Markets climb as Fed fears recede

Dow s 180, advancers over decliners 2-1 & NAZ gained 114.  The MLP index added 1 to the 276s & the REIT index added 1+ to 357.  Junk bond funds were little changed & Treasuries saw selling which increased yields (more below).  Oil slid below 79 & gold held steady at 2310.

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Chair Jerome Powell said it was unlikely that the central bank's next move will be a rate hike.  The comment spurred a rally for the 3 major averages, with the Dow surging more than 500 points in its session high.  Central bank policymakers kept rates steady at the conclusion of their May meeting, holding at 5.25% - 5.50%.  Powell said regardless of the upcoming presidential election this year, the central bank continues to make its interest rate decisions independently & that any way otherwise could result in negative consequences.  “It’s hard enough to get the economics right here,” Powell added.  “These are difficult things, and if we were to take on a whole other set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right.”  The pending election “just isn’t part of our thinking,” Powell continued.  “It’s not what we’re hired to do.”  Powell stressed that the move to slow the pace of reducing its balance sheet is not being done to provide accommodation to the economy or be less restrictive.  “It really is to ensure that the process of shrinking the balance sheet down to where we want to get it is a smooth one and doesn’t wind up with financial market turmoil the way it did the last time we did this, and the only other time we’ve ever done this,” he said.

Fed meeting recap: Powell pretty much rules out a hike as the central bank’s next move

Peloton (PTON) announced that CEO Barry McCarthy will be stepping down & the company will lay off 15% of its staff because it “simply had no other way to bring its spending in line with its revenue.”  McCarthy will become a strategic advisor to PTON thru the end of the year while chair Karen Boone, & director Chris Bruzzo will serve as interim co-CEOs.  Jay Hoag, another director, has been named the new chair of the board & PTON is seeking a permanent CEO.  The company also announced a broad restructuring plan that will see its global headcount cut by 15% (400 employees).  It plans to continue to close retail showrooms & make changes to its intl sales plan.  The moves are designed to realign its cost structure with the current size of its business.  It's expected to reduce annual run-rate expenses by more than $200M by the end of fiscal 2025.  “This restructuring will position PTON for sustained, positive free cash flow, while enabling the company to continue to invest in software, hardware and content innovation, improvements to its member support experience, and optimizations to marketing efforts to scale the business,” the company said.  In a letter to shareholders, the company said it is “mindful” of the timing of its debt maturities, which include convertible notes & a term loan.  It is working closely with its lenders on a “refinancing strategy.”  “Overall, our refinancing goals are to deleverage and extend maturities at a reasonable blended cost of capital,” the company added. “We are encouraged by the support and inbound interest from our existing lenders and investors and we look forward to sharing more about this topic.”  The stock dropped 46¢ (14%).

Peloton CEO Barry McCarthy to step down, company to lay off 15% of staff

Treasury yields nudged higher as investors deliberated the Federal Reserve decision to leave rates unchanged.  The yield on the 10-year Treasury was up by more than 5 basis points to 4.649% & the 2-year Treasury yield was last at 4.95%, higher by 1 basis point.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Unit labor costs increased 4.7% in the Jan-Mar period, the product of a 5% increase in hourly compensation offset by a 0.3% growth rate in productivity, the Labor Dept reported.  The forecast had been looking for a 4% increase in unit labor costs & 0.5% for productivity.  However, Fed Chair Jerome Powell indicated it was unlikely that the central bank's next policy move would push rates higher.  Policymakers would need to “see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2% over time,” in order to hike rates, he added.

10-year yield rises as investors weigh monetary policy outlook

Investors are willing to accept a slower pace of rate cuts, at least for the time being.  Tomorrow brings the jobs report & that will get a lot of attention.

Dow Jones Industrials