Markets are weak after Fed leaves rates unchanged

Dow fell 317 with heavy late day selling, decliners over advancers 3-1 & NAZ lost 345.  The MLP index slid back 2+ to the 264s & the REIT index was down 3+ to the 375s.  Junk bond funds remained higher & Treasuries continued to be in demand which lowered yields.  Oil was off 2+ to the 75s following recent strength & gold was up 8 to 2059 but below early highs (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Federal Reserve sent a tepid signal that it is done raising interest rates but made it clear that it is not ready to start cutting.  In a substantially changed statement that concluded the central bank's 2-day, the Federal Open Market Committee removed language that had indicated a willingness to keep raising interest rates until inflation had been brought under control & was on its way toward the Fed's 2% inflation goal.  However, it also said there are no plans yet to cut rates with inflation still running above the central bank's 2% goal.  The statement further provided limited guidance that it was done hiking, only outlining factors that will go into “adjustments” to policy.  “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said.  While the statement did condense the factors that policymakers would consider when assessing policy, it did not explicitly rule out more increases.  One notable change was removing as consideration the lagged effects of monetary policy.  Officials largely believe it takes at least 12-18 months for adjustments to take effect.  “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement added.  That language replaced a bevy of factors including “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.“  Those changes were part of an overhaul in which the Fed seeks to chart a course ahead as inflation data points move lower while economic growth has been resilient.  The statement indicated that economic growth has been “solid” & noted the progress made on inflation.  “The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the FOMC missive said.  “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.“  Gone from the statement was a key clause that had referenced “the extent of any additional policy firming” that might come.  Some Fed watchers had been looking for language to emphasize that additional rate hikes were unlikely, but the statement left the question at least somewhat open.

Fed holds rates steady, indicates it is not ready to start cutting

Boeing (BA), a Dow stock, narrowed its losses at the end of last year, but its CEO said now is “not the time” for financial targets as the manufacturer grapples with the fallout from a fuselage panel that blew out midflight on one of its new 737 Max 9s earlier this month.  CEO Dave Calhoun, who took the helm of the aircraft giant 4 years ago in the wake of 2 deadly crashes of the Max, is again under pressure to clean up the company’s reputation with airline customers, regulators & the public after the Jan. 5 accident in which a panel blew out on Alaska Aitlines (ALK) Flight 1282 as the plane climbed out of Portland, Oregon.  Calhoun commended Alaska for grounding Max 9 planes after the accident.  The Federal Aviation Administration later grounded the fleet.  “Alaska airlines did exactly what companies like Boeing would hope that they do at moment like that and that is why the airline industry is as safe as it is,” Calhoun said.  “We caused the problem. And we understand that.”  The accident was the most serious in a series of apparent production flaws, which have slowed down deliveries of new planes & angered some of the company's biggest airline customers in the process.  BA reaffirmed its 2025 & 2026 financial targets that it laid out: reaching about $10B of free cash flow & $100B in revenue by as early as next year.  “We’re still confident in the goals we laid out for ’25, ’26 although it may take longer in that window than originally anticipate and we won’t rush the system,” CFO Brian West said.  BA delivered 528 airplanes to customers last year, up from 480 in 2022.  That includes the Max, 787 Dreamliners & others.  BA in 2022 said it was targeting annual deliveries of about 800 planes next year or in 2026.  BA posted a net loss of $30M (4¢ a share) in the 4th qtr, narrowing from a $663M loss, $1.06 a share, a year earlier.  Adjusting for one-time items, BA reported a net loss of 47¢ per share.  Its free cash flow of $2.95B in the qtr topped expectations.  Revenue grew 10% year over year to $22B.  The stock rose 10.59 (5%).

Boeing holds off on 2024 guidance as CEO says ‘we caused’ 737 Max 9 blowout

Walmart (WMT), a Dow stock & Dividend Aristocrat, sees room to get even bigger.  The company plans to build or convert more than 150 large-format stores over the next 5 years.  Some of the locations will be expanded from a smaller location into a Supercenter with a full range of groceries & merchandise, but the majority will be new stores a company spokesman said.  WMT declined to say how much the new stores will cost & where they will be located. The company already has more than 4600 stores across the country & nearly 600 Sam's Club warehouses.  Sam's Club also is in expansion mode, with plans to open more than 30 new stores in the US.  The big-box retailer is the largest private employer in the US with 1.6M employees.  About 90% of the US population already lives with 10 miles of a WMT store.  With the expansion, it is signaling that it sees its brick-&-mortar locations as a key part of the future, despite heightened competition with online & its own push for growth of online sales & its 3rd-party marketplace.  The stock fell 37¢.

Walmart plans to add more than 150 large-format stores across the U.S.

Gold closed at a 4-week high as the $ weakened ahead of an interest-rate decision from the Federal Reserve's policy committee following the end of its meeting today.  Gold for Ap closed up $16 to $2067 per ounce, the highest since Jan 2.  The rise comes ahead of the rate decision from the Federal Open Market Committee today.  While the committee is expected to leave rates unchanged again, the market's focus will be on any indication on the timing of interest-rate cuts from the group.  Until the first cut is delivered, the market may at times run ahead of itself, in the process building up rate cut expectations to levels that leave prices vulnerable to a correction.  The $ moved lower ahead of the decision, with the ICE dollar index last seen down 0.16 points to 103.24.  Treasury yields also weakened, as the 2-year note was last seen paying 4.266%, down 6.6 basis points. while the yield on the 10-year note was down 4.0 basis points to 3.994%.

Gold Trading at a Four-Week High as the Dollar and Yields Slip Ahead Of Fed Interest-Rate Decision

West Texas Intermediate (WTI) crude oil closed with a loss on disappointing economic data from China, the world's #1 importer & an unexpected rise in US inventories.  WTI crude for Mar closed down $1.97 to settle at $75.85 per barrel, while Mar Brent crude, the global benchmark, was last seen down $1.14 to $81.73.  China today reported manufacturing activity fell for a 4th-straight month, heightening concerns over the health of its economy.  The report follows on a court decision earlier this week to order the liquidation of Evergrande, the country's largest real-estate developer, after it failed to restructure more than $300B of debt.  The country's economy continues to struggle amid a weak real-estate sector despite stimulus measures from its gov & central bank.  In its weekly survey, the Energy Information Administration said US oil Inventories rose by 1.2M barrels last week, countering a day prior report from the American Petroleum Institute which said inventories fell by 2.5M barrels.  Both distillate & gasoline inventories also rose, while US oil production rebounded to 13M barrels per day, up 700K bpd a week earlier due to a bitter cold snap that froze equipment.  Continuing violence in the Middle East & a deadly weekend drone attack on a US military base in Jordan are offering support to prices, as is a bullish outlook on global growth issued yesterday by the IMF.

WTI Crude Oil Falls on Weak Economic Data From China and a Rise in US Inventories

Powell signaled the Fed may not cut rates at the Mar meeting.  That did not warm the hearts of investors,  accounting for late day selling.  After a sluggish start this year, Dow finished with a gain of 461 for the month.  That's not bad following the spectacular rise in the prior 2 months.

Dow Jones Industrials 

Markets slip as tech earnings fall short

Dow went up 31, decliners ahead of advancers about 5-4 & NAZ dropped 249.  The MLP index fell 1+ to the 265s & the REIT index was up 3+ to the 382 on falling interest rates.  Junk bond funds crawled higher & Treasuries had very heavy buying, reducing yields (more below).  Oil was off 1+ to the 76s & gold shot up 20 to 2071, nearing its record high.

AMJ (Alerian MLP Index tracking fund)

Hiring by US companies slowed more than expected in Jan, a possible sign the labor market is finally slowing in the face of higher interest rates, according to the ADP National Employment Report.  Companies added 107K jobs last month, missing the 145K gain that was predicted.  The weaker-than-expected report comes in the wake of an aggressive tightening campaign by the Federal Reserve, which has hiked interest rates to the highest level since 2001.  Policymakers signaled last month that they are done raising rates amid signs that inflation is finally moderating & the economy is slowing.  In a welcoming sign for the Fed, wage growth continued to shrink in Jan.  Annual pay rose 5.2% last month, according to the report.  For workers who switched jobs, wages climbed 7.2%, the smallest annual gain since May 2021.  "Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally," said Nela Richardson, ADP chief economist.  The job growth slowdown hit nearly every sector last month.  The leisure & hospitality industry accounted for the most gains in Jan, adding just 28K new employees.  Trade, transportation & utilities added 23K workers, while employment in construction rose by 22K.  Just one sector shed jobs last month: Information, with a decline of 9K.

US economy gets unexpected bad news as job growth stalls out to start the new year

Microsoft (MSFT), a Dow stock,  issued fiscal 2nd-qtr results that outdid estimates & a light quarterly revenue outlook.  MSFT called for fiscal 3rd-qtr revenue of $60-61B, or $60.5B at the middle of the range.  Analysts had expected $60.9B.  But the company sees lower-than-expected cost of revenue & operating expenses during the qtr, based on consensus among analysts.  MSFT's revenue increased 17.6% year over year in the qtr, which ended on Dec 31.  EPS was $2.93, increased from $2.20 in the prior year.  The Intelligent Cloud segment produced $25.9B in revenue, up 20% & above the $25.3B consensus.  The grouping contains Azure cloud infrastructure, SQL Server, Windows Server, Nuance, GitHub & enterprise services.  Within that segment, revenue from Azure & other cloud services grew 30%.  Analysts had expected 27.7% growth & the consensus was 27.5%.  The metric for the previous qtr was 29%.  6 points of the Azure & other cloud services growth were tied to artificial intelligence, Amy Hood, MSFT's finance chief, said.  MSF now has 53K Azure AI customers & 1/3 of them are new to Azure in the past year, CEO Satya Nadella said.  Revenue from the Productivity & Business Processes unit, including Office productivity software, LinkedIn & Dynamics totaled $19.2B.  That was up 13% & higher than the $18.99B consensus.  The More Personal Computing segment contributed $16.9B in revenue, up about 19% & slightly more than the consensus of $16.8B.  The segment comprises Windows, Surface, Bing & Xbox.  The stock fell 4.95 in a weak tech sector.

Microsoft issues light guidance even as Azure growth drives earnings beat

Treasury yields declined as investors awaited the latest interest rate decision & guidance on the monetary policy outlook from the Federal Reserve.  The 10-year Treasury yield was 3.7 basis points lower at 4.02% & the yield on the 2-year Treasury  was last down by more than 5 basis points at 4.31%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  The Federal Reserve is due to announce its latest interest rate decision & is widely expected to keep rates unchanged, as it has done at its previous 3 meetings.  This comes as recent economic data, including the personal consumption expenditures price index, the Fed's favored inflation gauge, have suggested that pressures from higher prices are easing.  Investors are also hoping that the central bank will provide hints about the path ahead for monetary policy & interest rates in guidance issued alongside the rate decision & Fed Chair Jerome Powell's post-meeting press conference.  Though policymakers at the last Fed meeting in Dec suggested rate cuts would be likely in 2024, they did not provide clues about when they may take place.  Traders were last pricing in a roughly 45% chance of a rate cut being announced at the next central bank meeting in Mar, CME Group’s FedWatch tool showed.

Treasury yields fall ahead of Fed interest rate decision

Earnings season is not inspiring confidence.  Meanwhile everybody is waiting to hear what Powell will have to say about interest rates going forward.  Nervous investors keep buying gold & Treasuries.

Dow Jones Industrials 

Markets edge higher ahead of the Fed decison tomorrow

Dow rose 133, decliners slightly over advancers & NAZ was off 118.  The MLP index slid back 1 to the 267s & the REIT index fell 3+ to the 279s.  Junk bond funds fluctuated & Treasuries remained higher which reduced yields.  Oil went up 1 to the high 77s (2 month high) & gold gained 9 to 2054 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Respondents to a CNBC Fed Survey see fewer interest rate cuts than the market's aggressive outlook, with the central bank starting them later in the year than traders currently hope.  Just 9% see the Federal Reserve cutting rates in Mar.  50% see a cut in May & only in Jun is there a majority of 70% predicting that rates go down.  Futures markets, meanwhile, place a 37% probability on a Mar cut & around an 84% chance in May.  And while futures markets have priced in 5 or 6 rate cuts, survey respondents, on average, see just a bit more than 3.  “There is little reason to expect a major slowdown in the economy so the Fed will likely not risk the gains in inflation it has made by easing prematurely,” wrote Joel Naroff, pres of Naroff Economics, in response to the survey.  The Fed's interest rate decision is tomorrow & will be followed by a press conference by Fed Chair Jerome Powell, where traders will parse his words for any indication on when the Fed may start to move.  It's fairly typical for this group of Fed watchers to be more closely aligned with the Fed's outlook than the market.  The question remains of who has it right & how much it matters.  By 2025, the market, the survey & the Fed forecast all converge on a Funds rate of 3.3-3.6% & the debate now is over how fast the Fed gets there.  While respondents predict a cautious Fed, on balance they think it should be more aggressive: 56% say the bigger risk is that the Fed cuts too late while 44% say the risk is going too early.  The 25 respondents, including economists, strategists & fund managers, were less united on the risks around reducing the Fed's $7.6T balance sheet.  They expect the reduction of the balance sheet, known as quantitative tightening, to end in Nov.  The Fed is seen lowering its total reserves by another $1.0-$6.6T & reducing bank reserves to $3T from the current level of around $3.5T.  At that level, bank reserves would be almost double where they were before the Fed started increasing its balance sheet to provide more stimulus to the economy.  The Fed has said it wants to stop QT just above the level of what it calls “ample reserves.”  36% of respondents say the bigger risk is that the Fed leaves the balance sheet too big, compared with 16% who say the risk is keeping the balance sheet too small.  But 32% say neither is much of a risk & 12% say both risks are equal.  The survey shows forecasters still see a slowdown ahead, but one not nearly as severe as they mis-forecast a year ago.  Last year, thru at least the first ½ of the year, respondents predicted growth would slow below 1%, along with rising unemployment.  Growth came in above 3% & unemployment barely budged.  This year, the average GDP forecast is for GDP to slow to 1.3%, unemployment to rise 0.6% to 4.3% while headline CPI ends the year at 2.7%.  But those averages hide a spectrum of views on the outlook.

The Fed will cut rates fewer times and start them later than market hopes, according to CNBC Fed survey

Pfizer (PFE) posted a surprise adjusted 4th-qtr profit, as the company's declining Covid business loss less revenue than expected.  The company reversed roughly $3.5B in revenue related to the expected return of 6.5M doses of its Covid drug, Paxlovid, from the US gov.  That hit is less than the $4.2B PFE initially expected for the return of nearly 8M doses of Paxlovid.  The company sees the fewer-than-expected returned Paxlovid doses as an “encouraging sign” because it indicates that use of the drug increased in the 4th qtr, CFO Dave Denton said.  Covid vaccine raked in $5.4B in revenue for the qtr, down 53% from the same period last year.  The forecast expected the shot to bring in $5B in sales.  CEO Albert Bourla said around 15% of the US population received an updated Covid vaccine this fall & winter, slightly lower than the 17% forecast in Oct a month after the company's new shot rolled out.  The results come as PFE tries to blunt the rapid decline of its Covid business, which saw demand plummet to new lows & transitioned to the commercial market in the US last year.  As revenue suffers, the company is trying to improve its bottom line & boost investor confidence through a broad $4B cost-cutting plan.  Q4 EPS was 10¢, adjusted, versus a loss of 22¢ expected & revenue was $14.25B versus $14.42B expected.  PFE also reiterated its full-year 2024 guidance, which it first outlined in mid-Dec.  It expects revenue of $58.5-61.5B this year, which includes roughly $8B in revenue from its Covid products & contributions from its recently closed acquisition of cancer drug developer Seagen.  The company expects to book adjusted EPS of $2.05-2.25.  PFE recorded 4th-qtr revenue of $14.25B, down 41% from the same period a year ago, due to the plunge in sales of its Covid products.  For the 4th qtr, PFE booked a net loss of 60¢ per share.  That compares to EPS of 87¢ during the same period a year ago.  Excluding certain items, the company posted EPS of 10¢ for the qtr.  Still, the Covid business had a dismal 2023.  The stock fell 46¢.

Pfizer beats on earnings as Covid business loses less revenue than expected

General Motors (GM) beat top- & bottom-line expectations for the 4th qtr, while forecasting another strong year despite potential economic & sales head winds.  The automaker's 2024 guidance calls for net income attributable to stockholders of EPS of $8.50-9.50 & adjusted earnings before interest and taxes (EBIT) of $12-14B, or $8.50-9.50 adjusted EPS & adjusted automotive free cash flow of $8-10.  The earnings guidance is largely better than GM's 2023 results & in line or higher than many expectations of flat results compared with 2023.  For the 4th qtr, GM reported EPS of $1.39 a year earlier.  Adjusting for one-time items, EPS was $1.24, topping expectations.  Revenue was largely flat year over year, at $42.98B compared with $43.11B for the final 3 months of 2022.  GM's full-year 2023 revenue was about up 10% compared with the prior year, at $171.8B, with net income attributable to stockholders of $10.13B & adjusted earnings before interest and taxes of $12.36B.  That compares with 2022 revenue of $156.74 billion, net income attributable to stockholders of $9.93B & adjusted EBIT of $14.47 billion.   “As we begin 2024, I believe GM is well positioned for another year of strong financial performance,” CFO Paul Jacobson said.  GM's 2023 earnings included several special charges, including $1.1B in North American strike costs & $792M for new commercial agreements between GM & LG Electronics & LG Energy Solution.  The stock rose 2.76 (3%).

GM beats Wall Street estimates, forecasts continued strong profit in 2024

West Texas Intermediate (WTI) crude oil closed higher after the US reported more job openings than expected last month & Middle East tensions following a deadly attack on a US military base in Jordan.  WTI crude for Mar closed up $1.04 to settle at $77.82 per barrel, while Mar Brent crude, the global benchmark, was last seen up 46¢ to $82.86.  The gains followed on bullish economic reports from the US Bureau of Labor Statistics Job Openings & Labor Turnover Survey showing 9M job openings in Dec, up from 8.9M a month earlier & above the consensus expectation for 8.8M openings.  Consumer confidence in Jan rose to 114.8, under expectations for a reading of 115.0 but well ahead of 108.0 in Dec.  Still, concerns remain over demand from China, the #1 importer, after the country's largest property developer, Evergrande, was ordered to liquidate after failing to restructure more than $300M in debt, overshadowing earlier stimulus measures from its gov as its economy slows.

WTI Crude Oil Rises on Bullish US Jobs Report and Mideast Tensions

Gold futures rose as the $ weakened.  The most active gold contract for Apr rose 6 (3%) to close at 2050 per ounce.  Escalated geopolitical tension in the Middle East also supported gold.  The Federal Reserve kicked off its Jan monetary policy meeting, which will conclude with an announcement tomorrow.  US monthly jobs report will be out on Fri.  Economic data released today were mixed.  The S&P CoreLogic Case-Shiller US National Home Price NSA Index, covering all 9 US census divisions, reported a 5.1% annual gain in Nov, up from a 4.7& rise in the previous month.  The Conference Board said that its consumer confidence index rose for the 3rd straight month to 114.8 in Jan from 108 in Dec.  The US Labor Dept reported that US job listings rose to 9M in Dec from a revised 8.9M in Nov.

Gold Rises on Weaker U.S. Dollar

The survey above shows there is a variety of thoughts about the future for interest rates.  More will be learned when Powell gives his report.  With all the uncertainty out there, gold remains popular for uneasy investors & the advance/decliners indicator was weak (above).

Dow Jones Industrials

Markets slip as jobs opening inch higher showing a robust labor market

Dow edged lower by 5, decliners over advancers better than 3-2 & NAZ retreated 68.  The MLP index fell 2 to 266 & the REIT index declined 2+ to 380.  Junk bond funds slid lower & Treasuries were about even so yields hardly budged.  Oil was fractionally higher to the 77s & gold rose 7 to 2051.

AMJ (Alerian MLP Index tracking fund)

US job openings unexpectedly rose in Dec to the highest level in 3 months, underscoring the resilience of the labor market even in the face of higher interest rates.  The Labor Dept said there were 9M job openings in Dec, an increase from the upward revised 8.9M openings reported the previous month.  The foecast expected a reading of 8.7M.  "The report boils down to no news is good news," said Robert Frick, corp economist with Navy Federal Credit Union.  "Job openings are still a healthy level above those seeking work, and the other numbers remain where a healthy labor market should find them. While openings did tick up, the increase is well within the margin of error."

US job openings rise in December to highest level in 3 months

The IMF nudged its global growth forecast higher, citing the unexpected strength of the US economy & fiscal support measures in China.  It now sees global growth in 2024 at 3.1%, up 0.2 percentage points from its prior Oct projection, followed by 3.2% expansion in 2025.  Large emerging market economies including Brazil, India & Russia have also performed better than previously thought.  The IMF believes there is now a reduced likelihood of a“hard landing,” an economic contraction following a period of strong growth, despite new risks from commodity price spikes & supply chain issues due to geopolitical volatility in the Middle East.  It forecasts growth this year of 2.1% in the US, 0.9% in both the euro zone & Japan, & 0.6% in the UK.  “What we’ve seen is a very resilient global economy in the second half of last year, and that’s going to carry over into 2024,” the IMF's chief economist, Pierre-Olivier Gourinchas, said.  “This is a combination of strong demand in some of these countries, private consumption, government spending. But also, and this is quite important in the current context, a supply component as well ... So very strong labor markets, supply chain frictions that have been easing, and the decline in energy and commodity prices.”  The latest official figures showed the US economy tearing past expectations in the 4th qtr, with growth of 3.3%.  China has faced a host of issues over the last year, including a disappointing rebound in post-pandemic spending, concerns over deflatio & an ongoing property sector crisis.  The gov has rolled out a host of stimulus measures in response, contributing to the IMF's upgrade.  However, the IMF's forecasts remain below the global growth average between 2000 & 2019 of 3.8%.  Higher interest rates, the withdrawal of some fiscal support programs & low productivity growth continue to weigh.  But restrictive monetary policy has led to inflation falling faster than expected in most regions, which Gourinchas called the “other piece of good news” in this report.  The IMF sees global inflation at 5.8% in 2024 & 4.4% in 2025.  In advanced economies, that falls to 2.6% this year & 2% next year.  “The battle against inflation is being won, and we have a higher likelihood of a soft landing. So that sets the stage for central banks, the Federal Reserve, the European Central Bank, the Bank of England, and others, to start easing their policy rates, once we know for sure that we are on that path,” Gourinchas said.  “The projection right now is that central banks are going to be waiting to get a little bit more data, they are going meeting by meeting, they are data dependent, confirming that we are on that path. That’s the baseline. And then if we are, then by the second half of the year we’ll see rate cuts,” he continued.  While central banks must not ease too early, there is also a risk coming into sight of policy remaining too tight for too long which would slow growth & bring inflation below 2% in advanced economies, Gourinchas added.

IMF upgrades global growth forecast, citing U.S. resilience and policy support in China

UPS (UPS) fell short of revenue estimates, reporting drops in shipping volume, both internationally & domestically, in its 4th-qtr earnings report.  The company also announced 12K layoffs as part of an effort to align resources in 2024.  The workforce reductions will save the company about $1B in costs, CEO Carol Tomé said.  “2023 was a unique, and quite candidly, difficult and disappointing year. We experienced declines in volume, revenue and operating profits and all three of our business segments,” Tomé added.  For the last 3 months of 2023, UPS was $1.87, compared with $3.96, a year earlier.  Adjusting for 1-time items related to pensions & intangible assets, EPS was $2.47.  Revenue declined 7.8% to $24.9B from $27B last year.  The company reported a 7.4% drop in average daily volume domestically & an 8.3% decrease internationally.  Tomé said the intl softness was “heavily weighted” in Europe, coupled with freight complications in the Red Sea region, as well as the Panama & Suez Canals.  UPS's 2024 outlook expects revenue of $92-94.5B, with an adjusted operating margin of about 10% to 10.6%.  The stock sank 12.66% (8%).

UPS announces 12,000 job cuts, says package volume slipped last quarter

UPS feels the global economy & its dreary report sends a negative signal to the stock market.  It could be mentioned in the Fed's meeting which is going on presently.  In addition, profit taking would be in order following the stock market's rally.

Dow Jones Industrials 

Markets climb despite rising Middle East tensions

Dow finished up 224 (near session highs & a new record), advancers over decliners better than 2-1 & NAZ gained 172.  The MLP index stayed was up 1+ to the 266s (prior close) & the REIT index added 1+ to the 381s.  Junk bond funds rose along with the stock market & Treasuries buyers were buying Treasuries which reduced yields.  Oil was off 1 to 77 & gold was up 14 to 2031 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Federal Reserve is expected to announce it will leave rates unchanged at the end of its 2-day meeting this week, after recent reports showed the economy grew at a much more rapid pace than expected & inflation eased.  “In many ways, we already have a soft landing,” said Columbia Business School economics professor Brett House.  “The Fed has threaded the needle of the economy very artfully with a kind of ’Goldilocks’ scenario.”  GDP grew at a much faster-than-expected 3.3% pace in the 4 qtr, fueled by a solid job market& strong consumer spending.  However, inflation is still above the central bank's 2% target, and that also opens the door to a “no-landing scenario,” according to Alejandra Grindal, chief economist at Ned Davis Research.  “No landing means above-trend growth, and also above-trend inflation,” Grindal said, describing an economy that is “overheating.”  Inflation has been a persistent problem since the Covid pandemic, when price increases spiked to their highest levels since the early 1980s.  The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest in more than 22 years.  As of the latest reading, the current annual inflation rate is 3.4%, still above the 2% target that the central bank considers a healthy annual rate.  The combination of higher rates & inflation have hit consumers particularly hard.  A “no landing” scenario also means more strain on household budgets & those with variable-rate debt, such as credit cards.  While still elevated, inflation is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year.  “That looks like the soft landing has been more or less achieved and is likely to be sustained,” House said.

Forget a soft landing, there may be ‘no landing,’ economist says.

Starbucks (SBUX) is launching its olive oil-infused drinks in all US stores.  The beverages, named Oleato, debuted in Italy in Feb 2023 after former CEO Howard Schultz visited the country & noticed locals drinking olive oil daily.  The line of olive oil-infused coffee drinks launched next month in select US stores & met negative early reviews.  Oleato means “with oil” in Italian & the line includes a latte & an iced espresso drink.  It also features the Oleato Golden Foam, which is a vanilla sweet cream infused with Partanna extra virgin olive oil that can be added to any SBUX drink.  4 recommended customizations for the foam will also be available in the app.  The launch comes on the same day SBUX will report 4th-qtr earnings.  The company is trying to sustain sales growth in its North America unit.  The stock rose 1.00.

Starbucks olive oil-infused Oleato drinks to launch across the U.S.

Several media outlets have announced layoffs in Jan 2024 as economic challenges take a toll on the industry.  Business Insider, the Los Angeles Times, TIME & Sports Illustrated are among the publications that have downsized their editorial operations as they restructure & reorient their business models to suit the changing media landscape.  The latest cuts come as the media industry struggled to restore advertising revenue to pre-pandemic levels & faces rising competition from social media platforms for readers' attention.  Business Insider, owned by multinational media conglomerate Axel Springer SE, announced that it would lay off about 8% of its staff last week as it restructures its business.  "We closed out last year with a plan in place, a clear target audience, and a vision. This year is about making it happen and focusing our company and efforts towards this future," Business Insider CEO Barbara Peng wrote on Thurs.  "We have already begun to refocus teams and invest in areas that drive outsize value for our core audience. Unfortunately, this also means we need to scale back in some areas of our organization."  "As part of this new direction, today we are announcing we are reducing the size of our team – a change that impacts about 8% of our people," Peng added.  "We’re committed to building an enduring and sustainable Business Insider for the coming years and beyond."  The Los Angeles Times announced last week that it would be laying off at least 115 people (more than 20% of the paper's newsroom) in response to ongoing losses that owner Dr Patrick Soon-Shiong were $30-40M per year.  "Today’s decision is painful for all, but it is imperative that we act urgently and take steps to build a sustainable and thriving paper for the next generation. We are committed to doing so," Soon-Shiong said.  Sports Illustrated which is owned by Authentic Brands Group & was published under license by the Arena Group, announced significant layoffs after Authentic Brands revoked the license after Arena Group missed payments as it looks to cut costs & address its debt burden.  As a result, Arena announced "a significant reduction in its workforce of over 100 employees."  Authentic Brands Group said that "The Arena Group’s license to serve as the publisher of Sports Illustrated was terminated as a result of the company’s failure to pay its quarterly license fee despite being given a notice of breach and an opportunity to cure the breach."  "Authentic is here to ensure that the brand of Sports Illustrated, which includes its editorial arm, continues to thrive as it has for the past nearly 70 years," it continued.  "We are confident that going forward the brand will continue to evolve and grow in a way that serves sports news readers, sports fans, and consumers. We are committed to ensuring that the traditional ad-supported Sports Illustrated media pillar has best in class stewardship to preserve the complete integrity of the brand’s legacy."

LA Times, Sports Illustrated among media outlets announcing layoffs to start 2024

Gold futures rose even as the $ moved higher as investors seek the safety of the precious metal amid concerns the US will be drawn into a Middle East war after Iran-backed militants on the weekend launched a drone attack on a US military base in Jordan that killed 3.  Gold for Apr closed up $8 to settle at $2044 per ounce.  The rise comes as Middle East tensions increase as Pres Biden said he will "hold all those responsible to account" after a deadly weekend drone attack on a US base in Jordan by Iranian-backed militants.  The deaths follow attacks on US bases in Iraq & missile & drone attacks on Red Sea shipping by Iran-backed Houthi militants in Yemen.  The death of 3 US service members in Jordan marks a critical inflection point in the ongoing conflict in the Middle East & raises a specter of a more substantial US involvement in the war.  The Biden administration has become more deeply enmeshed in the conflict in recent weeks because the Iran-backed militias have become more brazen in targeting US personnel & commercials interests.  Gold's rise comes despite a higher $.  The ICE dollar index was last seen up 0.25 points to 103.68.  Treasury yields narrowed.  The 2-year note was last seen paying 4.316%, down 2.0 basis points & the yield on the 10-year note was down 4.5 basis points to 4.098%.

Gold Closes Higher Even as The Dollar Strengthens as Middle East Tensions Heighten

West Texas Intermediate (WTI) crude oil closed with a loss following 3 days of gains despite rising tensions in the Middle East after 3 US soldiers were killed in a drone attack on a base in Jordan as worries over the health of China's economy heightened after a Hong Kong court ordered the liquidation of Evergrande, the country's largest real-estate developer, after it defaulted on $330B on debt.  WTI crude oil for Mar closed down $1.23 to settle at $76.78 per barrel, while Mar Brent crude, the global benchmark, was last seen down $1.31 to $82.24.  The drop comes as worries over the economic health of the world's #1 importer rise amid a debt crisis for China's real-estate sector as a court ordered the liquidation of Evergrande after more than a year of attempted debt restructuring.  The sector accounts for about a 5th of China's GDP & the court's decision comes as the country's growth falls to the lowest in 3 decades.  Chinese economic struggles are well publicized & economic potentates are cognizant that without fiscal &/or monetary support the economy will struggle to gain traction.

WTI Closes Down on Concerns over the Health of China's Economy as Middle East Tensions Rise

Tensions are running very high in the MidEast & in DC, but that is not bothering investors.  They are betting heavily on rate cuts by the FED & expect to learn more on Wed after their meeting concludes.  Gold & Treasuries continue to be popular with nervous investors.

Dow Jones Industrials 

Markets stuggle ahead of a big week for earnings

Dow inched up 2, advancers slightly ahead of decliners & NAZ added 33.  The MLP index hardly budged near 266 & the REIT index fluctuated near 381, its previous close.  Junk bond funds crawled higher & Treasuries saw more buying which lowered yields.  Oil was off 1 to 76 after last week's rise & gold rebounded 8 to 2025.

AMJ (Alerian MLP Index tracking fund)

3 US service members were killed & dozens wounded during an unmanned aerial drone attack on US forces stationed in northeastern Jordan near the Syrian border, Pres Biden & US officials said.  Biden blamed Iran-backed groups for the attack, the first deadly strike against US forces since the Israel-Hamas war erupted in Oct & sent shock waves throughout the Middle East.  “While we are still gathering the facts of this attack, we know it was carried out by radical Iran-backed militant groups operating in Syria and Iraq,” Biden said.  At least 34 personnel were being evaluated for possible traumatic brain injury.  2 different officials said some wounded US forces were medically evacuated from the base for further treatment.  2 US officials said the drone struck near the barracks early in the morning, which could explain the high number of casualties.  The Islamic Resistance in Iraq, an umbrella organization of hardline Iran-backed militant groups, claimed attacks on 3 bases, including one on the Jordan-Syria border.  The attack is a major escalation of the already tense situation in the Middle East, where war broke out in Gaza after Palestinian Islamist group Hamas' attack on Israel on Oct 7 which killed 1200.  Israel's subsequent assault on Gaza has killed over 26K Palestinians, according to the local health ministry.  Since then, US forces have come under attack more than 150 times by Iran-backed groups in Iraq & Syria, causing at least 70 casualties prior to yesterday's attack, most of them traumatic brain injuries.  US warships have also been fired at by Iran-backed Houthi forces in Yemen, who are regularly attacking commercial ships passing thru Red Sea waters off Yemen's coast.

Three U.S. troops killed, up to 34 injured in Jordan drone strike linked to Iran

The US national debt is climbing at an astronomical pace & has shown no signs of slowing down despite the heightened scrutiny on gov spending.  The national debt, which measures what the US owes its creditors, surged to $34,135B as of Thurs, according to the latest numbers published by the Treasury Dept.  That is up about $47.1B from the $34,088B figure reported the previous day!!  By comparison, just 4 decades ago, the national debt hovered around $907B.  The unrelenting increase is what prompted Fitch Ratings to issue a surprise downgrade of the nation's long-term credit score in mid-2023.  The agency cut the US debt by one notch, snatching away its pristine AAA rating in exchange for an AA+ grade.  In making the decision, Fitch cited alarm over the country's deteriorating finances & expressed concerns over the gov's ability to address the ballooning debt burden amid sharp political divisions.  "This is a warning shot across the U.S. government's bow that it needs to right its fiscal ship," Sean Snaith, an economist at the University of Central Florida, said.  "You can't just spend trillions of dollars more than you have in revenue every year and expect no ill consequences."  The outlook for the federal debt level is bleak, with economists increasingly sounding the alarm over the torrid pace of spending by Congress & the White House.  The latest findings from the Congressional Budget Office indicate that the national debt will nearly double in size over the next 3 decades.  At the end of 2022, the national debt grew to about 97% of GDP.  Under current law, that figure is expected to skyrocket to 181% at the end of 2053, a debt burden that will far exceed any previous level.  Should that debt materialize, it could risk America's economic standing in the world.  "America’s fiscal outlook is more dangerous and daunting than ever, threatening our economy and the next generation," said Michael Peterson, the CEO of the Peter G Peterson Foundation that advocates for reducing the federal deficit.  "This is not the future any of us want, and it’s no way to run a great nation like ours."

US national debt takes turn for the worse as it shows no signs of slowing down

The US & China will hold formal high-level talks in Beijing next week aimed at limiting the flow of fentanyl into the US, senior Chinese officials said, resuming counternarcotics cooperation that was suspended for more than a year even as America struggles with what has been called its worst drug crisis in history.  China, which US officials say is the primary source of the precursor chemicals synthetized into fentanyl by drug cartels in Mexico, has promised greater cooperation with the US on combating the crisis.  It also continues to deflect blame for it.  “I believe through this collaboration, both countries can enhance their law enforcement capabilities,” Yu Haibin, one of China's top narcotics control officials, said this week.  “We will achieve remarkable results in combating fentanyl substances, including precursors.”  But he also repeated China's argument that America's fentanyl problem stems from the public's unrelenting demand for it.  “The crisis in the U.S. is not manufactured by China; rather, its roots lie within the United States itself,” said Yu, who is deputy director general of the Ministry of Public Security’s Narcotics Control Bureau & deputy secretary-general of the National Narcotics Control Commission.  Chinese officials did not go into detail about the upcoming counternarcotics meeting in Beijing, which has not yet been publicly announced.  The US has accused China of complicity in its fentanyl crisis, which together with other opioids has killed hundreds of thousands in recent years & destroyed communities across the country.  According to the Centers for Disease Control & Prevention, more than 80K people in the US died from overdoses involving opioids in 2021 alone, with almost 88% of those cases involving synthetic opioids such as fentanyl.  The meeting early next week of a newly launched US-China counternarcotics working group is part of delicate efforts to improve relations between the world's 2 biggest economies, which in recent years have fallen to their lowest point in decades.  The launch of the working group was one of the outcomes of the Nov meeting in California between Pres Biden & Chinese Pres Xi Jinping, their first encounter in a year. 

U.S. and China to hold high-level talks aimed at curbing the fentanyl crisis

Everybody is waiting for more earnings reports.  This is a good time to look at the federal debt disaster (see above).  US debt was not an important factor until this century.  Then it exploded & its growth shows no signs of slowing.  Gov spending is out of control.  Not good!  Meanwhile fighting in the Mideast is going from bad to worse.  All is not well.

Dow Jones Industrials 

Markets hesitate while investors evaluate optimistic inflation data

Dow went up 60 (below early highs), advancers over decliners about 5-4 & NAZ slid back 55.  The MLP index added 2+ to the 265s & the REIT index slipped back 1+ to 380.  Junk bond funds fluctuated & Treasuries had limited selling, raising yields modestly.  Oil was fractionally higher to 78 & gold dipped back 1 to 2016 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Intel (INTC), a Dow stock, issued a forecast for the current qtr that came in far short of estimates.  In its earnings report, INTC beat profit & revenue, but the chipmaker said it expected adjusted EPS of 13¢ this qtr on $12.2-13.2B in sales.  Analysts were expecting EPS of 33¢ on $14.1B of revenue.  The revenue guidance for the first qtr was below every analyst's estimate.  While some parts of the semiconductor industry are booming because of strong demand for artificial intelligence chips, other server parts, like the central processing units (CPUs) INTC makes, don't have the same kind of momentum.  The estimate for the 2nd, 3rd & 4th qtrs in 2024 all fell.  CEO Patrick Gelsinger said that first-qtr sales performance would take a hit because of weakness at Mobileye (MBLY), where INTC owns a majority stake, as well as in the company's programmable chip unit.  He also said the company's core businesses of PC & server chips remained “healthy” & would report sales at the low end of the seasonal range.  INTC stock dropped 5.90 (12%).

Intel on pace for worst day since 2020 on weak outlook

Treasury Secretary Janet Yellen praised the positive economic growth numbers as a benefit for the middle class.  “Though some forecasters thought a recession last year was inevitable, President [Joe] Biden and I did not,” Yellen said.  “Instead of contracting, the economy has continued to grow, driven by American workers and President Biden’s economic strategy.”  The report released by the Commerce Dept showed gross domestic product grew by a seasonally adjusted annualized rate of 3.3% for the last few months of 2023; more rapidly than the estimate of 2%.  Economic growth for all of 2023 also beat the outlook at the start of the year.  The indicators are evidence of “the fairest recovery on record,” said Yellen, adding that the US has “avoided financial pain for most middle-class American families” due to a strong post-pandemic recovery with faster relief from inflation than comparable countries.  Consumer spending, measured by core prices for personal consumption expenditures, also rose 2% in Q4 while the headline rate was 1.7%.  The Federal Reserve uses core prices to measure longer-term inflation.  The rate of inflation reached record highs in 2022.  Yellen credited steps taken by the Biden administration to curb supply chain scarcities that led to price increases, including the release of 180M barrels of oil from the Strategic Petroleum Reserve & a price cap on Russian oil as the Russia-Ukraine War escalated in 2022.  “Though we’re focused on making historic investments in transitioning towards clean energy in the medium-and long-term, record domestic oil and natural gas production addressed our immediate needs,” Yellen said.  “And energy prices have declined, with gas now down around $1.90 per gallon from its high in June 2022.”  AAA quotes the average national price for a gallon of gas at $3.10.

Treasury chief Yellen touts GDP numbers as a boon to middle class

Freight going thru the Suez Canal has plunged by nearly ½ since Iran-backed Houthi militants began attacking vessels in the Red Sea as a show of support for Palestinians in the Israel-Hamas war.  UNCTAD, the United Nations Conference on Trade & Development, which supports developing countries in global trade, says that 39% fewer ships than at the start of Dec transited the canal, leading to a 45% decline in freight tonnage.  Container shipments thru the canal tumbled 82% in the week to Jan 19 from early Dec, while for liquified natural gas (LNG), the decline was even greater.  The drop-off for dry bulk was smaller & crude oil tanker traffic was very slightly higher.  UNCTAD has warned of risks of higher inflation, uncertainty about food security & increased greenhouse gas emissions due to the sharp decline.  "We are very concerned," Jan Hoffmann, UNCTAD's head of trade logistics said yesterday.  "We are seeing delays, higher costs, higher greenhouse gas emissions."  The Suez Canal is a critical shipping lane, given that it offers vessels a direct route between the North Atlantic & northern Indian oceans via the Mediterranean Sea & the Red Sea.  About 15% of world shipping traffic, including 30% of global container trade, passes thru the Suez Canal.  But to avoid being attacked or having their cargo stolen, many ships are instead sailing around the Cape of Good Hope, which is a much longer way around the continent of Africa.  Container shipping giant Maersk suspended use of the Red Sea & Suez Canal at the start of the year after one of its vessels was attacked by the Houthi militants & it warned of "significant" consequences for global growth as a result of the disruptions.  The US & the UK have responded with strikes against the Houthi, which the US recently relisted as a terrorist group.  The US & the UK yesterday announced sanctions leveled at 4 senior Houthi officials in Yemen.  Hoffmann said there were now 3 key global trade routes disrupted, also including flows of grain & oils since Russia's invasion of Ukraine & the Panama Canal, where low water levels from drought meant shipping last month was down 36% year-on-year & 62% from 2 years ago.

Freight through Suez Canal sinks 45% amid Houthi attacks

Gold prices held steady as investors' attention shifted to the Federal Reserve's policy meeting due next week for more insights into the interest rate outlook.  Spot gold was little changed at $2016 per ounce, down 0.6% this week.  Gold futures settled mostly flat at $2017.  US prices rose moderately in Dec, keeping the annual increase in inflation below 3% for a 3rd straight month, which could allow the Fed to start cutting interest rates this year.  Another set of data yesterday showed the US economy grew faster than projected in the 4th qtr.

Gold holds steady with spotlight on Fed verdict

US crude oil closed out its best week in more than 4 months, as positive economic news in the world's 2 largest economies raised hopes for more robust crude demand this year.  The West Texas Intermediate contract for Mar gained 65¢ (0.8%) to settle at $78.01 a barrel & the Brent contract for Mar settled at $83.55 a barrel, up $1.12 (1.4%).  US crude posted its best week, up 6.3%, since Sep 1, while the global benchmark was last up 6.4% for the week.  WTI & Brent have gained more than 8%, respectively, for the year.  For consumers, rising oil prices means slightly higher prices at the pump. The national average for a gallon of gas stood at $3.10 today, up 1¢ from a week ago, according to AAA.  Gas prices will continue to rise off & on into the spring, said Patrick de Haan, at GasBuddy.  The US reported stronger-than-expected economic growth in the 4th qtr of 3.3%, compared to 2% expected.  China, meanwhile, is loosening reserve requirements for its bank in an effort to boost growth amid concerns that its economy is faltering.

 

U.S. crude oil tops $78 in best week since September on U.S. growth, China stimulus

Dow reached new records above 38K, but it is struggling to extend its recent rally this year.  Rate cuts this year are widely expected although details are unclear.  Houthi attacks in the Red Sea have the potential to disrupt global trade, so that must be watched.  This week, Dow was up 246 (good enough for another record).

Dow Jones Industrials 

Markets rise as Fed's preferred inflation gauge falls below 3%

Dow went up 106 after a slow start, advancers over decliners better than 3-2 & NAZ edged up 13.  The MLP index added another 1+ to the 264s & the REIT index stayed near 381.  Junk bond funds were sold & Treasuries had limited selling, raising yields slightly (more below).  Oil was down pennies in the 77s after yesterday's gain & gold hardly budged at 2017.

AMJ (Alerian MLP Index tracking fund)

An inflation measure closely watched by the Federal Reserve rose in Dec after declining the previous month as high prices continued to weigh on Ms of Americans.  The personal consumption expenditures (PCE) index showed that consumer prices rose 0.2% from the previous month, according to the Dept of Labor.  On an annual basis, prices climbed 2.6%, unchanged from the previous month.  The figures were both in line with estimates.  In a sign the Fed's fight against inflation is slowly making progress, core prices, which strip out the more volatile measurements of food & energy, climbed 0.2% from the previous month & 2.9% from the previous year.  It marked the best reading for core inflation since 2021.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.  Both the core & headline numbers point to inflation that is steadily returning to the Fed's preferred 2% target.  Other figures included in the report showed that consumer spending rose 0.7% in Dec compared with a 0.4% increase in Nov, suggesting that Americans ramped up their spending during the pivotal holiday season.  Still, many economists anticipate that spending will slow in the coming months as consumers continue to grapple with expensive goods, high interest rates & the resumption of federal student loan payments. 

Inflation rises again in December as high prices persist

The 10-year Treasury yield was little changed as investors assessed yet another encouraging inflation reading, suggesting the Federal Reserve can start cutting rates later this year.  The yield on the benchmark 10-year Treasury note  was down by 1 basis point at 4.122%, while the 30-year bond yield was lower by roughly 2 basis points at 4.363%.  The yield on the 2-year Treasury note was up about 1 basis points at 4.332%.  Yields move inversely to prices & 1 basis point equals 0.01%.  Investors assessed the Dec's personal consumption expenditures price index, the Fed’s preferred inflation reading, which rose 0.2% last month & was up 2.9% from a year ago, excluding food & energy.  That's compared to respective increases of 0.2% & 3% anticipated.  The encouraging inflation reading comes after yesterday's surprisingly strong GDP, which showed the economy growing at an annualized rate of 3.3%, higher than expectations of 2%.  The report also showed slowing inflation.  In the GDP report, core personal consumption expenditures price index, which the Federal Reserve monitors for longer-term inflation trends, rose by 2.7% on an annual basis, down from 5.9% a year ago.  Investors are closely monitoring the economic data for hints as to when the Fed can start to cut interest rates, as it works to tamp inflation down to its 2% goal.  According to the CME FedWatch Tool, markets are currently pricing in a 46% likelihood the central bank will lower by a qtr percentage point in Mar.

10-year yield steady around 4.14% after another encouraging inflation report

Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate for the benchmark 30-year fixed mortgage climbed to 6.69% this week, an increase from 6.60% last week.  The popular note averaged 6.13% a year ago.  The rate on a 15-year fixed mortgage also increased, jumping to 5.96% after coming in last week at 5.76%.  One year ago, the rate on the 15-year fixed note averaged 5.17%.  Sam Khater, Freddie Mac's chief economist, said that the stabilization of rates has caused some potential homebuyers to jump "off the fence back into the market."  Khater added, "Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace."  There has been an increase in purchase activity recently despite higher rates, but the shortage of existing homes on the market is expected to continue to hinder the real estate market this year.  "While softness in mortgage rates may encourage some buyers to re-enter the market, given that approximately two-thirds of outstanding mortgages currently boast rates below 4%, a notable portion of existing homeowners may opt to postpone their buying and selling plans and wait for the potential for even lower rates before making decisions about their next residences," said Realtor.com economist Jiayi Xu.  "As a result, we expect the 2024 housing market will continue to be slow, particularly in light of the still-climbing existing home sales prices in December 2023."

Mortgage rates are up again after taking a slight dip last week

In the first hour of trading Dow rose, & then the it slid back a little.  The GDP data yesterday & the inflation data today suggest there is reason to expect the Fed will begin to cut interest rates soon.  That assumes the economic picture doesn't change sharply in the coming weeks.

Dow Jones Industrials 

Markets advance despite some disappointing earnings

Dow climbed 243 (session high), advancers over decliners about 3-1 & NAZ was up 4.  The MLP index gained 3+ to the 262s & the REIT index gained 3+ to 381.  Junk bond funds were also higher & Treasuries remained in demand, lowering yields.  Oil jumped 2+ to the 77s & gold inched up 2 to 2018 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) revenue & profit for the 4th qtr missed estimates as automotive revenue increased just 1% from a year earlier.  Total revenue increased 3% from $24.3B a year earlier.  Operating margin for the qtr came in at 8.2%, down from the year-ago qtr's figure of 16% & slightly higher than 7.6% in the prior qtr.  Meager growth in auto revenue was partly due to a reduced average selling price following steep price cuts around the world in the 2nd ½ of the year.  EPS for the qtr more than doubled to $2.27 from $1.07 a year earlier.  The increase was mostly due to a $5.9B one-time noncash tax benefit.  Vehicle volume growth in 2024 “may be notably lower” than last year's growth rate as the company works toward launching its “next-generation vehicle” in Texas.  The company cautioned investors that it’s “currently between two major growth waves.”  For the full year, automotive revenue reached $82.4B, a 15% increase from 2022.  The energy division, which is much smaller than its core business, was a bright spot, with revenue rising 54% to $6B.  The unit sells solar energy generation & energy storage systems.  The “Services and Other” revenue rose 37% from a year earlier to $8.3B.  Operating income decreased year over year to $2.1B in the qtr, on declining profits from reduced average sales price of its vehicles & an increase in operating expenses “partly driven by AI and other R&D projects.”  Spending on research & development increased to $1.09B from $810M a year earlier, though it was down from $1.16B in the prior qtr.  The stock tumbled 25.20 (12%).

Tesla shares drop 6% on weak auto revenue, warning of slower growth in 2024

Humana (HUM) plummeted after the health insurer issued dismal full-year earnings guidance, citing soaring medical costs that are dogging the broader insurance industry.  Those expenses have spiked as an increasing number of older adults return to hospitals to undergo procedures they had delayed during the pandemic.  HUM, which primarily provides gov-backed insurance through the Medicare Advantage program, expects adjusted EPS of about $16 for 2024, a little more than ½ of the $29.10 that was expected.  The guidance adds to concerns about health insurance company profits falling as medical costs jump.  Expectations for 2024 earnings guidance were already low after the company warned last week that medical costs were running higher than expected in the 4th qtr.  It signaled that higher expenses could cut into its profits in the year ahead.  HUM confirmed that pessimism, when it reported a medical benefit ratio, the percentage of payout on claims compared with premiums, of 90.7% for the 4th qtr.  Analysts had estimated that the ratio would be 89.7% for the period.  HUM posted 4th-qtr revenue of $26.5B, which beat the estimate of $25.4B.  But the company posted a loss of $4.42 per share in the 4th qtr.  That compares with a loss of 12¢ per share, during the same period a year ago.  Excluding certain items, HUM reported a loss of 11¢ per share.  Analysts had expected the company to post EPS of 15¢.  The stock plunged 46.64 (12%)

Humana stock plunges on dismal 2024 forecast, as insurers face soaring medical costs

Microsoft (MSFT), a Dow stock, is cutting 1900 roles within its gaming division, marking the latest round of job layoffs in the tech industry.  The cuts will primarily impact roles in its Activision Blizzard team.  Some Xbox & ZeniMax employees will also be laid off.  In total, the job cuts will impact 8% of the company's gaming division, which employs 22K people.  In an email to staff, Microsoft Gaming CEO Phil Spencer told employees that "the leadership of Microsoft Gaming and Activision Blizzard is committed to aligning on a strategy and an execution plan with a sustainable cost structure that will support the whole of our growing business."  Spencer continued by saying that the company has "set priorities, identified areas of overlap, and ensured that we’re all aligned on the best opportunities for growth."  The news comes just 3 months after the company closed its $69B purchase of Activision Blizzard after months of battling regulatory hurdles.  The stock rose 2.31.

Microsoft cuts 1,900 jobs in gaming division

Gold edged higher as Treasury yields fell after US GDP data highlighted that pace of inflation slowed, while focus shifted to inflation data for further hints on the Federal Reserve's interest rate cut strategy.  Spot gold rose 0.2% to $2015 per ounce & US gold futures settled $1 higher at $2017.  Benchmark 10-year Treasury yields slipped after the GDP data.  The US economy grew faster than expected in the 4th qtr amid strong consumer spending, with growth for the full year coming in at 2.5%.  The report also showed 4th-qtr inflation pressures subsiding.

Gold gains as Treasury yields drop after US GDP data

West Texas Intermediate (WTI) crude oil rose to the highest in nearly 2 month, a day after a report showed a big drop in US oil inventories & higher than expected 4th-qtr US economic growth while Middle East tensions again heightened.  WTI crude for Mar closed up $2.27 to settle at $77.36 per barrel, the highest since Nov 29, while Mar Brent crude, the global benchmark, was last seen up $2.11 to $82.15.  The rise follows on yesterday's report from the Energy Information Administration showing US oil inventories last week fell by a more than expected 9.2M barrels, while production in the week dropped by 1M barrels per day to 12.3M bpd as a polar vortex brought bitterly cold temperatures to much of the country.  Rising tensions in the Middle East are also offering support for higher prices.  Yemen's Iran-backed Houthi militants launched fresh attacks on Red Sea shipping as 2 ships carrying US military supplies were forced to retreat from the area due to nearby explosions.

WTI Crude Oil Rises After a Big Drop in US Inventories, Mideast Tensions and Strong US Growth

Downbeat earnings from high profile companies did not keep investors away from buying stocks.  However they suggest unsatisfactory earnings reports are coming.  For the time being, enjoy a higher stock market with the Dow inches from its recent record.

Dow Jones Industrials 

Markets rise as GDP growth was stronger than expected

Dow gained 69 but off earlier highs, advancers over decliners 2-1 & NAZ rose 82.  The MLP index added 1+ to 261 & the REIT index went up 3+ to 381.  Junk bond funds rose & Treasuries were purchased after the strong GDP report, reducing yields (more below).  Oil climbed 1 to the 76s & gold added 4 to 2020.

AMJ (Alerian MLP Index tracking fund)

The US economy grew at a faster pace than expected at the end of 2023, underscoring its resilience even in the face of still-high inflation & steep interest rates.  GDP, the broadest measure of goods & services produced across the economy, grew by 3.3% on an annualized basis in the 3-month period from Oct thru Dec, the Commerce Dept said in its first reading of the data.  That is far higher than the 2% increase forecast by Refinitiv economists, although it marks a notable drop from the rapid 4.9% pace seen during the 3rd qtr.  Consumer spending, which accounts for about 2/3 of GDP, continued to power economic growth during the 4th qtr.  It rose 2.8% for the period, down just slightly from the previous qtr.  Increases in private inventory investments, a boost in federal gov spending & a jump in non-residential fixed income also helped to boost GDP numbers.  However, high mortgage rates continued to drain demand from the real estate market, with investment in housing plunging 27% for a 2nd straight qtr.  State & local gov spending also helped to fuel the expansion, climbing 3.7% during the 4th qtr.  Gross private domestic investment rose 2.1%, another contributor to growth.  The economy has remained solid even as experts predicted that the Federal Reserve's aggressive interest rate hike campaign would send it spiraling into a recession.  For all of 2023, the economy expanded 3.1%, up less than 1% in the previous year.  However, there are signs that growth is finally beginning to slow in the face of tighter monetary policy.  Job growth is moderating.  The housing market, which is vulnerable to higher interest rates, is trapped in a prolonged downturn & consumer spending has shown signs of cooling off.  Many economists expect to see further cooling in coming months as higher interest rates continue to work their way thru the economy.

GDP growth comes in stronger than expected at the end of 2023

Treasury yields fell after a report showed faster than expected economic growth in the 4th qtr failed to push inflation higher.  The yield on the benchmark 10-year Treasury note dropped 5 basis points to 4.13%, while the yield on the 2-year Treasury note dipped 3 basis points to 4.35%.  Yields move inversely to prices & 1 basis point equals 0.01%.  Gross domestic product, a measure of all goods & services, increased at a 3.3% annualized rate in the 4th qtr of 2023 which compares to the estimate for a gain of 2%.  On the inflation front, core prices for personal consumption expenditures (PCE), which is the Federal Reserve's preferred gauge, rose 2% for the period, while the headline rate was 1.7%.  On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food & energy posted a 3.2% increase annually, compared with 5.1%.  Meanwhile, a weekly labor market report suggested the jobs market may be slackening.  Initial jobless claims totaled 214K, an increase of 25K from the previous week & ahead of the estimate for 199K.

10-year Treasury yield pulls back after Q4 GDP shows slowing inflation, strong growth

A significant chunk of US small business owners say 2024 is a "make-or-break" year for them, according to fresh data that found nearly 1 in 3 are concerned their companies might not make it thru the year.  Slack released the results of a recent survey of small business owners that found 32% of respondents are worried their business will not survive through the end of the year & 38% saying they are more concerned about their company heading into this year than last.  While 71% of the 2000 entrepreneurs polled said they are optimistic about the state of their businesses, the top concerns they cited were inflation & economic conditions (47%), the need to raise prices (32%) & increased competition (24%).  "The margin for success is often razor thin, meaning small businesses need to be forward-looking, resilient and adaptable even amid current economic climate challenges," said Jaime DeLanghe, senior principal of product management at Slack.  "While our survey found most performed better than expected in 2023 and are optimistic about 2024, it shows many are still looking for ways to improve results despite limited resources and technological capacity."  The survey also found that technology, including artificial intelligence, helped many small businesses exceed their owners' expectations.  49% said their companies performed better than they expected, while 21% said their companies fared worse.  26% of the owners surveyed said they used new technology in 2023.  Of those, AI was the top new tool cited (50%), followed by tech for productivity or collaboration (41%) & communication (34%).  35% of respondents said they are excited to add or update new tech tools to their operations this year, with more than ½ of those saying new software is on their purchase list for 2024.  The AI frenzy from last year is expected to carry thru this year, too

One-third of small business owners worried their company won't survive 2024

Market expectations for the Federal Reserve were to cut interest rates as early as Mar.  But that may be premature.  Economic strength gives strength to the hawks on the Fed who are more cautious about interest rate cuts.  Early today the Dow jumped to a 200+ gain, then it pulled back to up 69.  There was also limited buying of safe haven gold & Treasuries.  This could be a choppy day for trading while investors assess the implications of the GDP data.

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