Dow went up 65, advancers over decliners are about even & NAZ rose 45 to a new record. The MLP index added 1+ to the 279s & the REIT index was off 1 to the 374s. Junk bond funds crawled higher & Treasuries are being sold which takes yields higher (more below). Oil climbed fractionally to the 82s & gold gained a big 30 to 2377 (nearing its recent record).
Dow Jones Industrials
Treasury bond yields rose as investors weighed fresh economic data indicating further signs of a slowing economy. The 10-year Treasury yield rose more than 7 basis points to 4.292% & the 2-year was up also around 5 basis points at 4.756%. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. Initial jobless claims data showed a rise from a week ago, while housing starts & permits fell more than expected last month. Investors also parsed a worse-than-expected reading of the Philadelphia Fed Manufacturing Index, contributing to recent signs of a slowing economy. Earlier this month, data revealed that the number of Americans filing new claims for unemployment benefits rose more than expected to 229K for last week. The forecast had predicted 220K claims for the period. Minneapolis Federal Reserve Pres Neel Kashkari on Sun said that he was surprised by the US job market's performance even as the Fed raised borrowing costs in 2022 & 2023. Kashkari added that he expects more cooling. “I hope it’s modest cooling, and then we can get back down to more of a balanced economy,” he continued.
Treasury yields inch higher as traders evaluate latest batch of economic data
The nonpartisan Congressional Budget Office (CBO) released an update to its 10-year budget outlook that found the federal budget deficit will approach $2T in the current fiscal year. The CBO's latest estimate projects the budget deficit will reach $1.9T in fiscal 2024, which would be the 3rd largest in US history & $200B larger than last year's deficit. The projected $1.9T deficit would trail only the $3.1T fiscal 2020 deficit & the $2.7T fiscal 2021 deficit that were incurred during the peak of spending on pandemic-era relief programs. In Feb, the CBO estimated that the fiscal 2024 deficit would be more than $1.5T, but it revised that figure upward by $408B, or 27%, in the latest update in response to new gov spending since its prior report. The agency explained that the increase was due to several factors, including $145B in additional student loan debt cancellation by the Biden administration; $70B due to costs associated with resolving bank failures in 2023 & 2024 that will eventually be almost entirely offset; & about $60B in funding for Ukraine, Israel & countries in the Indo-Pacific region. Annual budget deficits are expected to surge in the years ahead, surpassing the $2 trillion threshold with a projected deficit of nearly $2.2T in 2030. Deficits would continue to rise in the following years, topping $2.8T in 2033 & 2034 in the CBO's analysis. The CBO projected that the debt held by the public relative to gross domestic product (GDP), a metric used by economists to gauge the size of the national debt relative to the economy, would rise to 99% of GDP this year. That means the national debt held by the public would be essentially the same size as the US economy.
Federal budget deficit to reach nearly $2T this year, CBO projects
Federal Reserve Bank of Boston Pres & CEO Susan M. Collins says she "could imagine scenarios" that would be consistent with both one or two rate cuts this year. Overall, Collins says there is "evidence the economy is coming into better balance," & she is "optimistic" the Fed will be able to bring down inflation & maintain a healthy labor market. "It's gonna take some time" for inflation to reach the Fed's 2% target, Collins added, but "things are very volatile. You get some welcome news and then there's challenging news. So I think it's really important not to overreact to what has been encouraging." She points to recent reads on CPI & PPI, arguing they are "consistent with an economy that, in an orderly way, is becoming better aligned," but she cautions that monthly data has been "really volatile" & patience will be necessary. Collins emphasizes the importance of looking at a "wide range of data" when trying to figure out if inflation is truly on a downward path. She points to shelter inflation & some services inflation are going to be stickier than other components. Collins says there "are very plausible scenarios" that would result in the Fed lowering rates later this year. She also notes that there are risks to the Fed not lowering rates soon enough, saying it's something she is "carefully" watching for signs of. Collins says there "are very plausible scenarios" that would result in the Fed lowering rates later this year. She also notes that there are risks to the Fed not lowering rates soon enough, saying it's something she is "carefully" watching for signs of.
Fed's Collins: Can see scenarios for both 1 & 2 rate cuts in 2024
The rally looks to be very tired. AI related stocks have been largely driving excitement around AI's potential. However today, the rally is not looking impressive. The popular averages are only up modestly & the advance-decline is even, so a lot of stocks are not benefiting from the rise. And negative thinkers are keeping gold close to its record highs.
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