Tuesday, April 30, 2024

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 

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