Markets zoom while gold is at a record and tech stocks are ignored

Dow surged 742 to almost 41K & another record, advancers over decliners 4-1 & NAZ went up only 36.  The MLP index added 1+ to the 295s & the REIT index added 4+ to go over 400.  Junk bond funds rose along with the overall stock market & Treasuries had significant buying which lowered yields.  Oil dropped 1+ to go below 81 & gold rocketed ahead 41 to a new record at 2570 (more on both below).

Dow Jones Industrials 

The Intl Monetary Fund warned that upside risks to inflation have increased, calling into question the prospect of multiple Federal Reserve interest rate cuts this year.  In its latest World Economic Outlook update, the IMF said “the momentum on global disinflation is slowing, signaling bumps along the path.”  The rise in sequential inflation in the US earlier in 2024 has put it behind other major economies in the quantitative easing path, the report said.  The report comes as traders ramp up bets for a Fed rate cut in Sep.  Per the CME Group's FedWatch tool, Wall Street has priced in a 100% chance of lower rates at the Sep 18 meeting.  Traders also expect another rate decrease in Nov.  However, IMF chief economist Pierre-Olivier Gourinchas said that 1 rate cut from the Fed is most appropriate this year, highlighting still-stubborn services & wage inflation as complications to the path on lower inflation.  Gourinchas said that, while the robust wages & service inflation are “not necessarily a source of worry,” they are points of concern ahead for the US economy.  His comments came after the Labor Dept said the consumer price index grew last month at its slowest year-over-year pace since Apr 2021.  Despite the encouraging CPI report, Gourinchas stated the uptick in inflation earlier in the year indicates that the path toward lower inflation & rate cuts “could take a little bit longer than maybe the markets are expecting.”  “We’re more in the camp that there could be some cuts in the latter part of the year but maybe just one, or 2024 and maybe the rest of 2025,” Gourinchas added.  Across advanced economies globally, the IMF forecasts the rate of disinflation to slow in 2024 & 2025 on account of broadly high services inflation & commodity prices.  With regard to the US economy, the financial institution lowered its growth outlook by 0.1 percentage point to 2.6% in 2024 on cooling consumption & slower-than-expected growth at the start of the year.

IMF sees ‘bumps’ in path to lower inflation

General Motors' (GM) goal of being capable of producing 1M all-electric vehicles in North America by the end of 2025 in heavily in doubt, following comments from CEO Mary Barra.  The production capacity target for next year was 1 of the last EV targets the automaker hadn't lowered or withdrawn as demand for EVs has not materialized as quickly as many companies such as GM previously expected.  “We won’t get to a million just because the market is not developing, but it will get there,” Barra said.  “We’re going to be guided by the customer.”  For more than 2 years, GM has said it would have production capacity of 1M in EVs in each China & North America by 2025.  Even after it changed or withdrew several EV targets & product plans in the last year, the company continued to say it would install the North American capacity for EVs.  A GM spokesman said the company's target was about the production capacity, while the question was regarding actually producing 1M EVs in 2025.  Barra did not specifcally address whether it was production or production capacity that she was referring to.  The spokesman later said the company would no longer reiterate the EV production capacity plans for 2025.  The company has continually said its EV plans will be flexible to meet demand.  The stock went up 60¢.

GM’s 2025 EV production capacity target in doubt after Barra comments

Morgan Stanley's (MS) profit rose in the 2nd qtr as investment banking activity rebounded on strength in equity & debt underwriting.  The segment's revenue increased to $6.8B in the qtr from $6.7B a year earlier, roughly in line with expectations.  Net new assets in the qtr came in at $36B.  EPS however rose to $1.82, in the 3 months ended Jun 30.  That compares with $1.24 a year earlier.  "The firm delivered another strong quarter in an improving capital markets environment," said CEO Ted Pick.  A rosier economic outlook, expectations of US interest rate cuts & surging equity markets have spurred buyouts, debt sales & stock offerings after a nearly 2-year dry spell for Wall Street.  Global investment banking revenues jumped 17% in the first ½ to $41.6B & investment banking revenue surged 51% to $1.62B in the 2nd qtr.  Within the business, equity underwriting revenue jumped 56% to $352M, while fixed income underwriting surged 71% to $675M.  Advisory revenues also climbed 30% to $592M.  The institutional securities unit reported revenues of $7B in the 2nd qtr, up from $5.7B a year earlier.  Total revenue jumped nearly 12% to about $15B in the qtr.  The stock 1.59.

Morgan Stanley's profit jumps as investment banking recovers

Gold jumped to a record as rising expectations of a Sep interest rate cut bolstered demand for bullion.  Gold futures advanced 1.7% to $2471, topping the previous high of $2454 reached May 20.  Spot gold jumped 1.8% to $2465 during the session, which is an all-time high.  Gold prices hit all-time highs earlier this year before pulling back as the prospect of higher-for-longer interest rates dampened investor enthusiasm for the precious metal.  But interest in the asset has grown after Jun's softer inflation data & some recently dovish comments from Federal Reserve Chair Jerome Powell combined to raise the odds of rate cuts coming this year.  Markets are pricing in 100% odds of a rate cut in Sep now, according to futures trading tracked by the CME FedWatch tool.  A weakening $ has also supported demand for bullion.  Yesterday, the greenback rebounded after falling to a 5-week low.

Gold Jumps to Record Above $2,460 an Ounce on Hopes Fed Will Soon Cut Rates

Oil fell the most in more than 3 weeks as traders eyed a stronger $ & signs of weaker demand, which have triggered algorithmic selling.  West Texas Intermediate (WTI) dropped 1.4% to settle below $81 a barrel.  The $ strengthened for a 2nd day, making commodities priced into the currency more expensive.  WTI futures have been testing their 100-day moving average, which has served as a support level for a month.  In another sign of short-term cooling, key timespreads have softened in recent days.  Premiums of gasoline over crude fell to the lowest in almost a month.  Though still higher for the year, oil has largely swung between $75-95 as OPEC+ supply cuts vie with a cautious outlook for Chinese consumption.  WTI for Aug fell $1.15 to settle at $80.76 a barrel & Brent for Sep fell $1.12 to settle at $83.73 a barrel.

Oil Retreats Most in 3 Weeks on Stronger Dollar and Weak Demand

Investors assessed another batch of big bank earnings & fresh retail data amid growing conviction of a rate cut.  YTD Dow is up more than 3200.  At the same time, tech stocks were left on the sideline as their rally has come to a halt.  And the gold bugs are very happy, taking gold to a new record.  This euphoria is based on slower growth for the economy which is generally not welcomed by investors!  Time will tell.