Markets rise after Fed leaves rates unchanged

Dow finished jumped 87 (below session highs), advancers over decliners 5-2 & NAZ was down 52.  The MLP index fell 3+ to the 275s & the REIT index gained 1+ to the 356s.  Junk bond funds edged higher & Treasuries were purchased which reduced yields.  Oil dropped almost 3 to 79 & gold added 14 to 2317 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.  In a widely expected move, the central bank kept its benchmark short-term borrowing rate at 5.25%-5.50%.  The federal funds rate has been at that level since Jul 2023, when the Fed last hiked & took the range to its highest level in more than 2 decades.  The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank's mammoth balance sheet, in what could be viewed as an incremental easing of monetary policy.  With its decision to hold the line on rates, the committee in its post-meeting statement noted a lack of further progress in getting inflation back down to its 2% target.  “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used following the Jan & Mar meetings.  The statement also altered its characterization of its progress toward its dual mandate of stable prices & full employment.  The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.”  Previous statements said the risks “are moving into better balance.”  Beyond that the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains & “low” unemployment.

Fed keeps rates steady as it notes lack of further progress on inflation

Starbucks (SBUX) reported weaker-than-expected quarterly earnings & revenue, fueled by a surprise decline in same-store sales.  The coffee chain also slashed its forecast for its fiscal 2024 earnings & revenue, predicting that its cafes would keep underperforming for several qtrs.  “In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities or the opportunities ahead,” CEO Laxman Narasimhan said.  “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”  The company’s same-store sales fell 4% as traffic to its cafes declined 6% in the qtr.  Analysts were anticipating same-store sales growth of 1%, according to estimates.  Across all regions, SBUX reported shrinking same-store sales & falling traffic.  In the US, same-store sales decreased 3% as traffic sank 7%.  This marks the 2nd quartetr that the company's home market has struggled.  Last qtr, execes blamed sluggish sales on boycotts targeting the company due to “misperceptions” of its stance on Israel.  The intl segment reported same-store sales declines of 6% as both average ticket & transactions dropped.  In China, its 2nd-largest market, same-store sales plunged 11%, fueled by an 8% decline in average ticket.  “In this environment, many customers have been more exacting about where and how they choose to spend their money,” Narasimhan said.  Fiscal 2nd-qtr EPS fell to 68¢ down from 79¢ a year earlier.  Net sales dropped nearly 2% to $8.56B.  For fiscal 2024, SBUX now expects revenue growth in the low single digits, down from its prior forecast of 7-10%.  The company also revised its projections for global & US same-store sales growth of low single digits to flat from its previous forecast of 4-6%.  Same-store sales in China are expected to decline by single digits, down from the prior outlook of a single-digit increase.  SBUX now also expects EPS growth of flat to low single digits.  It previously forecast its earnings would climb 15-20% in fiscal 2024.  The company forecasts that sales will start improving in the fiscal 4th qtr.  Narasimhan also said that the company now expects supply-chain cost savings of $4B over the next 4 years, revising its prior forecast of $3B over 3 years.  The stock dropped 14.05 (16%).

Starbucks slashes 2024 forecast amid same-store sales drag; shares sink

The red-hot labor market cooled somewhat in Mar.  Employers had 8.5M unfilled job openings on the last day of Mar, the fewest since early 2021, according to data released by the Labor Dept.  They also filled the fewest jobs in nearly 4 years, suggesting that employers' seemingly insatiable demand for workers might finally be abating.  A slowing labor market would be welcome news for policymakers at the Federal Reserve, amid signs that inflation is proving difficult to stamp out.  Fed officials have said they see falling job openings as a sign that supply & demand are coming into better balance.  For workers, however, that rebalancing could mean a loss of the bargaining power that has brought them strong wage gains in recent years.  The number of workers voluntarily quitting their jobs fell to 3.3M, the lowest level in more than 3 years & a far cry from the more than 4M a month who were leaving their jobs at the peak in 2022.  “This continued moderation is largely positive for the market and the economy overall, and is mostly sustainable for the time being,” Nick Bunker, economic research director for the Indeed Hiring Lab, wrote.  But, he added, “if job openings continue to decline for much longer, hiring of unemployed workers will eventually retreat enough to drive unemployment up.”

Job Openings and Hiring Are at a 3-Year Ebb

Gold moved higher as the $ steadied & treasury yields were mixed ahead of the end of the Federal Reserve's 2-day policy committee meeting that is expected to leave interest rates unchanged.  Gold for Jun was last seen up $7 to $2310 per ounce, sticking above the $2300 mark following a correction after closing at a record $2413 on Apr 19.  The Federal Open Market Committee wraps up its 2-day meeting, with no change to interest rates expected.  The focus will be on the group's outlook for the timing of rate cuts, with hopes for a speedy reduction fading as inflation sticks above the central bank's 2% target while economic data continues to show the US economy is running hot. The $ edged down ahead & the ICE dollar index was last seen down 0.02 points to 106.2.  Treasury yields were lower, bullish for gold since it offers no interest.  The 2-year note was last seen paying 5.029%, down 2.1 basis points, while the yield on the 10-year note was down 3.5 basis points to 4.652%.

Gold Edges Up Ahead of a Federal Reserve Decision on Interest Rates

Oil futures fell for a 3rd straight session, settling at their lowest level since mid-Mar, after official US data revealed an unexpected weekly rise of more than 7M barrels in domestic crude inventories.  Traders also continued to monitor negotiations for a cease-fire between Israel & Hamas.  Those negotiations have, for now, eased concerns over potential disruptions to the flow of oil in the region.  West Texas Intermediate for Jun fell $2.93 (3.6%) to $79 a barrel after prices logged a monthly loss of 1.5% in Apr.  Jul Brent crude, the global benchmark, declined $2.89 (3.4%) to $83.44 a barrel, after rising 0.4% in Apr.  Front-month Brent & WTI oil settled at their lowest levels since Mar 12.  US commercial crude inventories marked their largest weekly rise since Feb, with the Energy Information Administration reporting a climb of 7.3M barrels for last week.  Analysts forecast a crude-supply decrease of 2.5M barrels.  Yesterday, the American Petroleum Institute reported a crude-inventory gain of 4.9M barrels.  Recent weakness in oil has really come due to the potential for a cease-fire between Israel & Hamas.

Oil prices ends lower as weekly U.S. crude supplies rise by over 7 million barrels

Dow began trading with a modest gain.  After the announcement, it shot up 400 & then gave back most of that in the last hour.  Gold was also in heavy demand.  Traders will assess the announcement tonight.  Fri will bring the big jobs number & more earnings are coming but they may not give much help for the bulls.

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