Wednesday, April 17, 2024

Markets hesitate on interest rate worries

Dow slid 23, advancers over decliners about 2-1 & NAZ was off 24.  The MLP index added 1+ to 273 & the REIT index fell another 2 to the 352s on rising interest rates.  Junk bond funds crawled higher & Treasuries saw more selling which raised rates (more below).  Oil was fractionally lower to the 84s & gold was steady at 2408 (still in record territory).

AMJ (Alerian MLP Index tracking fund)

United Airlines (UAL) forecast 2nd-qtr earnings well ahead estimates despite ongoing delivery delays from Boeing (BA), a Dow stock.  The airline expects to post EPS of $3.75 - $4.25 in the 2nd qtr, ahead of estimates for about $3.76.  Airlines make the bulk of their profits in the 2nd & 3rd qtrs, during peak travel season.  The carrier also reiterated its full-year EPS forecast of $9 - $11 a share.   It also lowered its annual capital expenditure estimate to $6.5B from about $9B.  UAL is also facing a Federal Aviation Administration safety review, which has prevented some of its planned growth.  A spokeswoman said earlier this month that the carrier will have to postpone its planned service from Newark, New Jersey, to Faro, Portugal, & service between Tokyo & Cebu, Philippines.  The airline said it would have reported a profit for the qtr if not for a $200M hit from the temporary grounding of the Boeing 737 Max 9 in Jan.  The airline posted a net loss of $124M (38¢ a share) in the first qtr compared with a $194M loss, or 59¢ a year earlier.  Revenue rose nearly 10% in the first qtr compared with the year-earlier period to $12.5B, with capacity up more than 9% on the year.  UAL cut its aircraft-delivery expectations for the year.  It expects it will receive just 61 new narrow-body planes this year, down from 101 it said it had anticipated at the beginning of the year & contracts for as many as 183 planes in 2024.  “We’ve adjusted our fleet plan to better reflect the reality of what the manufacturers are able to deliver,” CEO Scott Kirby said.  “And, we’ll use those planes to capitalize on an opportunity that only United has: profitably grow our mid-continent hubs and expand our highly profitable international network from our best in the industry coastal hubs.”  The stock jumped 4.98 (12%).

United Airlines jumps more than 10% on strong earnings forecast, cuts 2024 fleet plan on Boeing delays

US job growth has repeatedly blown past expectations since the start of the new year, but there has been a consistent factor underpinning those surprisingly strong figures.  The most recent data from the Labor Dept shows that employers added 303K jobs in Mar, easily topping the 200K gain forecast.  The unemployment rate inched lower to 3.8%, from 3.9% in Feb.  But digging deeper into the report reveals that the American gov has been a major contributor of jobs since the beginning of the year, something that economists say is belying a strong labor market.  Public sector jobs at the federal, state & local level rose by 194K during the first 3 months of 2024.  That accounts for about ¼ of all jobs created in Jan, Feb & Mar.  By comparison, during that same time period in 2019 before the pandemic began, gov hiring represented just 11% of all jobs created.  State & local govs are hiring teachers & police officers, while the federal gov is onboarding TSA agents amid a post-pandemic surge in travel.  The gov experienced a severe drop in employment during the pandemic, when state & local govs, anticipating budget shortfalls, furloughed & laid off thousands of employees.  Many workers also left their jobs for more competitive pay in the private sector, leaving the gov to grapple with a labor shortage.  While the private sector job growth slowed sharply from 4.3% in 2022 to 2.3% in 2023, the gov has seen a much more rapid pace of hiring.  Public sector job growth jumped from a modest 1% in 2022 to 2.7% in 2023, the highest year-over-year growth rate since 1990, according to Fitch Ratings.  That divergence suggests hiring is slowing down in the private sector, which includes jobs like manufacturing, research & development & construction, while it speeds up within the gov.  The trend is likely to continue in 2024.

Government hiring spree propping up the US job market

Treasury yields held steady on Wed as investors digested comments from Federal Reserve policymakers about the state of the economy & monetary policy outlook.  The yield on the 10-year Treasury rose less than 1 basis point to 4.659% & the 2-year Treasury was last at 4.968% after advancing by less than 1 basis point, trading just below the 5% mark it briefly crossed on yesterday.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Investors considered the path ahead for interest rates after comments from Federal Reserve officials, including Chair Jerome Powell.  Yesterday, he said there has been a “lack of further progress” on inflation so far this year.  Recent economic data has also shown growth & strength in the labor market, he added.  The Fed has repeatedly said that it is looking for data to show that inflation is easing sustainably & the overall economy is cooling before starting to cut interest rates.  But Powell yesterday indicated that policymakers had not yet reached this point.  “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he added.  Earlier in the week, San Francisco Federal Reserve Bank Pres Mary Daly said there was “no urgency” for rate cuts to begin.  The comments fueled questions about whether there may be fewer rate cuts than expected this year & whether they may begin later than anticipated.

Treasury yields little changed as investors digest remarks from Fed officials

Dow began trading by advancing 200, then the bulls went home.  Worries over heightened tensions in the Middle East & uncertainty over the timing & depth of rate cuts are nagging thoughts for investors to cope with.  Questions about jobs growth (see above) aren't helping matters.  In Apr, Dow is already down more than 2K & the outlook appears to be gloomy.

Dow Jones Industrials 

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