Markets slip as investors weigh rising prices versus a strong economy

Dow dropped 348 (near session lows), decliners over advancers about 3-1 & NAZ fell 304.  The MLP index continued little changed near 225 & the REIT index was off 5+ to the 436s.  Junk bond funds remained weak & Treasuries continued to be sold, driving yields higher.  Oil gained 2+ to the 119s & gold was off 18 to 1853 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Free Apple Analysis!

Bring Your Portfolio Into The 21st Century

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

Ford (F) US sales fell just 4.5% in May from a year ago, a narrower decline than in recent months, as it continued to see white-hot demand for its latest vehicles amid tight supplies of new cars, trucks & SUVs.  Ford & other automakers are continuing to fight through supply-chain issues, including a global shortage of semiconductor chips, that has hampered new vehicle production around the world for over a year.  Its monthly US sales were down by over 10% in Apr & by more than 20% in Feb & Mar.  Ford said the company estimates that overall US new vehicle sales were down about 30% from a year ago in May, meaning that Ford likely gained market share.  Ongoing disruptions to Ford's manufacturing have led to tight inventories at its dealers.  In response, Ford has offered incentives to customers who are willing to place orders for their vehicles & wait for them to be built & delivered.  Almost ½ of Ford's retail sales in May came from customer orders placed earlier in the year.  With chip supplies still limited, Ford has been prioritizing production of its newest models, including the electric Mustang Mach-E crossover, the Bronco SUV & the small Maverick pickup, as well as its highly profitable mainstays, such as the F-Series pickups & the large Ford & Lincoln SUVs.  Sales of Ford's F-Series pickups, an important driver of company's profits, were up 6.9% in May from a year ago.  Deliveries of the Mustang Mach-E were more than double the model's year-ago total.  In Jan-May, Ford has sold 763K vehicles in the UK, down 13.3% from the same period in 2021.  The stock fell 39¢.
If you would like to learn more about Ford click on this link:
club.ino.com/trend/analysis/stock/F_aid=CD3289&a_bid=6ae5b6f

Ford’s U.S. sales fell just 4.5% in May amid hot demand for EVs and pickups

There is more bad news for US motorists. The national average retail price for regular gasoline jumped 4¢ to $4.71 per gallon – yet another record high.  "After several weeks of soaring gas prices, last week saw prices nationally slow down ahead of Memorial Day, but I’m afraid the good news ends there," Patrick De Haan, head of petroleum analysis for GasBuddy, said.  "As a result of the continued decline in gasoline inventories in recent weeks, wholesale gas prices surged last week, which will likely boost prices at the pump in short order."  It's becoming even more likely that the national average will reach $5 per gallon & that could hit as soon as Jun 17, De Haan projected.  And that's not even the worst of it.  Other forecast call for prices to surge another 37% by Aug hitting a $6.20 per gallon national average.  Currently, prices are already 52¢ higher than a month ago & $1.67 higher than a year ago.  The average price for gas has already topped $4 a gallon in every state, however, California is the only state where the average price has reached $6.21.

Gas prices on the road to $5 nationwide very soon

Walmart (WMT), a Dow stock & Dividend Aristocrat, is building warehouses with a high-tech spin in hopes of delivering items to customers more quickly & growing its online business.  The retailer plans to build 4 new fulfillment centers that use automation to pack 4 ship online orders more efficiently, with the first location opening this summer in Illinois.  For customers, the new warehouses will mean next-day or 2-day delivery could be more common for items including cereal & T-shirts.  With more of its sales coming from its website in recent years, it already has 31 facilities that prepare online orders.  More than 3500 of its stores, 75% of its locations, also fulfill online orders.  At its existing fulfillment centers, employees can walk 9 miles or more a day to pluck items off shelves & lug them back to areas for packaging, said Michael Prince, VP of supply chain innovation & automation.  That won’t be necessary at the new warehouses, where an automated system will retrieve items from an expanded storage space & shuttle it to an area where an employee packs it in a box, which will be custom made to fit the order’s measurements.  WMT will hire 4K people to work at the new facilities.  The current starting pay at existing warehouses is $16-28 per hour & wages at the new ones will be at the higher end of that range.  The stock fell 2.19.
If you would like to learn more about WMT click on this link:
club.ino.com/trend/analysis/stock/WMT_aid=CD3289&a_bid=6ae5b6f

Walmart to open high-tech fulfillment centers to ship online orders faster

Gold books a weekly loss, following 2 straight weeks of gain.  Gold futures finished lower to book a weekly loss, as the $ gained versus major rivals after a stronger-than-expected rise in US nonfarm payrolls reinforced expectations for higher interest rates from the Federal Reserve in coming months.  Gold for Aug shed $21 (1.1%) to settle at $1850 an ounce, its sharpest daily percentage drop since May 12.  For the week, the yellow metal booked a 0.3% drop, after 2 straight weeks or gains, & despite closing yesterday at its highest since May 6.  The US economy added 390K jobs in May, versus expectations for nonfarm payrolls to rise by 328K.  The unemployment rate was unchanged at 3.6% versus expectations for a tick down to 3.5%, while average hourly earnings rose 0.3% versus forecasts for a 0.4% rise.  Analysts said gold may continue to struggle as expectations for aggressive Federal Reserve interest rate hikes underpin the $, with the ICE US Dollar Index last month trading around a 20-year high.  A stronger $ is seen as a headwind for commodities priced in the unit, making them more expensive to user of other currencies.  The index rose 0.3% today.

Gold books worst day in three weeks as U.S. jobs data dulls demand

Cleveland Federal Reserve Bank Pres Loretta Mester said she is looking for "compelling" evidence that inflation has peaked before reducing the pace of the Fed's interest rate hikes from what policymakers say are likely to be half-point increments in both Jun & Jul.  At the subsequent Fed meeting in Sep, "if I don't see compelling evidence, then I could easily be a 50 basis point in that meeting as well," Mester said .

Fed's Mester: Could 'Easily' See 50 Bps Rate Hike in Sept, Too

Oil futures end higher, post weekly gain as traders shrug off OPEC+ output boost.  Gasoline futures extended a run into record territory today, while oil futures logged strong weekly gains a day after traders shook off a decision by OPEC+ to raise output by larger increments in Jul & Aug.  The West Texas Intermediate (WTI) for Jul added $1.61 to settle at $116.87 a barrel.  Oil has been supported this week by China's moves to ease a weekslong lockdown in Shanghai, a positive for crude demand.  Meanwhile, gov data yesterday showed US oil & product inventories fell sharply last week, reflecting in part strong implied demand for gasoline as summer driving season got under way.  OPEC+ agreed yesterday to raise output by 638K barrels a day in Jul & Aug, exceeding the 432K barrel-a-day increments previously penciled in by the group.  While the move could help fill the gap left by Russian crude exports targeted by embargoes & sanctions in response to the country's invasion of Ukraine, it isn't seen as enough to fully offset the expected lost barrels.  Moreover, they noted that OPEC+ has already fallen short on previous, smaller production boosts.  Oil-field services firm Baker Hughes said the number of US oil rigs was unchanged this week at 574, while gas rigs were unchanged at 151 & miscellaneous rigs steady at 2.

Gasoline futures end at a record as oil shakes off OPEC+ output increase

After a strong start this week, Dow ended down 300.  High inflation, the fear of rising interest rates & a struggling economy are spooking investors.

Dow Jones Industrials

Markets retreat as the jobs report will keep the pressure on raising rates

Dow sank 368, decliners over advancers about 4-1 & NAZ dropped 343.  The MLP index fell 1+ to the 224s & the REIT index was off 4+ to the 437s.  Junk bond funds drifted lower & Treasuries were sold, raising Treasury yields (more below).  Oil rose 2+ to the 119s & gold pulled back 12 to 1858,

AMJ (Alerian MLP index tracking fund)

 

 

 

Start Using the Leverage of Options and the Power of MarketClub Today!

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

The US economy continued to see healthy job growth in May, indicating the labor market is still strong despite growing fears of a recession amid sky-high inflation and an increasingly aggressive Federal Reserve.  Employers added 390K jobs in May, the Labor Dept reported in its monthly payroll report, beating the 328K jobs forecast.  The unemployment rate, meanwhile, held steady at 3.6%, the lowest level since Feb 2020.  Job gains were broad-based, with the biggest increases in the pandemic-battered leisure & hospitality industry (84K), professional & business services (75K). & transportation & warehousing (47K).  Nearly every industry gained positions last month, with one notable exception: Retail, which shed nearly 61K jobs.  Businesses are eager to onboard new employees & are raising wages in order to attract workers as they confront a labor shortage. There were roughly 11.4M open jobs at the end of Apr – near a record high – while the number of Americans quitting their job is also well-above pre-pandemic levels.  But the strong labor market is in part fueling record-high inflation, as Ms of workers are seeing the largest pay gains in years – the result of companies competing with one another for a limited number of employees.  Earnings rose 5.2% in May from the previous year, much higher than the pre-pandemic average of 3%.  There are signs that growth could be moderating though, with earnings climbing just 0.3% on a monthly basis, slower than expected.

US economy sees solid job growth in May as payrolls jump by 390,000

The 10-year Treasury yield rose as investors digested a better-than-expected US jobs report. The yield on the benchmark 10-year Treasury note added 6 basis points to 2.97% & the yield on the benchmark 30-year Treasury bond moved 7 basis points higher to 3.15%.  Yields move inversely to prices & 1 basis point is equal to 0.01%.  The US economy added 390,000 jobs in May, higher than the forecast of 328K.  At the same time, the unemployment rate held at 3.6%, just above the lowest level since 1969.  The forecast was had been looking for the unemployment rate to edge lower to 3.5%.  Yesterday, Fed Vice Chair Lael Brainard said it's unlikely the central bank will be taking a break from its current rate-hiking cycle any time soon as inflation remained at a 40-year-high.

10-year Treasury yield rises after better-than-expected jobs report

A buildup of inventory across major retailers is cultivating a climate of markdowns, according to a new report.  A buildup of inventory across major retailers is cultivating a climate of markdowns, according to a new report.  "Inventory levels are high as companies chased as much merchandise as possible to support demand, which has now slowed. Ultimately, markdowns and promotions are starting to pick up," the Telsey Advisory Group said in the research note.  For instance, Target (TGT) Chief Growth Officer Christina Hennington announced during its Q1 earnings call earlier this month that the company faced "softer-than-expected sales in several categories, resulting in too much inventory in those areas."  The problem was that the "mix of actual demand materialized differently than we had anticipated," Hennington said.  While supplies grew, consumer demand "shifted away from bigger, bulkier products like furniture, TVs and more," Hennington added.

Retail markdowns on the rise stores tackle excess inventory

The jobs report was good & the unemployment continues to show fairly full employment.  But that will add pressure for the Fed to fight high inflation by raising interest rates.  Investors are nervous & the are selling stocks. 

Dow Jones Industrials

 

Markets rise after Saudi Arabia said it will increase oil production

Dow jumped 435 (session high with strong buying in the PM), advancers over decliners 5-2 & NAZ shot up 322.  The MLP index stayed near 253 & the REIT index rose 5+ to 442.  Junk bond funds continued in demand & Treasuries saw a little buying.  Oil rose 1+ to the 116s & gold advanced a big 24 to 1873 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Free Apple Analysis!

Bring Your Portfolio Into The 21st Century

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

US factory orders decelerated in Apr, climbing less than expected amid persistent disruptions in the global supply chain – even as consumer demand for goods remained strong.  The Commerce Dept said that factory orders rose 0.3% in Apr, sharply missing the gain of 0.7% forecast.  That's also a big decline from Mar, when factory orders rose by 1.8%.  Americans continued to order machinery motor vehicles & primary metals in Apr, but orders for electrical equipment, appliances & components fell 0.2%.  Orders for computers & electronic products inched up 0.1%.  Shipments of manufactured goods, meanwhile, rose just 0.2% after climbing 2.2% in Mar & inventories at factories rose 0.6%.  The report also showed that orders for non-defense capital goods – known as core orders, which are viewed as a more accurate measure of consumer spending – jumped 0.4% in Apr.  Strong consumer demand for machines, electronics, cars & other durable goods has fueled activity at factories over the past year.  But tangled supply chains & a persistent labor shortage have weighed on manufacturing – while also contributing to the highest inflation in nearly 4 decades.  The data comes amid broader fears of an economic slowdown: Inflation is near a 40-year high, COVID-19 is still forcing lockdowns in China & the Russian war in Ukraine is further exacerbating supply chain disruptions.  A growing number of analysts are now forecasting a recession in the next 2 years.  Economic growth in the US is already slowing.  The Bureau of Labor Statistics reported earlier this month that GDP unexpectedly shrank in Q1 marking the worst performance since the spring of 2020, when the economy was still deep in the throes of the COVID-induced recession.  Fed Chair Jerome Powell has acknowledged there could be some "pain associated" with reducing inflation & curbing demand but pushed back against the notion of an impending recession, identifying the labor market & strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing is not assured.

US factory orders slowed in April as supply chains, labor shortages persist

Microsoft (MSFT), a Dow stock, slipped after the tech giant cut its profit & revenue guidance for the 4th qtr of fiscal year 2022, citing unfavorable foreign exchange rate movement.  Total revenue for the qtr is now expected to fall to $51.9-52.7B, down from $52.4-53.2B.  Productivity & business processes segment revenue has been revised to $16.5-$16.7B, down from $16.6-$16.9B, while intelligent cloud revenue has been adjusted to $20.9-21.1B, down from $21.1-21.4B.  Revenue is expected at $14.5-14.84B for its more personal computing segment, down from $14.6-14.9B.  CFO Amy Hood previously warned that exchange rates could impact the company's guidance in Apr.  "We expect other income and expense to be negative $50 million, reflecting FX remeasurement impact based on market conditions in April," Hood said at the time.  "Similar to the rest of our guidance, further equity and FX movements through Q4 are not reflected in this number."  Analysts are forecasting EPS of $2.33 on revenue of $52.9B.  The stock went up 2.16.
If you would like to learn more about MSFT click on this link:
club.ino.com/trend/analysis/stock/MSFT_aid=CD3289&a_bid=6ae5b6f

Microsoft cuts revenue, profit outlook, citing 'unfavorable' foreign conditions

Federal Reserve Vice Chair Lael Brainard said that it's unlikely the central bank will be taking a break from its current rate-hiking cycle anytime soon.  Though she stressed that Fed policymakers will remain data-dependent, Brainard said the most likely path will be that the increases will continue until inflation is tamed.  “Right now, it’s very hard to see the case for a pause,” she said.  “We’ve still got a lot of work to do to get inflation down to our 2% target.”  The idea of implementing 2 more 50 basis point rate increases over the summer then taking a step back in Sep has been floated by a few officials, most notably Atlanta Fed Pres Raphael Bostic.  Minutes from the May FOMC meeting indicated some support for the idea of evaluating where things stand in the fall, but there were no commitments.  In recent days, however, policymakers including San Francisco Fed Pres Mary Daly & Governor Christopher Waller have stressed the importance of using the central bank's policy tools aggressively to bring down inflation running around its fastest pace since the early 1980s.  “We’re certainly going to do what is necessary to bring inflation back down,” Brainard added.  “That’s our No. 1 challenge right now. We are starting from a position of strength. The economy has a lot of momentum.”  Brainard said, however, that bringing inflation down remains the top priority & shouldn't significantly harm an economy where household & corp balance sheets are strong.  Markets already are pricing in 2 50 basis point increases at the next meetings, which Brainard called “a reasonable kind of path.”  Beyond that, though, “it’s a little hard to say,” she added, noting both upside & downside risks to growth.

Fed Vice Chair Brainard says it’s hard to see the case for Fed pausing hikes

OPEC & its oil-producing allies (OPEC+)agreed to hike output in Jul & Aug by a larger-than-expected amount as Russia's invasion of Ukraine wreaks havoc on global energy markets.  OPEC+ will increase production by 648K barrels per day in Jul & Aug, bringing forward the end of the historic output cuts OPEC+ implemented during the throes of the Covid pandemic.  The group has been slowly returning the nearly 10M barrels per day it agreed to pull from the market in Apr 2020. In recent months, production has risen 400-432K barrels per day each month.  Oil prices reversed early losses during mid-morning trading & continued to move higher during the session.  The decision comes as the world grapples with surging energy prices.  Govs, including the Biden administration, have been calling on producers to raise output in an effort to dampen oil's wild ride.  White House press secretary Karine Jean-Pierre said the administration welcomed OPEC+'s announcement.  “We recognize the role of Saudi Arabia as the chair of OPEC+ and its largest producer in achieving this consensus amongst the group members,” she said, before adding that the “United States will continue to use all tools at [its] disposal to address energy prices pressures.”  While in theory output will be higher looking forward, OPEC+ has been struggling to meet production quotas.  Moreover, the additional barrels slated to hit the market will not make up for the potential loss of more than 1M barrels per day from Russia as nations around the world ramp up sanctions following the invasion of Ukraine.

OPEC+ raises output faster than expected as Russia’s war roils global energy markets

Gold closed higher, erasing declines from earlier in the week, while the yellow metal also scored its highest close in about a month.  The move comes as Treasury yield & the $ retreated, making precious metals more attractive by comparison.  Jittery investors had been flocking to other safe-haven assets for safety, but precious metals have started Jun higher after 2 straight months of losses.  Gold for Aug delivery rose 1.2% to settle at $1871 an ounce its highest close since May 6 & the best daily percentage gain since May 19.  The yellow metal also is now up 1.3% on the month.

Gold scores best day in 2 weeks and highest close in about a month

Oil futures ended higher after US crude inventories showed a much larger-than-expected drop & traders looked past a decision by OPEC+ to boost output by larger increments in Jul & Aug.  West Texas Intermediate crude for Jul rose $1.61 (1.4%) to close at $116.87 a barrel.  Jul Brent crude gained $1.32 (1.1%) to settle at $117.61 a barrel.  OPEC+ agreed to raise its production target by 648K barrels a day in Jul & Aug, compared with the 432K barrel-a-day monthly rises that it has implemented since last year.  Concerns over supply remain, however, given OPEC+'s difficulties in meeting earlier production increases.  Also, gasoline ends at a record high.

Oil ends higher as OPEC+ boosts output, U.S. crude inventories tumble

After a slow start buyers returned midday & bid prices higher.  Saudi Arabia, which has a conservative attitude toward releasing oil, is willing to help western countries which need it.  Even though economic data today was weak, the oil announcement stimulated this rally.  The Dow finished up 740 from its early lows.

Dow Jones Industrials