Markets fall as cautious Fed pauses and warns about inflation

Dow dropped 136, decliners over advancers 3-2 & NAZ retreated 101.  The MLP index crawled up 1+ to the 321s & the REIT index slid back 5 to then 398s.  Junk bond funds drifted lower & Treasuries were flattish, keeping yields little changed.  Oil was off almost 1 to the high 72s & gold was up 6 to 2773 (more on both below).

Dow Jones Industrials

The Federal Reserve held its key interest rate in check, reversing a recent trend of easing policy as it examines what is likely to be a bumpy political & economic landscape ahead.  In a widely anticipated move, the central bank's Federal Open Market Committee left unchanged its overnight borrowing rate in a range between 4.25%-4.50%.  The decision followed 3 straight cuts since Sep 2024 worth a full percentage point & marked the first Fed meeting since frequent Fed critic Donald Trump assumed the presidency last week & almost immediately made known his intentions that he wants the central bank to cut rates.  The post-meeting statement dropped a few clues about the reasoning behind the decision to hold rates steady.  It offered a somewhat more optimistic view on the labor market while dropping a key reference from the Dec statement that inflation "has made progress toward" the Fed's 2% inflation goal.  "The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid," the new language read.  "Inflation remains somewhat elevated."  A stronger labor market & stubborn inflation would provide less incentive for the Fed to ease policy.  The statement again indicated that the economy "has continued to expand at a solid pace."  Recent statements from policymakers have shown some apprehension about whether progress in bringing down inflation has stalled.  Officials also have said they want to see how the previous cuts are working their way thru the economy though most expect rate cuts this year.  In addition, the decision comes against a volatile political backdrop.  In a little over a week, Trump has cut a swath through DC policy & political norms as he has signed hundreds of exec orders that seek to implement an aggressive agenda.  The pres has backed tariffs as both an economic & foreign policy tool, ordered a wave of deportations against those crossing the border illegally & has put forth a series of deregulatory measures.  Moreover, Trump last week spoke of his confidence that he will bring down inflation & said he would "demand" that interest rates be lowered "immediately."  Though the pres has no authority over the Fed other than to nominate board members, Trump's statement signaled a potentially contentious relationship with the policymakers much like during his first term.

Fed holds rates steady, takes less confident view on inflation

Starbucks (SBUX) reported that its same-store sales slid for the 4th consecutive qtr, but the company's quarterly earnings & revenue beat expectations.  The coffee giant kicked off a turnaround plan last qtr in the hopes of reviving its US business, which has slumped over the past year.  "While we have room for improvement, we're making progress as planned, and have confidence we're on the right track," CEO Brian Niccol said.   He added that the company has seen a "positive response" to the early steps it has taken.  Those tweaks have included removing extra charges for nondairy milk options, focusing its marketing on its coffee & slashing 30% of its food & beverage menu items by the end of fiscal 2025.  Fiscal first-qtr EPS was 69 down from 90¢, a year earlier.  Net sales of $9.4B were unchanged from a year earlier.  Same-store sales fell 4%, fueled by a 6% decline in traffic to its stores.  The forecast was expecting a steeper drop of 5.5%.  Both US & intl locations outperformed expectations.  US same-store sales slid 4% as traffic to its cafes fell 8%.  Under Niccol, who took the reins in Sep, the company has been trying to turn around its US business by getting “back to Starbucks” & returning its focus to coffee & the customer experience.  Niccol also has plans for SBUX corp workforce.  He has been reorganizing the company's structure, including splitting the role of North American pres into 2 jobs.  In early Mar, the company is planning to lay off workers, although SBUX has not yet shared how many jobs will be affected.  The stock jumped 8.17 (8%).

Starbucks earnings top estimates, but same-store sales decline for fourth straight quarter

Kohl's (KSS) is cutting its corp workforce by 10%, the struggling Wisconsin-based company said.  The retailer said that closures of open positions will account for "more than half of the total reduction."  Some current employees who work at KSS corp offices are also losing their jobs, Kohl's added.  The reduction is meant to "support Kohl’s ongoing actions to increase efficiencies and improve profitability for the long-term health and benefit of the business," the company noted.  KSS has already informed employees affected by the workforce reduction.  They received "competitive severance packages to help support their transition," the retailer said.  The company has also been making changes to its real estate footprint in recent weeks.  27 "underperforming" stores across 15 states are slated to permanently close their doors by Apr, KSS previously announced Jan 9.  Its San Bernardino e-commerce fulfillment center in California is also expected to shutter the following month.  Those closures, like the corp workforce reduction, seek to "increase efficiencies and improve profitability" for KSS over the long-term.  The stock fell 37¢.

Kohl's cuts 10% of corporate workforce to improve profitability

Gold's price turned lowery in the US trading session after a very whipsaw start to the week.  Lower US rates are often seen as beneficial for gold to trade higher.   Market expectations show the Fed will likely keep interest rates unchanged in the range of 4.25%-4.50%, so traders will rather focus on Fed Chair Jerome Powell's comments on the central bank's policy outlook.  And here, traders might be in for a huge disappointment.  Powell is not expected to comment on Pres Trump's criticism of the Fed or why or how Trump calls for lower rates.  Instead, Powell is expected to repeat that the central bank remains independent & data-dependent & will focus on its dual mandate: inflation & the jobs market.  The market expectation is for Powell to deliver a dovish pause.  This should see US yields tilt lower, which opens the opportunity for gold to surge higher.

Gold dips despite dovish expectations for the upcoming Fed interest rate decision

Oil prices fell, following a rise in US crude inventories & easing concerns over Libyan supplies, while focus shifted to potential US tariffs on Canadian & Mexican imports.  Brent crude futures were down 59¢ (0.8%) at $77.90 while US crude futures were down 55¢ (0.8%) at $73.22.  The White House said Pres Trump still plans to impose 25% tariffs on Canada & Mexico on Sat.  Crude prices continue to follow the beat of Trump's tariff orchestra, with Canadian tariffs coming into effect on Sat potentially pushing US prices higher.  Canada supplies 3.9M barrels of oil per day to the US in 2023, roughly ½ of all imports for the year, while Mexico supplies 733K barrels per day.  Overall prices traded slightly lower after Libya said exports had resumed & the API reported a weekly increase in US inventories.  Additionally, OPEC+ is expected to stick with the production increases it announced in Apr.  US crude & gasoline stocks rose last week, while distillate inventories fell.

Oil Prices Fall As U.S. Crude Inventories Surge, Tariff Concerns Loom

Tech stocks led markets lower as the broader mood stayed muted after the Federal Reserve's latest interest rate decision saw the central bank keep rates unchanged at 4.25%-4.50%.  In its statement, the Fed notably removed language from its Dec statement indicating that it was making progress towards its goal of 2% inflation, stating simply: "Inflation remains somewhat elevated."  Powell pushed back on that notion, referring to the change as "language cleanup" rather than intending to send a signal.  Markets bounced off their lows of the day on Powell's comments.