets rally, led by earnings reports from famous tech stocks

Dow went up 128 although off its highs in early trading, advancers over decliners about 3-1 & NAZ advanced 328 on strong tech earnings.  The MLP index stayed in the 283s & the REIT index was up 2 to the 359s.  Junk bond funds were higher along with the rise in the stock market & Treasuries rose which reduced yields.  Oil was around even in the 83s & gold added 4 to 2347.

AMJ (Alerian MLP Index tracking fund)

An inflation measure closely watched by the Federal Reserve rose faster than expected in Mar as high prices continue to weigh on Ms of Americans.  The personal consumption expenditures index showed that consumer prices rose 0.3% from the previous month, according to the Labor Dept, in line with expectations.  On an annual basis, prices climbed 2.7%, higher than both the 2.6% forecast & the 2.5% reading recorded the previous month.  In another sign that progress on inflation is stalling, core prices, which strip out the more volatile measurements of food & energy, climbed 0.3% from the previous month & 2.8% from the previous year.  Those figures are both higher than what was seen in the previous month.  "Progress on inflation certainly appears stalled. Prices grew in March at the same relative pace as in February," said Elizabeth Renter, data analyst at NerdWallet.  "The good news is this: They didn’t further accelerate. The not great news: If you’re waiting for the Fed to cut rates, and you still haven’t pulled up a seat, get comfortable."  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously said that core data is actually a better indicator of inflation.  Both the core & headline numbers point to inflation that is still running well above the Fed's preferred 2% target.  Prices for goods climbed 0.1% over the course of Mar despite a 1.2% jump in energy costs, while services prices were up 0.4%.  That means the typical family is spending about $237K over the course of 18 years to raise a child, & that is excluding the cost of college.  Other figures included in the report showed that consumer spending rose jumped 0.8% in Mar, unchanged from the previous month, suggesting that Americans continuing to open their wallets despite steeper prices.  Many economists anticipate that spending will slow further in the coming months as consumers continue to grapple with expensive goods, high interest rates & the resumption of federal student loan payments.

Fed's favorite inflation gauge rises faster than expected in March

Microsoft (MSFT), a Dow stock, issued fiscal 3rd-qtr results that outdid expectations.  Total revenue grew 17% year over year in the qtr, which ended on Mar 31.  EPS was $2.94, up from $2.45 in the year-ago qtr.  With respect to guidance, finance chief, Amy Hood, called for $64B in revenue for the fiscal 4th quarter, below the $64.5B estimate.  Hood's forecast implies an operating margin of 42.3%, ahead of the estimate for 41.5%.  “Currently, near-term AI demand is a bit higher than our available capacity,” Hood added.  MSFT has been increasing its capital expenditures to secure Nvidia (NVDA) graphics processing units for training & running artificial intelligence models.  During the fiscal 3rd qtr, MSFT's Intelligent Cloud segment, including the Azure public cloud, Windows Server, Nuance & GitHub, generated $26.7B in revenue.  That's up 21% & more than the $26.3B estimate.  Revenue from Azure & other cloud services grew 31%, compared with 30% in the previous qtr.  Analysts had expected 28.8%, while the consensus was 28.6%.  Inside of the Azure growth, 7 percentage points were related to AI, up from 6 points of impact in the previous qtr.  MSFT provides cloud services for the ChatGPT chatbot from startup OpenAI, & companies have been increasingly adopting Azure AI services to develop their own capabilities for summarizing information & writing documents.  MSFT stock climbed 12+ to the 409s.

Microsoft cloud growth accelerates on back of AI push

Alphabet (GOOG) shot up after the company posted better-than-expected first-qtr results & greenlit its first-ever div & a $70B buyback.  The company reported revenue of $80.5B, a 15% increase from a year earlier & the fastest growth rate since early 2022, surpassing the $78.6B in sales expected.  EPS of $1.89 eclipsed the $1.51 in earnings.  GOOG announced that its board authorized a div of 20¢ per share to be paid on Jun 17 & said it intends to pay future quarterly cash divs.  In addition, the company said the board also approved the repurchase of an additional $70B in stock.  The company exceeded expectations for YouTube advertising revenue & Google Cloud revenue.  The stock jumped 15 (9%).

Alphabet soars on strong earnings, first-ever dividend, $70 billion buyback

Stock market strength fired up confidence that earnings from the high value tech stocks techs lifted the broader market out of the doldrums.  The mediocre data on inflation is getting little attention.

Dow Jones Industrials 

Markets fall on inflation and growth concerns

Dow dropped 375 (but 330 above early lows), decliners over advancers 2-1 & NAZ fell 100.  The MLP index was steady in the 284s & the REIT index fell 2+ to the 357s.  Junk bond funds remained weak & Treasuries saw more selling which interest rates higher.  Oil rose fractionally to the 83s after a late day rally & gold was up 6 to 2345 (more on both below).

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Mortgage rates climbed again this week, exacerbating the home affordability crisis that is stifling the housing market.  Freddie Mac's latest Primary Mortgage Market Survey, released Thursday, showed that the average rate on the benchmark 30-year fixed mortgage jumped to 7.17% this week from 7.1% last week. The average rate on a 30-year loan was 6.43% a year ago.  The average rate on the 15-year fixed mortgage rose to 6.44% from 6.39% last week. One year ago, the rate on the 15-year fixed note averaged 5.71%.

Mortgage rates continue upward climb to 7.17%

Comcast (CMCSA) beat first-qtr earnings expectations as broadband drove revenue even as the company & its peers have seen customer growth slow.  For the qtr that ended Mar 31, EPS was 97¢ compared with $91¢ a year earlier.  Adjusted earnings before interest, taxes, depreciation & amortization, or EBITDA, slid 0.6% to roughly $9.4B.  Revenue grew 1.2% to $30.06B compared to the same period last year.  Revenue from the domestic broadband customers segment boosted that growth as rates increased, even as CMCSA lost 65K customers during the qtr.  The slowdown in buying & selling of houses due to high interest rates has led to a decline in new home internet connections.  Cable providers have also been hit with heightened competition for home broadband from wireless companies.  Pres Mike Cavanagh said that the market is “extremely competitive,” especially for “cost-conscious customers.”  Earlier this month, COMO said it would launch NOW, a prepaid & month-to-month low-cost internet & phone plan program.  The plan is designed to provide fixed wireless options at a low cost.  Company execs do not expect an improvement in the near term, particularly with the expected end of the federal gov's Affordable Connectivity Program (ACP) which offers a $30 discount on broadband services to qualifying low-income households, in Apr.  CMCSA wireless business saw a 21% increase in customers during the quarter to 6.9M total lines.  The company lost 487K cable TV customers during the qtr as consumers continued to cut the cord in favor of streaming.  The stock fell 2.34 (6%).

Comcast beats earnings estimates even as it sheds more broadband subscribers

Treasury yields rose after the first-qtr GDP report showed slowing growth & rising consumer prices.  The benchmark 10-year Treasury yield rose 5 basis points to 4.704%, while the rate on the 2-year Treasury rose 6.3 basis points to 5%.  At their session highs, the yields on both notes hit their highest levels since Nov.  The GDP report showed growth of 1.6%, which was lower than the 2.4% expected.  Along with the downbeat growth rate for the qtr, the report showed consumer prices increased at a 3.4% pace, well above the previous qtr's 1.8% advance.  This raised concern over persistent inflation & put into question whether the Federal Reserve will be able to cut rates anytime soon, even with the economy slowing.  The Fed is due to convene for its policy meeting next week.  Markets are widely expecting interest rates to remain unchanged then, with traders pricing in the first rate cut for Sep, according to CME Group’s FedWatch Tool.  However, investors will be closely watching for any fresh clues from policymakers about when they expect rates to be cut & how many reductions they expect to take place this year.

10-year Treasury yield leaps to highest level in more than 5 months after GDP report

Front  month gold for Apr gained $5 per troy ounce to $2329 today.  The largest 1 day $ & percentage gain since Fri, Apr 19, snaps a 3 session losing streak.  Gold was off 2.9% from its 52-week high of $2398 hit last Fri & up 28.2% from its 52-week low of $1816 hit Oct 5, 2023.  All prices are calculated based on the settlement price of the current front.

Comex Gold Settles 0.2% Higher at $2329

Oil erased earlier losses to top $83 a barrel as a weaker $ boosted commodities priced in the currency.  Strengthening equities markets also supported crude futures, which spent much of the session trading in a narrow range after a closely watched measure of US inflation soured sentiment.  Oil markets are still trying to find an equilibrium price due to the lack of geopolitical headlines & data releases.  Crude remains higher this year, aided by supply curbs from OPEC+ & tensions in the Middle East, although prices have pulled back from recent highs as geopolitical risks eased.  The options skews remain in a bearish tilt toward puts, while the world's biggest oil exchange-traded fund, the US Oil Fund, posted its largest daily outflow on record.  The demand outlook also remains clouded, with a weakness showing in some refined products.  Profit margins for turning crude into diesel in Asia were near the lowest level in nearly a year.  WTI for Jun rose 76¢ to settle at $83.57 a barrel & Brent for Jun settlement rose 99¢ to settle at $89.01 a barrel.

Oil Rises as Weaker US Dollar Vies With Slower Economic Growth

Today questions were raised about the health of the US economy in the face of persistently high interest rates.  US GDP growth came in at a 1.6% annualized pace in the first qtr, falling well short of expectations of 2.5%.  This comes amid ongoing debate about the path of the Federal Reserve's interest rate campaign.  Treasury yields rose after the GDP data, with the benchmark 10-year yield surging to its highest levels of the year, around 4.71%.  These are troubling times for investors.

Dow Jones Industrials

Markets plummet as US GDP growth slows significantly in Q1

Dow tumbled 647, decliners over advancers 5-1 & NAZ gave back 265.  The MLP index lost 1+ to the 282s & the REIT index fell 3 to the 356s.  Junk bond funds were sold along with stocks & Treasuries retreated, bringing higher yields.  Oil declined almost 1 to the low 82s & gold rebounded 9 to 2047 after recent selling.

AMJ (Alerian MLP Index tracking fund)

The US economy grew at a slower pace than expected at the beginning of 2024 as consumers pulled back on spending in the face of higher inflation.  Gross domestic product (GDP), the broadest measure of goods & services produced across the economy, grew by 1.6% on an annualized basis in the 3-month period Jan-Mar, the Commerce Dept said in its first reading of the data.  That is much lower than the 2.4% increase forecast & marks a sharp slowdown from the 3.4% pace seen during the 4th qtr & is the slowest pace of growth in 2 years.  Consumer spending, which accounts for about 2/3 of GDP, moderated during the first qtr.  It rose 2.5% for the period, down from the 3.3% figure recorded the previous qtr amid signs the Federal Reserve's fight against inflation has stalled.  The report showed that an inflation gauge closely watched by the Fed rose 3.4% during the first qtr, the largest gain in a year.  Excluding food & energy, prices jumped 3.7%.  Both figures point to inflation that is still running well above the Federal Reserve's 2% target even as the economy starts to slow in the face of higher interest rates.  The economy has remained solid even as experts predicted that the Federal Reserve's aggressive interest rate hike campaign would send it spiraling into a recession.  For all of 2023, the economy expanded 3.1%, up less than 1% in the previous year.  However, there are signs that growth is finally beginning to slow in the face of tighter monetary policy.  Job growth is moderating.  The housing market, which is vulnerable to higher interest rates, is trapped in a prolonged downturn & consumer spending has shown signs of cooling off.  Many economists expect to see further cooling in coming months as higher interest rates continue to work their way thru the economy.

US economic growth falls short of expectations at start of 2024 amid inflation pickup

Meta (META) shares tumbled 13% after the company issued weak revenue guidance that overshadowed its first-qtr earnings beat.  The company reported EPS of $4.71 on $36.46B in revenue for the qtr, exceeding the $4.32 expected EPS & $36.1B in expected sales.  The stock sell-off gained pace after CEO Mark Zuckerberg discussed spending in areas such as artificial intelligence & mixed reality that are not currently profitable.  META expects 2nd-qtr revenue of $36.5-39.0B.  The midpoint of the range, $37.75B, falls short of analysts' estimate of $38.3B.  The stock sank 64 to 429.

Meta tumbles 11% on weak revenue forecast and Zuckerberg’s comments on spending

Merck (MRK), a Dow stock, first-qtr revenue & adjusted earnings topped expectations as it posted strong sales of its blockbuster cancer drug Keytruda & vaccine products.  The pharmaceutical giant also raised & narrowed its full-year revenue & adjusted earnings forecasts.  MRK expects 2024 sales to come in at $63.1-$64.3B, up from previous guidance of $62.7-64.2B.  The company expects full-year adjusted EPS of $8.53 - $8.65, up from its prior forecast of $8.44 - $8.59.  That outlook includes a 1-time charge of roughly 26¢ per share related to its acquisition of Harpoon Therapeutics in Jan.  The company develops immune-based cancer drugs.  The guidance also includes a negative impact of 30¢ per share from foreign exchange changes.  The company posted EPS of $1.87 for the first qtr.  That compares with EPS of $1.11 during the year-earlier period.  Excluding acquisition & restructuring costs, EPS was $2.07.  Both adjusted & nonadjusted profit for the period include the charge related to the Harpoon deal.  MRK raked in $15.8B in revenue for the quarter, up 9% from the same period a year ago.  Those results come as MRK shows substantial progress in preparing for Keytruda's patent expiration in 2028.  The loss of exclusive rights to the drug will likely cause sales to fall, forcing the company to draw revenue from elsewhere.  The stock rose 2.07 in a down market.

Merck beats earnings expectations, raises outlook on strong Keytruda and vaccine sales

The GDP news was very disappointing to investors.  Slower economic growth may help make the case for interest rate cuts coming a little sooner than expected.  But that is difficult to see after negative data from this report.  Dow has sunk 2000 in Apr.

Dow Jones Industrials 

Markets wobble ahead of more tech earnings

Dow was off 42, decliners over advancers 3-2 & NAZ added 16.  The MLP index inched up 1+ to the 284s & the REIT index continued even in the 359s.  Junk bond funds crawled higher & Treasuries had more selling which increased Treasury yields.  Oil slid back below 83 & gold fell 8 to 2333 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Boeing (BA), a Dow stock, reported a better-than-expected qtr but continued to burn cash as it tries to stabilize production following a near-catastrophic door blowout on a 737 Max earlier this year.  BA burned thru $3.9B in the first qtr, beating a previous company forecast & analysts' expectations for a cash burn of as much as $4.5B for the 3-month period.  “Near term, yes, we are in a tough moment,” CEO Dave Calhoun, who announced in Mar that he would step down by year-end, said.  “Lower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else. We are absolutely committed to doing everything we can to make certain our regulators, customers, employees, and the flying public are 100 percent confident in Boeing.”  Calhoun reiterated that the company's 737 Max production has dropped below 38 Max jets per month & the company said the rate would stay there for at least thru the first ½ of the year.  Deliveries have slowed sharply this qtr.  BA earlier this week told staff that it expects slower production increases & deliveries of its 787 Dreamliners because of parts shortages.  Its all-important commercial airplane unit revenue dropped 31% to $4.65B in the qtr compared with last year, with negative margins widening to 24.6% from 9.2%.  “We are using this period, as difficult as it is, to deliberately slow the system, stabilize the supply chain, fortify our factory operations and position Boeing to deliver with the predictability and quality our customers demand for the long term,” Calhoun said.  “As these efforts begin to take hold, we’re seeing early signs of more predictable, stable and efficient cycle times in our 737 factory, and expect this will continue to slowly improve.”  BA lost 56¢ per share in the first qtr, down from a 69¢ per-share loss a year earlier.  Excluding one-time items, including pension costs, the company lost $1.13 a share.  Revenue fell 8% to $16.5M, slightly ahead of estimates.  Calhoun stood by the company's goal of $10B in annual free cash flow in the 2025-2026 period, but said hitting that target would likely be delayed by about six months.  The stock was down 4.84.

Boeing reports better-than-feared quarter, says supply chain is stabilizing amid 737 Max crisis

Owning a home has long been considered the main pillar of the American dream, but the vast majority of aspiring homeowners in the US say they simply cannot afford it.  A new survey released by Bankrate found 78% of would-be homebuyers cited financial factors when asked what was holding them back from making a purchase.  The most common challenges cited by respondents were insufficient income (56%), followed by home prices being too high (47%) & the inability to afford down payments & closing costs (42%).  The findings come as a housing affordability crisis in the US continues to escalate with no end in sight.  As mortgage rates topped 7% last week for the first time this year, a separate report from Redfin found that the combination of steep mortgage rates & elevated home prices has pushed the median monthly housing payment to a new record of $2775, an 11% increase from the same time last year.  The high costs have pushed homeownership out of reach for many Americans & have left the housing market stalled for months as many would-be buyers & sellers remain on the sidelines waiting for affordability to improve.  Bankrate's latest survey found that nearly 7 in 10 Americans said they were willing to take at least one step necessary to find affordable housing.  44% of respondents said they could downsize their living space, while 34% said they would either move out of state or buy a fixer-upper.  "Owning a home is still the centerpiece of the American dream, but affordability is the main obstacle to making that a reality," said Bankrate Chief Financial Analyst Greg McBride.  "With the cumulative rise in home prices, rents and insurance costs, downsizing space may not yield a proportionate downsizing of costs."

Vast majority of aspiring homeowners say they cannot afford the American dream

Biogen (BIIB) first-qtr profit topped estimates as the company's cost-cutting efforts took hold & sales of its closely watched Alzheimer’s drug, Leqembi, came in higher than expected.  BIIB & Eisai's Leqembi became the first drug found to slow the progression of Alzheimer’s disease to win approval in the US in Jul.  The treatment’s launch has been sluggish, but uptake appeared to accelerate towards the end of the first qtr.  Leqembi brought in about $19M in sales for the qtr, up from the $10M the drug generated last year.  That blows past the $11M that had expected.  The number of patients on the therapy increased nearly 2.5 times since the end of 2023, according to BIIB.  The company added that the number of new patients who started Leqembi jumped in Mar, making up more than 20% of the cumulative patients now on the treatment.  BIOG did not provide a specific number of patients using Leqembi.  But in Feb, CEO Chris Viehbacher said that there were around 2000 patients currently on Leqembi.  BIIB & Eisai had previously aimed to treat 10K patients by Mar, but indicated in Feb that it would not meet the target.  BIIB is seeing an “awful lot of momentum” in the Leqembi rollout & expects qtr-over-qtr growth in the number of patients, but that increase may not be linear, Viehbacher said.  He noted that BIIB plans to expand its US marketing force by 30% to support Leqembi's launch.  BIIB sales were $2.29B for the qtr, down 7% from the same period a year ago.  EPS was $2.70, up from $2.67 for the same period a year ago.  Adjusting for one-time items, the company reported EPS of $3.67.  BIIB reiterated its full-year 2024 adjusted EPS forecast of $15-16.  Analysts had expected full-year EPS guidance of $15.49.  The company also reiterated its 2024 sales guidance of a low- to mid-single-digit percentage decline compared with last year.  BIIB stock shot up 8.81 (5%)

Biogen tops profit estimates as cost cuts take hold, Leqembi launch picks up

Gold prices fell for a 3rd session, partly because hedge funds reduced their holdings amid easing concerns of a major escalation of the Middle East crisis, while investors awaited key US economic data for interest-rate clues.  Spot gold fell 0.3% to $2315 per ounce, after having hit its lowest since Apr 5 in the previous session.  US gold futures fell 0.6% at $2328.  The $ regained some ground while benchmark Treasury yields also rose, making the $-priced bullion less attractive for other currency holders & as an investment option compared with debt.  Gold prices have dropped more than 3% since the start of this week.  However, strong demand from Asia, primarily China, along with the desire of central banks in emerging markets to diversify more in gold, is preventing prices from falling further.

Gold Extends Slide as Middle East Crisis Escalation Fears Ease

Oil prices fell 1% as worries over conflict in the Middle East eased & business activity in the world's largest oil consumer slowed, however, a fall in US crude oil inventories put a floor on those losses.  Brent crude futures were down 73¢ (0.8%) to $87.69 a barrel, while US West Texas Intermediate crude futures fell 84¢ (1.0%) to $82.52.  That reversed some of Brent's gains earlier in the week, buoyed by a weaker $.  It appears the fundamentals are leaning towards a little settling down in the Middle East.  US crude stockpiles fell by 6.4M barrels to 453.6M barrels last week the EIA said, compared with expectations for a 825K-barrel rise.

Oil Settles Lower as U.S. Business Activity Cools, Concerns Over Middle East Ease

Little was decided in choppy trading today.  Tech stock earnings reports shortly will get investor attention along with the GDP for Q1 & inflation data.  Dow is up 476 this week.

Dow Jones Industrials 

Markets pause as Treasury yields rise to multi month highs

Dow fell 84, decliners over advancers 2-1 & NAZ gained 56.  The MLP index was even in the 283s & the REIT index was off 1 to 359.  Junk bond funds fluctuated & Treasuries ran into more selling which raised yields (more below).  Oil slid back to 83 & gold was of 1 to 2340.

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) shares surged after CEO Elon Musk said the electric-vehicle company plans to begin production of new affordable EV models by early 2025.  His comments came during TSLA's earnings call after the company reported disappointing first-qtr numbers.  Revenue fell 9% year over year, its steepest annual decline since 2012.  The company previously expected to start production of the new EV models in the 2nd ½ of 2025.  Tesla reported 45¢ in adjusted EPS on $21.3B in revenue, falling short of the 51¢ expected & $22.1B in expected sales.  Revenue dropped from $23.3B a year before & from $25.17B in the previous qtr.  Analysts of Bank of America said that TSLA's first-qtr results & leadership's commentary “addressed key concerns” & “revitalized the growth narrative,” prompting them to upgrade the stock from neutral to buy while maintaining their $220 price target.  They also expressed bullish optimism that TSLA demonstrated a positive business outlook as it prepares to launch new vehicle models & license its driver assistance system.  “In the near-term the tide in news flow appears to suggest the risk to the stock is skewing more positively,” the analysts wrote.  UBS analysts reiterated their neutral rating of TSLA stock & lowered their price target to $147 from $160, saying they remain skeptical of the company's talk.  “Increasingly, TSLA is a play on autonomy, and while progress is being made, we are cautious on near-term viability,” they wrote.  “We see limited growth for current lineup and lack of clarity on what these ‘new vehicles’ could bring.”  The stock jumped 17+ (12%).

Tesla surges after Elon Musk says new affordable EV models coming

Mortgage rates rose for the 3rd straight week last week, hitting the highest level since Nov.  As a result, mortgage application demand dropped 2.7% compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) increased to 7.24% from 7.13%, with points increasing to 0.66 from 0.65 (including the origination fee) for loans with a 20% down payment.  Applications to refinance a home loan, which are most sensitive to weekly moves in interest rates, fell 6% for the week & were 3% higher than the same week 1 year ago.  Applications for a mortgage to purchase a home fell 1% for the week & were 15% lower than the same week one year ago.  As home prices rise along with interest rates, potential buyers' purchasing power are suffering a double whammy.  “Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply,” said Joel Kan, MBA's deputy chief economist.  As often happens when affordability takes a hit, the adjustable-rate mortgage share of applications rose last week to 7.6%.  ARMs offer lower rates & can be fixed for up to 10 years, although they are considered riskier.

Mortgage demand drops as interest rates soar over 7%

Treasury yields rose as investors considered the latest economic data & weighed the state of the economy.  The 10-year Treasury yield was last up by 6.6 basis points to 4.664% & the 2-year Treasury yield was last more than four4 basis points higher to 4.946%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors weighed economic data as uncertainty about the state of the economy and how this could affect Federal Reserve monetary policy decisions continued.  The S&P Global Flash manufacturing PMI for the US. came in at a 4-month low of 49.9 for Apr.  Readings below 50 indicate that the sector is contracting.  The data therefore suggested to investors that the economy may be easing slightly.  More economic data is due as the week continues, including durable goods orders tomorrow, ahead of a first-qtr domestic product reading on Thurs & the personal consumption expenditures price index on Fri.  The forecast expects the economy grew at a 2.4% annualized pace in the first qtr, while consensus street estimate forecast for the PCE inflation rate was 2.6% in Mar.  Expectations for when interest rates will be cut by the Fed have moved backward in recent weeks & questions have emerged about whether there could be fewer cuts than anticipated this year.

Treasury yields rise as investors weigh economic outlook

TSLA's announcement about new cars next year brought excitement.  But that didn't affect the rest of the stock market.  More earnings are coming & next week the FOMC meets although little joy is expected as high interest rates are expected to last for some time. 

Dow Jones Industrials 

Markets march higher as tensions in the Mid-East lessen

Dow advanced 263, advancers over decliners almost 5-1 & NAZ was up 245.  The MLP index added 1+ to the 283s & the REIT index went up 3+ to 360.  Junk bond funds remained higher & Treasuries continued to be purchased, taking yields a little lower.  Oil gained 1+ to the 83s & gold was off 10 to 2335 (more on both below).

AMJ (Alerian MLP Index tracking fund)

PepsiCo (PEP), a Dividend Aristocrat, quarterly earnings & revenue that beat expectations, despite weaker US demand caused by Quaker Oats recalls & backlash to higher prices for its drinks & snacks.  First-qtr EPS rose to $1.48, up from $1.40 per share a year earlier.  Excluding items, EPS was $1.61.  Net sales rose 2.3% to $18.2B. Organic revenue, which excludes acquisitions, divestitures & foreign exchange, increased 2.7% in the qtr.  But volume is still under pressure.  PEP, along with many of its rivals, has seen its volume fall in response to higher prices for its Gatorade, Fritos & other products in its portfolio.  Chinese consumers are cautious & saving more money, but they're still buying more of its products, according to CEO Ramon Laguarta.  Even in Europe, which has also struggled with higher grocery prices, beverage volume increased 7% & snack volume rose 2%.  PEP also reiterated its 2024 outlook.  For the full year, the company is expecting organic revenue will rise at least 4% & core constant currency EPS will climb at least 8%.  “As we look ahead, we continue to expect a normalization and moderation in category growth rates versus the last few years,” PEP execs said.  “We also continue to expect that consumers will remain watchful with their budgets and choiceful with their purchases.”  The stock fell 5.13.

PepsiCo earnings beat but recalls, weak lower-income consumer hurt U.S. sales

Kimberly-Clark (KMB), a Dividend Aristocrat, posted first-qtr 2024 results, with the bottom line increasing year over year & surpassing the estimate.  The top line also surpassed the consensus mark but declined year over year.  Taking into account a solid start to fiscal 2024, management raised its annual guidance.  Adjusted EPS was $2.01, surpassing the forecast of $1.61.  The bottom line increased 20% year over year, courtesy of higher adjusted operating profit.  Reduced net interest, effective tax rate as well as increased equity income were upsides.  Total sales totaled $5.149M, surpassing the estimate of $5,075M.  The metric inched down 1% compared with the year-ago period's figure. Unfavorable foreign currency rates affected sales by nearly 5% & the divestiture of its tissue & K-C Professional business in Brazil dented sales by about 1%.  Organic sales increased 6% on the back of a 4% rise in price stemming from pricing actions undertaken to tackle increased local costs in hyperinflationary economies, especially across Argentina.  Product mix & volume were favorable by 1% each, with strength across North America, Developing and& Emerging (D&E) markets, & Developed Markets.  Management anticipates organic net sales to increase in mid-single-digit percentage compared with the earlier view of low-to-mid single-digit growth.  Reported net sales growth is likely to reflect an unfavorable currency impact to the tune of nearly 400 bps & a 120-bps headwind from divestitures.  The adjusted operating profit is projected to grow at a low-teens percentage rate at a constant-currency (cc) basis in 2024.  Earlier, the company had projected the metric to grow at a high single-digit to low double-digit rate on a cc basis.  Adjusted EPS is now anticipated to grow at a low-teens percentage rate at cc compared with the previous expectation of a high single-digit growth.  The stock rose 7.07.

Kimberly-Clark (KMB) Tops Q1 Earnings Estimates, Ups FY24 View

JetBlue (JBLU) lowered its 2024 revenue forecast, a setback as it tries to return to profitability.  The carrier said 2nd-qtr revenue would likely drop as much as 10.5% on the year, more than double the decline analysts expected.  JBLU forecast full-year sales would drop in the low single digits, also below expectations, after estimating flat sales for the year in its Jan report.  It has been on a cost-cutting spree, culling unprofitable routes, & focusing on those with steady demand & high sales for premium seats. The carrier last month called off its merger agreement with budget carrier Spirit Airlines (SAVE) after a judge blocked that $3.8B deal on antitrust grounds.  Today's outlook update shows a growing divide between JBLU & its larger rivals that have big intl networks which have forecast profits, strong revenue & record demand this summer.  “As we look to the full year, significant elevated capacity in our Latin [America] region, which represents a large portion of JBLU's network, will likely continue to pressure revenue and we expect a setback in our expectations for the full year,” Joanna Geraghty, who became CEO in Feb, said.  “We have full confidence that continuing to take action on our refocused standalone strategy is the right path forward to ultimately return to profitability again.”  Geraghty said the airline expects lower capacity next year.  In the first 3 months of 2024 JBLU lost $2.11 per share, compared with a loss of 58¢ a share, in the same period of 2023.  Adjusting for one-time items, including break-up charges related to the failed SAVE merger, JBLU lost 43¢, narrower than the 52¢ adjusted loss expected.  Revenue dropped 5.1% from last year to $2.2B, matching revenue expectations.   “As we look to the full year, significant elevated capacity in our Latin [America] region, which represents a large portion of JetBlue’s network, will likely continue to pressure revenue and we expect a setback in our expectations for the full year,” Joanna Geraghty said.  “We have full confidence that continuing to take action on our refocused standalone strategy is the right path forward to ultimately return to profitability again.”  JBLU stock fell 1.41.

JetBlue shares tumble 15% after airline lowers 2024 revenue outlook

Gold prices steadied after hitting a more than 2-week low on diminishing fears about an escalation of tensions in the Middle East, with investors awaiting key economic data for further clarity on the timeline on US interest rate cuts.  Spot gold was little changed at $2327 per ounce after earlier hitting its lowest since Apr 5.  Bullion's Mar to Apr rally drove it up by nearly $400 to an all-time high of $2431 on Apr 12.  Gold futures settled 0.2% lower at $2342.  Israeli strikes intensified across Gaza in some of the heaviest shelling in weeks, but with fears of a wider conflict receding after Iran said last week it had no plan to retaliate following an apparent Israeli drone attack, financial markets showed signs of sharper appetite for risk.  That has meant gold, traditionally seen as a haven from risk, has lost ground.

Gold Holds Steady as Focus Turns to U.S. Economic Data

Oil futures finished higher as traders continued to monitor developments in the Middle East & weighed the potential that tensions in the oil-rich region could lead to disruptions in the world's crude supplies.  West Texas Intermediate crude for Jun climbed by $1.46 (1.8%) to settle at $83.36 a barrel.  Jun Brent, the global benchmark, added $1.42 (1.6%) to $88.42 a barrel.  Brent & WTI both settled at their highest in a week.  The conflict in the Middle East has undoubtedly exacerbated tensions in an already volatile region.  While the recent attacks have been downplayed, the potential for further escalation cannot be entirely dismissed.  However, there's a lesson to be gleaned from this situation, particularly in how swiftly demand responded to higher oil & gasoline prices, as evidenced by the increase in US oil stockpiles.

Oil prices finish higher as traders weigh potential for disruptions to Middle East supplies

Fighting in the Mid-East has settled, at least to some degree.  Obviously the future remains uncertain which has ended gold's rally while stimulating interest in risky investments (stocks).  More earnings are coming, especially from the big name tech companies.

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