Markets struggle while traders shrug off threats to raise tariffs

Dow went up 123, decliners over advancers 2-1 & NAZ added 119.  The MLP index rose 2+ to the 305s & the REIT index crawled up 2+ to the 436s.  Junk bond funds continued in demand & Treasuries were sold, raising yields.  Oil slid lower in the 68s & gold recovered 11 to 2689 (more on both below).

Dow Jones Industrials 

Chicago Federal Reserve Bank Pres Austan Goolsbee said that the Fed's interest rate-cutting campaign has a ways to go before reaching a "neutral" rate & that the central bank should continue to cut to reach that rate so long as the economy does not show signs of overheating.  Goolsbee, who in Jan will become a voting member of the Federal Open Market Committee (FOMC) that makes monetary policy decisions, said that policymakers are likely to continue with rate cuts until the neutral rate is reached, but the path may slow if the economy accelerates. "Barring some sign of actual overheating of the economy, I still feel comfortable saying that if you look at the broad dot plot, rates have a fair way to go down before they get to something like neutral," Goolsbee added.  "If you've got inflation coming toward the 2% target, and you've got unemployment rising, but getting to something like sustainable full employment, you better be careful adding cold water to the bathtub if you've got the temperature about where you want," Goolsbee continued.  His remarks come after Fed Chair Jerome Powell said earlier this month that the central bank is not rushing to cut to reach the neutral rate, which he explained is "a level of interest rates that's neither pushing the economy up and supporting it or dragging it down, which could be tighter, restrictive policy."  Powell added that while there is not a "theoretical or empirical way" to confidently estimate the neutral rate, it "argues for moving carefully."  Goolsbee echoed the chair's sentiment, saying that the neutral rate is known "by its works in the economy."  Goolsbee noted that FOMC policymakers' forecasts for future ranges of interest rates in the "dot plot" all suggest that interest rates are likely to decline over the next year until rates reach a settling point around what may be the neutral rate.  "Whether you're on the higher side or the lower side of where it's going to settle down, almost everybody agrees that it's well below where we are today. So as we get closer to where the disagreement is about what's the settling point, I can see that it makes perfect sense to start slowing the pace of the rate cuts," Goolsbee said.  "Barring some convincing evidence of overheating, I don't see the case for not continuing to decline, to have the Fed funds rate decline, because everybody agrees it's well below where we are today," he added.  "So until we start getting into the range of where people think is the settling, I still feel like this trajectory, that's the way it's leaning." 

Fed's Goolsbee makes case for lower interest rates

Federal Reserve officials expressed confidence that inflation is easing & the labor market is strong, allowing for further interest rate cuts albeit at a gradual pace, according to minutes from the Nov.  The meeting summary contained multiple statements indicating that officials are comfortable with the pace of inflation, even though by most measures it remains above the Fed's 2% goal.  With that in mind, & with conviction that the jobs picture is still fairly solid, Federal Open Market Committee members indicated that further rate cuts likely will happen, though they did not specify when and to what degree.  “In discussing the outlook for monetary policy, participants anticipated that if the data came in about
as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes said.  The FOMC voted unanimously at the meeting to take down its benchmark borrowing rate by a quarter percentage point to a target of 4.5%-4.75%.  Markets expect the Fed could cut again in Dec, though conviction has waned among concerns that Pres-elect Trump's plans for tariffs could stoke inflation higher.  The meeting concluded 2 days after the contentious presidential election campaign resulted in the Rep emerging as the victor & set to begin serving his 2nd term in Jan.  There was no mention of the election in the minutes, save for a staff notation that stock market volatility rose before the Nov 5 results & fell after.  There also was no discussion of the implications of fiscal policy, despite anticipation that Trump's plans, which also include lower taxes & aggressive deregulation, could have substantial economic impacts.  However, members did note a general level of uncertainty about how conditions are evolving.  In addition, they expressed uncertainty over where the rate cuts would need to stop before the Fed hit a “neutral” interest rate that neither boosts nor restrains growth.

Fed officials see interest rate cuts ahead, but only ‘gradually,’ minutes show

Kohl's(KSS) shares fell sharply after the company's earnings missed estimates & following its announcement that CEO Tom Kingsbury will step down in Jan.  The weak forecast underscores an uncertain holiday season for the retail sector, which could lean in favor of competitors as customers turn increasingly bargain-focused.  "Our results did not meet expectations, and we're frankly disappointed sales have been a challenge for us throughout 2024 and weakened further in the quarter," outgoing CEO Tom Kingsbury said.  Michaels CEO Ashley Buchanan will take over the company on Jan 15, though Kingsbury will stay on in an advisory role & retain his position on the board thru his retirement in May 2025.  Buchanan, an industry veteran, has been leading Michaels Companies since 2020.  Kingsbury agreed to stay on as KSS's permanent CEO thru 2025.  In Aug, net sales declined 4.2% & sales at stores open for at least a year fell 5.1% during the 3-month period ending on Jun 30.  At the time, Kingsbury said the company had "taken significant action to reposition KSS's for future growth" but that its "efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business."  In Aug, net sales declined 4.2%, & sales at stores open for at least a year fell 5.1% during the 3-month period ending on Jun 30.  At the time, Kingsbury said the company had "taken significant action to reposition KSS's for future growth" but that its "efforts have yet to fully yield the intended outcome due in part to a continued challenging consumer environment and softness in our core business."  Among the issues the company faced, Kingsbury noted that "customers exhibited more discretion in their spending," further pressuring company sales.  Despite this, Kingsbury said the company's conviction in its "strategy remains strong and our operating discipline, solid cash flow generation & healthy balance sheet will continue to support us as we work to return KSS's to growth."  The stock dropped 3.11 (17%).

Kohl's shares tumble on earnings miss, CEO to step down in January

Gold futures rise, recouping some ground after a 3.7% drop yesterday.  Futures are up 0.4% at $2629 a troy ounce.  The precious metal remains under pressure on renewed risk appetite in financial markets.  Trump's nomination of Scott Bessent, viewed as a balanced choice for US Treasury Secretary, has eased fears that a 2nd Trump administration's tariff-heavy policies could reignite inflation & stifle economic growth.  Reports of a potential ceasefire agreement between Israel & Hezbollah have also reduced safe-haven demand for gold.  The release of Federal Reserve meeting minutes provided additional direction for gold prices

Gold Futures Rise, Reclaiming Some Ground Lost on Easing Safe-Haven Demand

Oil prices rose after falling more than $2 a barrel in the previous session as investors took stock of a potential ceasefire between Israel & Lebanon's Hezbollah, which had weighed on oil's risk premium.  Brent crude futures were up 73¢ (1%) to $73.74 & US West Texas Intermediate crude futures were at $69.62 a barrel, up 68¢, also 1%.  Prices fell sharply yesterday after multiple reports that Israel & Lebanon had agreed to the terms of a deal to end the Israel-Hezbollah conflict.  A senior Israeli official said Israel looks set to approve a US plan for a ceasefire today.  Market reaction to the ceasefire news was over the top as the broader Middle East conflict has never actually disrupted supplies significantly to induce war premiums this year.  A ceasefire in Lebanon would reduce odds of the incoming US administration imposing more sanctions on Iranian crude.  Iran supports Hezbollah & is an OPEC member, producing around 3.2M barrels per day.  In Europe, Kyiv was under a sustained Russian drone attack today, the city's mayor said.  Elsewhere, OPEC+ may consider leaving its current oil output cuts in place from Jan 1 at its next meeting on Sun.  The producer group is already postponing hikes amid global demand worries. 

Oil Rises After Selloff on Possible Middle East Ceasefire

Stocks seemed to shrug off Pres-elect Trump's threat to impose fresh tariffs on China, Canada & Mexico.  His comments fired up trade war fears and dented hopes that Treasury Secretary nominee Scott Bessent would rein in any extreme moves by the new administration.  The Oct reading of the Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, will be released tomorrow.