Markets edge higher, extending last week’s momentum

Dow went up 25, advancers over decliners 3-2 & NAZ gained 33.  The MLP index rose 3+ to the 289s & the REIT index was up 3+ to 441.  Junk bond funds were mixed & Treasuries had more selling which raised yields (more below).  Oil crawled up pennies in the low 71s & gold added 10 to 2656 for a new record.

Dow Jones Industrials

Minneapolis Federal Reserve Pres Neel Kashkari said that he expects policymakers to dial down the pace of interest rate cuts after last week's ½ percentage point reduction.  “I think after 50 basis points, we’re still in a net tight position,” Kashkari said.  “So I was comfortable taking a larger first step, and then as we go forward, I expect, on balance, we will probably take smaller steps unless the data changes materially.”  In a decision that came as at least a mild surprise, the rate-setting Federal Open Market Committee on Wed voted to reduce its benchmark overnight borrowing rate by ½ a percentage point, 50 basis points.  It was the first time the committee had cut by that much since the early days of the Covid pandemic, &, before that, the financial crisis in 2008.  While the move was unusual from a historical perspective, Kashkari said he thought it was necessary to get rates to reflect a recalibration of policy from a focus on overheating inflation to more concern about a softening labor market.  His comments indicate the central bank could move back to more traditional moves in qtr-point increments.  “Right now, we still have a strong, healthy labor market. But I want to keep it a strong, healthy labor market, and a lot of the recent inflation data is coming in looking very positive that we’re on our way back to 2%,” he said.  “So I don’t think you’re going to find anybody at the Federal Reserve who declares mission accomplished, but we are paying attention to what risks are most likely to materialize in the near future,” he added.  Speaking separately, Atlanta Fed Pres Raphael Bostic indicated he expects the Fed to move aggressively in getting back to a neutral rate.  “Progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer,” said Bostic, who votes this year on the FOMC.  “In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago.”  Bostic also noted that Wed's cut puts the Fed in a better position on policy, in that it can slow the pace of easing if inflation starts to peak up again, or accelerate it if the labor market slows further.  Market pricing anticipates a relatively even chance of the FOMC cutting by either a ¼- or ½-percentage point at its Nov meeting, with a stronger likelihood of the larger move in Dec, for a total of 0.75 percentage point in further reductions by the end of the year, according to the CME Group's FedWatch measure.

Minneapolis Fed President Kashkari sees a slower pace of rate cuts ahead

Treasury yields were higher as investors assessed the growth outlook following the Federal Reserve’s jumbo rate cut last week.  The 10-year Treasury yield was up just over 6 basis points at 3.794% & the yield on the 2-year Treasury note was 5 basis points higher at 3.624%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  The 10-year Treasury yield ended last week almost 8 basis points higher after the Fed lowered rates by ½ a percentage point on Wed.  Markets had raised the probability of the outsized move ahead of the meeting, but the announcement nonetheless surprised many economists.  Market participants are now questioning whether the move was good news for the US economy, or a sign it is weakening more severely than previously thought.  Fed Chair Jerome Powell last week stressed he did not see signs that the risk of an economic downturn is “elevated,” & said growth was continuing at a “solid rate.”  He added that the central bank had conducted a “recalibration” of its policy stance to help maintain growth & support the labor market.

Treasury yields climb as investors assess growth outlook

If everything had gone to plan for General Motors (GM) over the last 3 years, the Detroit automaker would be well on its way to catching Tesla (TSLA) in sales of electric vehicles.  In Oct 2021, GM CEO Mary Barra declared the automaker would “absolutely” catch up to the US EV leader by 2025.  Instead, after slower-than-anticipated EV adoption across the industry & GM-specific challenges with production, software & supply chains, the company remains well behind Elon Musk's carmaker, as well as Hyundai Motor/Kia & Ford (F).  While GM has withdrawn most of its previously announced electric vehicle targets, the automaker believes its EV sales momentum is finally building thanks to an expanding lineup of all-electric vehicles – spanning a price range of roughly $35K to more than $300K.  “We are definitely outstripping the industry in terms of growth, in terms of EVs,” Rory Harvey, GM pres of global markets, including North America said.  “We have the most comprehensive EV lineup out of any manufacturer in the industry, in the U.S., at the moment.”  EV reports of quarterly sales, show a notable increase for GM thru Aug.  GM sold nearly 21K EVs in the US in Jul & Aug – almost matching its full 2nd-qtr EV sales.   GM's EV sales thru Aug were up about 70% compared with a year earlier.  “It’s a step change in terms of our EV performance,” Harvey said.  Those 2 back-to-back record months for GM's EVs have it within striking distance, about 2K units, of Ford thru Aug.  It still remained more than 20K units shy of Hyundai/Kia EV sales thru last month.  Both Ford & Hyundai/Kia report sales monthly.  The legacy automakers are still fighting for a distant 2nd behind TSLA, which Motor Intelligence estimates to have sold more than 164K EVs during the 2nd qtr, roughly double the sales of GM, Hyundai/Kia & Ford combined during that time.  Harvey said GM expects to overtake its competitors in EV sales, but the automaker is forecasting a strong finish to the end of the year.  “We have momentum on our side,” Harvey continued.  “We anticipate quarter four will be strong in terms of EV adoption. So, we’re looking forward to that close, and looking forward to taking a disproportionate share of the upside.”  GM stock fell 1.56, Ford stock fell 11¢ & TSLA stock rose 10.52 (4%).

GM's EV sales momentum is finally building as new vehicle lineup fills out

Stocks ease higher as investors look ahead to Federal Reserve speakers & a key inflation reading for clues to the odds of another big rate cut.  The market is struggling with concerns about the health of the US economy, which have persisted after the Fed's bold pivot to cut interest rates last week.  The big question now is whether upcoming data releases this week will support Fed Chair Jerome Powell's testimony that the economy remains strong.