Markets tumble as rate cuts may take longer than originally expected

Dow plummeted 605 to session lows, decliners over advancers 6-1 & NAZ slumped 65.  The MLP index gave back 3+ to the 273s & the REIT index sank 8 to the 365s.  Junk bond funds dropped along with the stock market & Treasuries were sold, bringing higher yields.  Oil was fractionally lower, going below 77, & gold dropped a very big 57 to 2335 (more on both below).

Dow Jones Industrials 

Nvidia (NVDA) shares jumped after the company reported earnings that topped estimates & showed that there's still ferocious demand for its artificial intelligence chips.  The company's data center revenue grew by a whopping 427% during the qtr.  First-qtr revenue came in higher than expected at $26.04B compared with the estimate of $24.65B & the demand isn't wavering.  The company issued strong guidance, saying it expects $28B in revenue for the current qtr, beating the estimate of $26.6B.  Shares passed $1000 for the first time, reaching an all-time high of $1051 during intraday trading, and are up about 111% this year.  Its previous high of $953 was set on May 21.  NVDA posted net income of $14.88B ($5.98 per share), a dramatic pop from the $2.04B (82¢ per share), it reported in the year-ago qtr.  NVDA announced a 10-for-1 stock split, with shares set to begin trading on a split-adjusted basis at market open on Jun 10.  The stock finished up an impressive 87.15 (9%).

Nvidia shares pop 10% to record high on unwavering demand for its AI chips

Sales of newly built homes dropped 4.7% in Apr compared with Mar & fell a larger 7.7% from the prior year, the Census Bureau said.  Mar sales were also revised significantly lower.  Higher mortgage rates are clearly hampering sales.  The monthly reading is based on signed contracts, so it reflects people shopping during the month & inking deals based on current rates.  The average rate on the 30-year fixed mortgage was in the high 6% range at the end of Mar, but then shot up to 7.5% during Apr, cutting into affordability.  Adding to that, the median price of a new home sold in Apr was $433K, 4% higher than it was in Apr 2023.  Some of that is due to the mix of homes selling, which is mostly on the higher end of the market.  Those buyers are not as influenced by mortgage rates, as they often use all cash.  Builders say they cannot lower prices due to high costs for land, labor & materials. The big production builders have been buying down mortgage rates to help boost sales, but they are able to do that because of their size.  In the first qtr of 2024, 38% of a median household income nationally was needed to make the mortgage payment on a median-priced new single-family home, according to a new index launched today by the National Association of Home Builders (NAHB) & Wells Fargo.  Low-income families, which it defines as those earning just 50% of the area's median income, would have to spend 77% of their earnings to pay for the same new home.  Prices continue to rise for both new & existing homes due to a lack of supply.  There is very little available for sale on the lower end of the resale market.  While the number of newly built homes continues to rise, up 12% year over year, new homes come at a price premium & are out of range for lower-income buyers.  “With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges,” said Robert Dietz, NAHB's chief economist.  “Policymakers at all levels of government need to enact policy changes that will allow builders to construct more homes, such as speeding up permit approval times, providing resources for skilled labor training and fixing building material supply chains.”

Sales of newly built homes tank in April, as prices and interest rates rise

Boeing (BA), a Dow stock, will burn thru cash this year & deliveries of new planes won't improve in the 2nd qtr from the first, as the manufacturer deals with a host of production challenges tied to its bestselling planes, CFO Brian West said.  A month ago, West forecast BA would generate free cash flow “in the low single-digit billions.”  The new forecast shows the mounting costs of the plane maker's latest crises.  BA burned thru nearly $4B in cash in the first qtr & West said that figure could be similar or “possibly a little worse” in the 2nd qtr, but that the company would likely return to generating cash in the 2nd ½ of 2024.  Aircraft deliveries in the first qtr fell to the lowest level since the pandemic.  The bulk of a plane's price is paid when it's handed over to a customer.  “We have frustrated and disappointed our customers because of some of the production supply chain issues that we’re up against,” West said.  “And while I understand that frustration, the most important thing we can do for our customers and the supply chain in the industry is to focus on the actions that are underway as we speak so that we could stabilize this production system, improve quality, and get more predictable.”  CEO Dave Calhoun in Mar said he would step down by the end of the year, & the company replaced the chair & chief exec of its commercial airplane unit.  Leading up to the shake-up, CEOs of major airline customers complained about delivery delays & difficulty planning flights because of surprise disruptions.  Its latest production issues surfaced after a door plug blew out midair from a nearly new 737 Max 9 at the start of the year, just as the company was trying to repair years of reputational damage from 2 fatal Max crashes in 2018 & 2019.  The accident increased federal scrutiny of the company, whose execs have vowed to stamp out production flaws & regain the trust of regulators, airline customers & the public.  Next Thurs, BA leaders are set to meet with the Federal Aviation Administration to present the company's plan to improve its quality control.  The agency gave BA 90 days to complete the plan starting in late Feb.  Other problems have also sprung up, including a pause on deliveries of 737 Max planes to China to review batteries for the cockpit voice recorder.  BA said that it is working with “our Chinese customers on the timing of their deliveries as the Civil Aviation Administration of China completes its review of batteries contained within the 25-hour cockpit voice recorder assembly unit.”  The stock tumbled 14.50 (8%).

Boeing expects a 2024 cash burn, slow recovery of airplane deliveries amid crisis, CFO says

Gold fell to more than a week's low, extending its decline for a 3rd straight session, as investors grew apprehensive over US rate cut timings & on strength in US business activity.  Spot gold fell 1.8% to $2336 per ounce, its lowest since May 13.  US gold futures settled 2.3% lower to $2337 per ounce.  The non-yielding bullion hit a record high of $2449 on Mon & is up 14% YTD.  Making gold less attractive, the $ cut its losses for the day on US business activity accelerating to the highest level in over 2 years in May, suggesting that economic growth picked up halfway thru the 2nd qtr.  Advancing $ & a weakening US rate cut outlook have catalyzed a round of profit-taking in gold, but the downside may be limited.  While the policy response for now would involve maintaining interest rates at current levels, the latest Fed minutes reflected discussions of possible hikes.

Gold Slips to Over One-Week Low on Hawkish Fed, US Data

West Texas Intermediate (WTI) crude oil closed lower for a 4th-straight session on mild demand, rising inventories & fading hopes for a near-term cut to US interest rates.  WTI crude for Jul closed down 70¢ to settle at $76.87 per barrel, while Jul Brent crude, the global benchmark, was last seen down 87¢ to $81.03.  Oil has mostly traded within a tight range since the beginning of May as demand remains moderate ahead of the start of the US driving season on the Memorial Day weekend.  The Energy Information Administration yesterday reported an unexpected rise in US oil inventories, showing supply is more than meeting the call.  Commercial crude inventories rose 1.8M barrels last week (vs the 2.0-2.5M barrels 5year average), much worse compared to last year's strong crude draw of -12.5M barrels with stocks now tracking +1% above year-ago levels.  The bearish report may convince OPEC+ to roll its 2.2M barrels per day of voluntary cuts slated to end on Jun 30 into the 3rd qtr when it stages its ministerial meeting on Jun 1.  Hopes for the stimulus of lower interest rates faded after the minutes of the last meeting of the Federal Reserve's policy committee showed some members remain unconvinced high interest rates have been sufficient to pull inflation back to the central bank's 2% target.

WTI Crude Oil Closes Down for a Fourth Day on Bearish Signals

Stocks had heavy selling as interest rate worries dominated investor sentiment.  Extending the market's long rally is not on the minds of investors.   Fed officials are open to keeping rates higher for longer this year if inflation doesn't cool as projected.  On Mon Dow was well above 40k.  Now that seems a distant memory after it has fallen about 1000 in just 4 days!!