Markets remain higher after the Fed signals 1 rate cut in 2024

Dow finished down 35 (off sharply off highs at the opening), advancers over decliners about 5-2 & NAZ rose 2940.  The MLP index was fractionally higher above 280 & the REIT index went up 2+ to the 374s on lower interest rates.  Junk bond funds, along with bonds, were popular with investors & Treasuries saw heavy buying which sharply reduced yields.  Oil rose higher in the 78s & gold gained 13 to 2340 (more on both below).

Dow Jones Industrials 

The Federal Reserve kept its key interest rate unchanged and signaled that just 1 cut is expected before the end of the year.  With markets hoping for a more accommodative central bank, Federal Open Market Committee policymakers following their 2-day meeting took 2 rate reductions off the table from the 3 indicated in Mar.  The committee also signaled that it believes the long-run interest rate is higher than previously indicated.  New forecasts released after this week's meeting indicated only slight optimism that inflation remains on track to head back to the Fed's 2% goal, allowing for some policy loosening later this year.  “Inflation has eased over the past year but remains elevated,” the post-meeting statement said, echoing language from the last statement.  In the only substantive change, the new statement followed with, “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.”  The previous language said there had been “a lack of further progress” on inflation.  The committee, in its closely watched “dot plot” of individual participants' rate expectations, did indicate a more aggressive cutting path in 2025, with 4 reductions totaling a full percentage point anticipated, up from 3.  For the period thru 2025, the committee now sees 5 total cuts equaling 1.25 percentage points, down from 6 in Mar.  If the projections hold, it would leave the federal funds rate benchmark at 5.1% by the end of next year, higher by 0.2 percentage point than the Mar outlook.  Another significant development occurred with the projection for the long-run rate of interest, essentially a level that neither boosts nor restricts growth.  That moved up to 2.8% from 2.6%, a nod that the higher-for-longer narrative is gaining traction among Fed officials.  In a further indication of a hawkish bent from central bankers, the dot plot showed 4 officials in favor of no cuts this year, up from 2 previously.  Elsewhere in the FOMC's Summary of Economic Projections, participants raised their 2024 outlook on inflation to 2.6%, or 2.8% when excluding food & energy.  Both inflation projections were 0.2 percentage point higher than in Mar.  The Fed's preferred inflation gauge is the Commerce Dept's personal consumption expenditures price index, which showed respective readings of 2.7% & 2.8% for Apr.  The Fed focuses more on core inflation as a better long-term indicator.  The SEP indicates inflation returning to the 2% target, but not until 2026.

Fed holds rates steady, indicates only one cut coming this year

Oracle (ORCL) shares jumped after the software company announced its 4th-qtr results & cloud deals with Microsoft (MSFT), a Dow stock,-backed OpenAI & Google (GOOG).  The company reported $14.3B in revenue for the qtr, up 3% year over year & shy of the $14.6B expected.  Adjusted EPS came in at $1.63, while analysts expected $1.65.  ORCL also reported $98B of remaining performance obligations (RP), in the 4th qtr, which is a figure that represents the revenue that the company expects to receive from contracts in future qtrs.  CEO Safra Catz said the company signed large sales contracts over the 3rd & 4th qtrs primarily driven by demand to use ORCL's cloud to train artificial intelligence models.  Alongside its results, ORCL said it is partnering with MSFT OpenAI to help supply additional computing capacity for the startup.  ORCL also announced it is bringing its database to Google Cloud.  ORCL stock jumped 16+ (13%).

Oracle stock pops 10% on AI demand, new deals with Google and OpenAI

Since spearheading a merger to create Stellantis (STLA) in 2021, CEO Carlos Tavares has been on a cost-cutting mission.  That's beginning to pay divs for the company & investors.  How the trans-Atlantic automaker expects to keep that momentum amid uncertainty surrounding all-electric vehicles & increasing competition from Chinese automakers is expected to be in focus this week as Tavares leads the automaker's investor day tomorrow.  Tavares & other execs are expected to address Chinese competition, capital discipline, forthcoming products, software initiatives, & potentially, further cost reductions as the company aims to achieve ambitious financial targets by 2030.  When Tavares' PSA Groupe merged with Fiat Chrysler in Jan 2021, the freshly combined company set out to reduce spending by €5Bs ($5.4B) annually.  It's a target the company says it will achieve in 2024, a year ahead of schedule.  “We are not in the race to transition to EVs, but in a race to cut cost on EVs,” Tavares said in late May.  The cuts are part of STLA's strategic plan to increase profits & double revenue to €300B by 2030.  The plan also includes targets such as achieving adjusted operating profit of more than 12% & industrial free cash flow of more than €20B.  STLA stock went up 24¢.

At Stellantis investor day, cost cuts and China come into focus

Gold pared back gains after the Federal Reserve held interest rates steady of 5.25% - 5.50%.  Spot gold was up 0.5% to $2327 per ounce following the decision, while US gold futures rose 0.8%.  This comes after both were slightly higher earlier today after May's consumer price index reading.  The headline consumer price index was flat on a month-on-month basis in May, below expectations for a 0.1% gain.  Core prices rose 0.2%, also below projections for a 0.3% increase.  In the 12 months thru May, the CPI advanced 3.3% after increasing 3.4% in Apr.  The forecast called for the CPI gaining 3.4% on a year-on-year basis in May as well.  The dollar index was down 0.9% & the benchmark US 10-year Treasury yield dropped to its weakest level since Apr 1.  Traders raised their bets to price in 50 basis points of Fed policy easing (bps), or 2 qtr-percentage cuts by the end of this year, from 40 bps before the CPI data.  Bets of a rate cut at the Fed’'s meeting in Sep rose to about 70% from around 54% prior to the data.

Gold trims gains after Fed decision to keep rates steady

West Texas Intermediate (WTI) crude oil closed higher despite a lower demand forecast from the Intl Energy Agency & rising inventories after US consumer prices rose less than expected last month.  WTI crude for Jul closed up 60¢ to settle at $78.50 per barrel, while Aug Brent crude, the global benchmark, was last seen up 72¢ to $82.64.  The Bureau of Labor Statistics said its Consumer Price Index (CPI) rose 3.3% annualized in May, down from a 3.4% pace in Apr & under expectations for a 3.4% rise.  Core CPI, which excludes volatile food & energy, was up 0.2% from Apr, down from 0.3% in the prior month & under expectations for a 0.3% rise.  The data came ahead of the conclusion of the Federal Reserve's policy committee meeting, which ended with the central bank leaving interest rates unchanged, though markets will be waiting on Fed Chair Jerome Powell's press conference for an indication on when rate cuts are likely.

WTI Crude Oil Closes Higher on Soft CPI Reading Despite Unexpected Inventory Rise

Dow began the with an significant gain on the CPI news, but saw that advance wiped out as investors digested the news.  Most of the initial advance was trimmed before the Fed issued its report in the PM (i.e. that did not affect trading).  The outlook for rate cuts remains iffy with only 1 rate cut signaled for the rest of the year.  That means present high interests will be around for the rest of the year & into 2025.  Trading finished on gloomy thinking!!