Markets rise after December inflation data and looming tariff deadline

Dow edged up 19, advancers over decliners about 5-4 & NAZ gained 256.  The MLP index was off 5+ to the 324s & the REIT index added 2+ to the 402s.  Junk bond funds continued to inch higher & Treasuries were little changed, keeping yields steady (more below).  Oil was little changed in the mid 72s & gold added 10 to 2855.

Dow Jones Industrials

The Federal Reserve's preferred inflation gauge showed prices rose as expected in Dec, & it remains above the central bank's target level amid its ongoing efforts to wrestle down inflation.  The Commerce Dept reported that the personal consumption expenditures (PCE) index was up 0.3% from the prior month & 2.6% on an annual basis.  Those figures were in line with the estimates.  Core PCE, which excludes volatile food & energy prices, rose 0.2% for the month & increased 2.8% from a year ago, also in line with estimates.  Federal Reserve policymakers are focusing on the PCE headline figure as they try to slow the pace of price increases to their target of 2%, though they view core data as a better indicator of inflation.  Headline PCE ticked higher from an annual rate of 2.4% in Nov to 2.6% last month, while core PCE has been at 2.8% for 3 consecutive months.  Headline PCE showed prices for goods were flat in Dec, while prices for services rose by 3.8% from a year ago.  Food prices were up 1.6% last month when compared with a year ago, while energy prices were down 1.1% during that period.  Wages & salaries were up 0.4% in Dec compared with the prior month, a slight deceleration after Oct & Nov both saw wage & salary growth of 0.5% in those months.  The personal savings rate as a percentage of disposable income was 3.8% in Dec.  That metric declined from 4.3% in Oct to 4.1% in Nov & had been nearly 5% last spring.

Fed's favored inflation gauge just came out as price fight ramps up

Treasury yields were unchanged as investors parsed the latest inflation data as well as other economic data.  The 10-year Treasury yield was marginally lower at 4.508% & the 2-year Treasury yield was fractionally higher at 4.199%.  1 basis point is equal to 0.01% & yields & prices move in opposite directions.  The personal consumption expenditures price index (above) increased 0.3% in Dec from a month earlier & 2.6% on an annual basis.  Both readings were in line with forecasts.  Yesterday, yields moved lower as the latest gross domestic product report came in weaker than expected, showing slower economic growth in the US.  The 4th-qtr GDP growth rate was 2.3%, while the forecast was forecasting an increase of 2.5%.  Fed Chair Jerome Powell said at his press conference that the central bank will need to see “real progress on inflation or some weakness in the labor market before we consider making adjustments” to interest rates.  Meanwhile, Trump is planning to go ahead with increased tariffs, which threaten to raise the cost of goods. The pres said that he will impose 25% tariffs on Canada & Mexico starting tomorrow.

Treasury yields are unchanged latest sticky inflation data

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, beat the estimate for 4th-qtr profit as higher oil & gas production offset lower oil prices & weaker refining margins.  4th qtr EPS was $1.67, beating estimates of $1.56.  The #1 oil producer reported total earnings of $33.5B for full-year 2024, down from $38.6B the year earlier.  The company became the largest oil producer in the Permian basin in 2024, the biggest US oilfield, after closing its acquisition of Pioneer Natural Resources in May.  Low production costs in the basin & its lucrative & prolific projects in Guyana have bolstered the company's profits despite lower oil prices & a decline in profits for making fuel.  The company signaled earlier this month that sharply lower oil refining margins would cut earnings by $300M - $700M compared to the 3rd qtr.  Shareholder returns via buybacks & divs totaled $36B in 2024, up from $32B the previous year.  Shareholder distributions, a cornerstone of its strategy to court investors, were covered by free cash flow of $36.2B.  The stock was off 60¢.

Exxon beats fourth-quarter estimates with higher Permian, Guyana output

US stocks rose as the Federal Reserve's preferred inflation gauge matched expectations. Investors also braced for a looming tariff deadline.  Trump yesterday doubled down on a threat to impose a first round of 25% tariffs on Canada & Mexico tomorrow.  The looming deadline has revived worries about the impact on the economy from a clampdown on the US's biggest trading partners.