Tuesday, September 24, 2024

Markets slip after Fedspeak comments, falling consumer confidence

Dow went up 65, advancers over decliners 3-2 & NAZ fell 45.  The MLP index was even, near 290, & the REIT index inched higher in the 442s.  Junk bond funds were a little higher & Treasuries had limited selling which raised yields.  Oil rose 1+ to the 71s & gold added 9 to a new record at 2662.

Dow Jones Industrials


Federal Reserve Governor Michelle Bowman said she thought her colleagues should have taken a more measured approach to last week's ½ percentage point interest rate cut as she worries that inflation could reignite.  Bowman was the lone dissenter from the Federal Open Market Committee's (FOMC) decision to lower benchmark interest rates for the first time in more than 4 years.  No governor had dissented from an interest rate decision since 2005.  In explaining her rationale, Bowman said the ½ percentage point, or 50 basis point, reduction posed a number of risks to the Fed's twin goals of achieving low inflation and full employment.  The jumbo cut “could be interpreted as a premature declaration of victory on our price-stability mandate.  Accomplishing our mission of returning to low and stable inflation at our 2 percent goal is necessary to foster a strong labor market and an economy that works for everyone in the longer term,” she said.  Inflation by the Fed's preferred metric is running at 2.5%, above the central bank's 2% goal.  Excluding food & energy, core inflation is at 2.6%.  Though Bowman favored a reduction, she preferred the Fed lower by a qtr percentage point, more in line with the traditional moves at the central bank.  The FOMC last cut by ½ a point in the early days of the Covid pandemic in Mar 2020 & before that the global financial crisis in 2008.  Bowman cited several specific concerns: that the big move would indicate that Fed officials see “some fragility or greater downside risks to the economy”; that markets might expect a series of large cuts; that large amounts of sideline cash could be put to work as rates fall, stoking inflation; & her general feeling that rates won't need to come down as much as her fellow policymakers have indicated.  “In light of these considerations, I believe that, by moving at a measured pace toward a more neutral policy stance, we will be better positioned to achieve further progress in bringing inflation down to our 2 percent target, while closely watching the evolution of labor market conditions,” she added.  In recent statements, Fed officials have cited easing inflation & a softening labor market as justification for the cut.  At last week's meeting, individual policymakers indicated they expect another ½ percentage point in cuts this year ½ another full point in 2025.  Market pricing, however, is more aggressive, expecting 2 full percentage points in cuts thru next year.

Fed Governor Bowman explains dissent on rate vote, says she’s worried about inflation

A year after geopolitics as the world’s biggest risk, JPMorgan Chase’s (JPM) CEO sounded the alarm again, warning that the state of global stability has gotten worse.  During his visit to India, Dimon said “My caution is all geopolitics, which may determine the state of the economy.”  “Geopolitics is getting worse, they are not getting better. There is chance for accidents in energy supply. God knows if other countries get involved. You have a lot of war taking place right now,” he added, before referencing attacks conducted by Yemen's Houthi rebel group that have taken place in the Red Sea.  According to the US military, the Houthis have attacked at least 2 crude oil tankers this month.  Geopolitical instability “is my biggest caution,” Dimon noted.  He also urged the US to prepare for a prolonged war between Ukraine & Russia.  The interview came almost a year after Dimon had called geopolitics, after Russia's invasion of Ukraine, the biggest risk that he sees facing the world, larger than high inflation or a US recession.  Following a lengthy period of sticky inflation, the Federal Reserve last week made a jumbo rate cut, its first reduction since 2020.  Traders have piled on, driving the S&P 500 to a fresh closing high yesterday.  But Dimon expressed skepticism about the US economy & what markets are pricing in.  “I’m a long-term optimist, but in the short run, I’m also more skeptical of other people that say everything [is] going to be great. Markets are pricing things like they’re going to be great. Put me on the cautious side of that one,” he said.

JPMorgan CEO Jamie Dimon warns ‘geopolitics is getting worse’

Consumers’ view on the economy tumbled in Sep, falling by the largest level in more than 3 years as fears grew about jobs and business conditions, the Conference Board reported.  The board's Consumer Confidence Index slid to 98.7, down from 105.6 in Aug, the biggest 1-month decline since Aug 2021.  The forecast was for a reading of 104.  Each of the 5 components the organization samples fared worse on the month, with the biggest fall coming among those aged 35-54 & earning less than $50K.  “Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income,” said Dana Peterson, chief economist at The Conference Board.  The last time the confidence index dropped more came as inflation was just beginning a climb to what ultimately was the highest level in more than 40 years.  In addition to the steep drop in the confidence index, the Present Situation measure worsened by 10.3 points to 124.3 & the Expectations Index was off 4.6 points to 81.7.  Respondents' concerns focused mostly on jobs & inflation.  Those saying jobs are plentiful continued to decline, falling to 30.9% from 32.7% in Aug, while the jobs “hard to get” measure rose to 18.3%, up from 16.8%.  On inflation, the 12-month outlook rose to 5.2%, with concerns over price increases topping the list of economic concerns.  “The proportion of consumers anticipating a recession over the next 12 months remained low but there was a slight uptick in the percentage of consumers believing the economy was already in recession,” Peterson continued.

September consumer confidence falls the most in three years

Stocks flounder as investors digest China's launch of aggressive stimulus lifted market spirits & then came a weaker than expected reading on consumer confidence.  Gold continues to be in demand.

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