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
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