Dow shot up 339, advancers over decliners 3-1 & NAZ advanced 340. The MLP index remained in the 299s & the REIT index rose to the 399s. Junk bond funds continnued mixed & Treasuries had limited selling, allowing yields to ease higher. Oil was up about 1 to 74 from buying into the close & gold slid back 15 to 2653 (more on both below).
Dow Jones Industrials
Microsoft (MSFT), a Dow stock, plans to spend $80B in fiscal 2025 on the construction of data centers that can handle artificial intelligence workloads, the company said. Over ½ of the expected AI infrastructure spending will take place in the US, Vice Chair & Pres Brad Smith wrote. Its fiscal year ends in Jun. “Today, the United States leads the global AI race thanks to the investment of private capital and innovations by American companies of all sizes, from dynamic start-ups to well-established enterprises,” Smith said. “At Microsoft, we’ve seen this firsthand through our partnership with OpenAI, from rising firms such as Anthropic and xAI, and our own AI-enabled software platforms and applications.” Several top-tier technology companies are rushing to spend Bs on graphics processing units for training & running AI models. The fast spread of OpenAI’s ChatGPT assistant, which launched in late 2022, kicked off the AI race for companies to deliver their own generative AI capabilities. Having invested over $13B in OpenAI, MSFT provides cloud infrastructure to the startup & has incorporated the startup’s models into Windows, Teams & other products. MSFT reported $20B in capital expenditures & assets acquired under finance leases worldwide, with $14.9B spent on property & equipment, in the first qtr of fiscal 2025. Capital expenditures will increase sequentially in the fiscal 2nd qtr, CFO Amy Hood said in Oct. The stock fell 94¢.
Microsoft expects to spend $80 billion on AI-enabled data centers in fiscal 2025
Despite the lingering uncertainty around what’s coming for the US as Pres-elect Donald Trump takes office & works to enact his campaign proposals, Richmond Fed PresTom Barkin has an upbeat outlook on the economy for the year ahead. In remarks Barkin said that his baseline expectation for 2025 is positive. “With what we know today, I expect more upside than downside in terms of growth,” Barkin said, adding that expectations for economic expansion are likely behind a recent uptick in business optimism. Barkin said his sunny outlook is based, in part, on the fact that he believes the momentum around consumer spending will likely keep economic growth healthy in the coming months. Consumer spending makes up nearly 70% of GDP growth. As long as Americans can keep their jobs & asset values remain solid, Barkin believes they will continue to spend. “With business optimism so high and labor supply unlikely to continue to grow so robustly, it feels like the current labor market equilibrium is more likely to break toward hiring than toward firing,” Barkin added. Of course, some sectors will likely fare better than others. In his district, for example, there are concerns about the outlook for the federal workforce. In addition to solid economic growth, Barkin also predicts that the more cost-conscious consumer that has emerged in recent months will put pressure on companies to limit price increases, which should continue to push inflation down. “Overall, that would be a good outcome for the U.S. economy,” Barkin said.
Richmond Fed’s Barkin Sees More Blue Skies Ahead for Economy
The US surgeon general issued a new advisory warning about the link between alcohol consumption & increased cancer risk, & pushed for policy changes to help reduce the number of alcohol-related cancers. Surgeon General Dr Vivek Murthy said there is a “well-established” link between drinking alcohol & at least 7 types of cancer, including breast, colorectum, esophagus & liver. For cancers including breast, mouth & throat cancers, increased risk may start around 1 or fewer drinks per day, according to his office. As part of the advisory, the surgeon general called for policy changes that could help reduce alcohol-related cancer. He pushed for alcohol labels to be more visible & include a warning about the increased risk of cancer, to reassess recommended limits for alcohol consumption based on the latest research & expand education to increase general awareness that alcohol consumption increases cancer risk. The efforts outlined in the advisory are similar to those already implemented to lessen tobacco use, including a slew of mandated warnings on packaging & in stores. The surgeon general advised people to consider the link between alcohol consumption & greater cancer risk when deciding whether to drink or how much to have. Alcohol consumption is the 3rd leading preventable cause of cancer in the US, behind only tobacco & obesity. “Alcohol is a well-established, preventable cause of cancer responsible for about 100,000 cases of cancer and 20,000 cancer deaths annually in the United States — greater than the 13,500 alcohol-associated traffic crash fatalities per year in the U.S. — yet the majority of Americans are unaware of this risk,” Murthy said. According to the advisory, 72% of US adults said they had 1 or more drinks per week between 2019 & 2020, but less than ½ of all adults are aware of the link between drinking & cancer risk. Worldwide, 741K cases of cancer were attributed to alcohol consumption in 2020.
U.S. surgeon general calls for cancer risk warnings on alcohol labels
Gold prices retreated from a 3-week high, pressured by a robust $, while markets braced for potential economic & trade shifts under Pres-elect Donald Trump. Spot gold eased to $2649 an ounce, after hitting its highest level since Dec 13. Bullion is up about 1.1% for the week. US gold futures were down 0.2% at $2663. The new pres's agenda that supports higher tariffs has boosted the $ & created significant underlying pressure on metal markets. The dollar index was set for its strongest weekly performance since mid-Nov, making gold pricier for overseas buyers. For most of the metals, the slowing of global trade has typically been coupled with a slowing economy & therefore slowing demand for metals (referring to the potential impact of Trump's proposed trade tariffs). A headwind from a stronger $ is likely to persist for gold, but it looks like debts will continue rising in the US & other countries & geopolitical issues aren't going to end soon, so it should stay supported. Trump is set to take the oath of office on Jan 20 & his proposed tariffs & protectionist policies are expected to fuel inflation. This could slow the Federal Reserve's interest rate cuts, limiting gold's upside. After 3 rate cuts in 2024, the Fed projects only 2 reductions in 2025 due to persistent inflation. Gold, which thrives in low-rate environments, is currently benefiting from seasonal demand.
Gold slips from three-week high as strong dollar weighs
Oil prices were little changed after closing at their highest in more than 2 months in the previous session, amid hopes that govs around the world could step up policy support to revive economic growth that would boost fuel demand. Brent crude futures edged up 1¢ to $75.94 a barrel after settling at their highest since Oct 25 yesterday. West Texas Intermediate crude also rose 1¢ to $73.14 a barrel, with yesterday's settlement the highest since Oct 14. Both contracts were on track for a 2nd weekly gain after investors returned from holidays, boosting trading liquidity. Factory activity in Asia, Europe & the US ended 2024 on a weak note as expectations for the New Year soured on rising trade risks from Donald Trump's return to the presidency & China's fragile economic recovery. Dec PMIs for Asia were mixed, & manufacturing activity & GDP growth in the region is expected to remain subdued in the near term. With growth expected to be difficult & inflation below target in most countries, central banks in Asia should continue to ease policy. Lower interest rates would spur greater economic growth & would likely lead to higher fuel consumption. Investors are eyeing further interest rate cuts by the Federal Reserve this year to support the US economy, while Chinese Pres Xi Jinping has promised more proactive policies to boost growth.
Oil Set for Weekly Gain; Focus on U.S., China Policy
Stocks went higher, shaking off a downbeat start to 2025. After a 5-session losing streak, the longest since Apr, the popular stock averages ended the holiday-shortened week with modest losses. Dow declined 260 last week. Stocks markets will close on Thurs to remember former Pres Carter.
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