Markets rise for a second day following its rout

Dow jumped 352, advancers over decliners 4-1 & NAZ gained 285.  The MLP index went up 3+ to the 281s & the REIT index rose 5 to the 413s.  Junk bond funds were mixed & Treasuries saw more selling which raised yields (more below).  Oil rebounded 2+ to the 75s & gold added 8 to 2440.

Dow Jones Industrials

In the market’s eyes, the Federal Reserve finds itself either poised to head off a recession or doomed to repeat the mistakes of its recent past, when it was too late seeing a coming storm.  How Chair Jerome Powell & his cohorts at the central bank react likely will go a long way in determining how investors negotiate such a turbulent climate.  Stocks have been on a wild ride the past several days, with a relief rally yesterday ameliorating some of the damage since recession fears intensified last week.  Disappointing economic data recently generated worries that the Fed missed an opportunity at its meeting last week to, if not cut rates outright, send a clearer signal that easing is on the way.  It helped conjure up memories of the not-too-distant past when Fed officials dismissed the 2021 inflation surge as “transitory” & were pressed into what ultimately was a series of harsh rate hikes.  Now, with a weak jobs report from Jul in hand & worries intensifying over a downturn, the investing community wants the Fed to take strong action before it misses the chance.  Traders are pricing in a strong likelihood of that ½-point Sep cut, followed by aggressive easing that could lop 2.25 percentage points off the Fed's short-term borrowing rate by the end of next year, as judged by 30-day fed funds futures contracts.  The Fed currently targets its key rate between 5.25-5.50%.  With the economy still creating jobs & stock market averages near record highs, despite the recent sell-off, an emergency cut between now & the Sep 17-18 open market committee seems a longshot to say the least.  Lacking a catalyst for an intermeeting cut, the Fed is nonetheless expected to cut rates almost as swiftly as it hiked from Mar 2022-Jul 2023.  It could start the process later this month, when Powell delivers his expected keynote policy speech during the Fed's annual retreat in Jackson Hole, Wyoming.  Powell is already being expected to signal how the easing path will unfold.

Markets are counting on the Fed to head off recession with sizable interest rate cuts

Treasury yields continued their recovery as global markets reverse course from a dramatic equity sell-off to start the week.  The benchmark 10-year Treasury yield was more than 5 basis points higher at 3.94% & the yield on the 2-year note also climbed around 2 basis points to 3.999%.  Yields & prices move in opposite directions, & 1 basis point is equivalent to 0.01%.  The yield on the 10-year Treasury bounced back to the level it was at prior to the weak jobs report on Fri that spiked investors' concerns about a US economic downturn.  Combined with the knock-on impact of a hawkish pivot by the Bank of Japan, safe haven assets including Treasuries were bolstered, sending the 10-year yield to its lowest level since Jun 2023.  Stocks have since regained some positive momentum, with Asia-Pacific & European markets trading higher today.  And yields, too, have rebounded with investors betting the growth scare sparked by the jobs report was overblown.

10-year Treasury yield rises to 3.94%, back to Friday’s levels

Disney (DIS), a Dow stock, businesses turned a profit earlier than expected.  EPS was $1.39 adjusted vs $1.19 expected.  Total segment operating income increased 19% to $4.2B compared with the same period last year, led by the positive results for the entertainment unit, particularly streaming.  Its combined streaming business, which consists of Disney+, Hulu & ESPN+, turned a profit for the first time, & it happened a qtr earlier than the company had expected.  Execs touted the progress of DIS's streaming business toward profitability, a goal for all media companies as they look to chase customers switching to streaming.  CEO Bob Iger also praised the recent successes of the company's film & TV slates as propelling that business forward.  The combined streaming business posted an operating profit of $47M compared with a loss of $512M in the same qtr last year.  However, without ESPN+, the direct-to-consumer streaming unit reported a loss of $19M.  Meanwhile, in May, DIS highlighted a slightly different metric, noting that Disney+ & Hulu together turned a profit, but when combined with ESPN+, the streaming businesses suffered a loss.  Revenue for the entertainment segment was up 4% to $10.6B, driven largely by subscription revenue growth due to price increases & customer growth for Disney+ Core. Revenue for the traditional TV networks was down 7%.  “We’re seeing growth in consumption and the popularity of our offerings, which gives us the pricing leverage we believe we have,” Iger said, noting that DIS hasn't seen customers losses it would “consider significant” when it has increased prices in the past.  “I feel very bullish about the future of this business,” Iger said.  “We’re not saying much more about it, except you can expect it to grow nicely in fiscal 2025.”  Overall revenue increased 4% to $23.2B compared with the same period last year.  The stock fell 1.70.

Disney beats estimates as combined streaming services turn a profit

Investors are watching the "fear gauge" (VIX) which spiked into the low 60s on Mon, levels last seen during the throes of the pandemic.  Today it is down 5 to the 22s.  Ahead of last week's sell-off, the VIX had been trading in the teens, though it was on a steady climb for much of Jul.  The excitement in the stock market which brought significant selling has calmed down.