Dow was off 41, advancers over decliners 4-3 & NAZ lost 31. The MLP index added 2+ to go over 280 & the REIT index crawled up 1 to the 375s. Junk bond funds drifted lower & Treasuries had modest buying, taking yields a little lower (more below). Oil rose another 1+ to the 81s & gold recovered 9 to 2338.
Dow Jones Industrials
Following the Federal Reserve's latest meeting & rate decision, the central bank's New York pres & CEO discussed when a cut may be coming and what the Nov election means for the US economy. "Our decisions are going to be data dependent. It could be really decided by what we're seeing in the economy, what we're seeing in the inflation data," Federal Reserve Bank of New York's John Williams said. "So the answer is it depends. But I think that things are moving in the right direction." Last week, the Fed held rates steady for the 7th consecutive time & suggested there will only be 1 cut made this year. In their post-meeting statement, policymakers left the door open to rate cuts but stressed they need "greater confidence" inflation is coming down before lowering borrowing costs. "I've been in the Fed nearly 30 years, and throughout that time, what I've seen my colleagues do is really focus on our job, do the best analysis we can and make the best decisions we can for the American economy," Williams said. "We just have to stay on that, ignore the politics and all that. Focus on getting our job done. That's what we need to do in order to be successful." New quarterly economic projections laid out after the meeting show that a majority of Fed officials who participated expect rates to fall to just 5.1% by the end of 2024, suggesting there will only be 1 qtr-point rate cut this year, a sharp reversal from the 3 they had predicted in Mar. Noting that inflation data & rates have had their "ups and downs," Williams also commented on how the economic environment has impacted housing affordability. "Incomes are growing. That's part of the affordability picture for people being able to buy or rent homes," the pres & CEO said. "The job, No. 1, is make sure that we get inflation back to 2%. High inflation, it's obviously painful for everybody… And I think that will help deal with the affordability and housing and the mortgage rate issues there."
Fed official promises to 'ignore the politics' in rate decisions as November election looms
Americans pumped the brakes on spending in May as they continued to face high interest rates & steeper prices for everyday goods. Retail sales, a measure of how much consumers spent on a number of everyday goods including cars, food & gasoline, rose just 0.1% in May, the Commerce Dept said. That is notably lower than the 0.3% increase forecast, although it is higher than the revised 0.2% drop recorded in Apr. Excluding the more volatile measurements of gasoline & autos, sales also climbed just 0.1% last month. The May advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck. Consumers spent money last month at car dealerships, electronics stores, health & personal care stores, clothing stores & when online shopping. The biggest increase took place at sporting goods, hobby, musical instrument & book stores, with spending rising by 2.8%. However, they pulled back their spending at furniture & home stores, building material & garden stores, grocery stores, gas stations & bars & restaurants. A solid job market & big wage increases have helped to buoy consumer spending in recent months, despite high inflation. However, many economists have been predicting that consumers will grow more cautious as student loan payments resume & high interest rates continue to work their way thru the economy. On top of that, more Americans are relying on their credit cards to cover necessities. Credit card debt surged to a new record at the beginning of 2024, while delinquencies are also on the rise.
Retail sales barely rise in May as consumers pump the brakes on spending
Treasury bond yields fell after a cool reading for May retail sales raised concerns about the strength of the economy. The 10-year Treasury yield was nearly 3 basis points lower at 4.254% & the 2-year Treasury note yield was down 4 basis points at 4.718%. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. Retail sales were up just 0.1% in May, below the 0.2% expected. There was also a downward revision to the Apr data, which now shows a 0.2% decline. Signs of a weakening consumer could spur the Federal Reserve to cut rates later this year, potentially multiple times. Last week, the Fed held its benchmark policy rate steady at 5.25% - 5.50% & indicated that just 1 rate cut would take place this year. Minneapolis Federal Reserve Pres Neel Kashkari said that it is a “reasonable prediction” that the central bank will cut interest rates once this year, waiting until Dec to do it. “We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari said. This is a short week in the US, with markets closed tomorrow for the Juneteenth holiday.
Treasury yields retreat as weak retail sales raise concerns about consumer
US stocks held near record highs, largely hitting pause in muted early trading amid the release of May's retail sales numbers. Tech-heavy NAZ also wavered as the tech-heavy index looks to build on a 6th straight record close. Investors need to weigh indications of sluggish economic growth which can give the Fed courage to cut rates. But that is hard on them when they want to see strong economic growth for higher earnings & divs. With the current forecast for only 1 rate cut from the Fed this year, investors will have to learn patience. That may be tough for some.
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