Markets struggle after online spending reached a record

Dow rose 197, advancers over decliners about 2-1 & NAZ was off 12.  The MLP index crawled up 1+ to the 258s & the REIT index added 1+ to the 391s.  Junk bond funds were mixed & Treasuries saw more selling which raised yields (more below).  Oil slid lower in the 72s & gold was up 9 to 2052.

AMJ (Alerian MLP Index tracking fund)

Consumers spent a whopping $222.1B online during the holiday season as usage of flexible spending options hit an all-time high, according to new data from Adobe.  The figure, up 4.9% year over year, marks a new record for online shopping throughout the holiday season, which spans from Nov 1 thru Dec 31., according to Adobe's holiday spending report.  Adobe noted that the boost in spending was driven in large part by such heavy reliance on "buy now, pay later" (BNPL) options, which allow consumers to pay in installments, often interest-free.  The payment option accounted for $16.6B in online spending, up 14% on an annual basis, during the season, underscoring how Americans were trying to manage their debt obligations amid persisting inflation, high interest rates & resumed student loan payments.  Throughout Nov, the payment option accounted for about $9.2B of the $123.5B spent.  That's up 17.5% year over year.  Cyber Monday was the biggest day of BNPL transactions overall, accounting for $940M in spending, up 42.5% year over year.  Usage of the payment method surged before the holiday season.  From Jan 1 to Dec 31, 2023, it accounted for $75B in online spending, about $9.4B more than the prior year.  Adobe Digital Insights lead analyst Vivek Pandya said that companies took advantage of flexible payment methods to pull in shoppers amid the uncertain economy.  And while it was effective, driving record spending online during both Cyber Monday & Black Friday, certain industry experts have drawn concern about how much consumers have been leaning on this method.  Financial experts are especially worried about whether consumers are overusing these services & digging themselves deeper into debt.  Those concerns come as total household debt reached $17.3T in the 3rd qtr of 2023, according to the New York Federal Reserve's latest quarterly report on household debt & credit.

Online holiday spending reaches record $222B driven by buy now, pay later trend

Hiring by US companies rose more than expected in Dec as the labor market remained resilient even in the face of higher interest rates, according to the ADP National Employment Report.  Companies added 164K jobs last month, beating the 115K gain that was predicted.  It marks the best month for job creation since Aug.  The stronger-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.  But policymakers have signaled in recent weeks that they are done raising rates amid signs that inflation is finally moderating & the economy is starting to slow.  In a welcoming sign for the Fed, wage growth continued to slow in Nov.  Annual pay rose 5.4% last month, the 15th straight month of slowing growth.  For workers who switched jobs, wages climbed 8%, down from 8.3% the previous month.  "We're returning to a labor market that's very much aligned with pre-pandemic hiring," said Nela Richardson, ADP chief economist.  "While wages didn't drive the recent bout of inflation, now that pay growth has retreated, any risk of a wage-price spiral has all but disappeared."  The leisure & hospitality industry drove the biggest job gains last month, adding 59K new employees.  But there were also notable gains in other sectors, including education & health services, financial activities & construction.  The gains helped to offset job losses in manufacturing, natural resources & mining & information.

Private sector job growth rises more than expected in December: ADP

Treasury yields ticked higher following the release of fresh employment numbers.  The yield on the 10-year Treasury was up by 8 basis points at 3.982% after crossing the 4% mark briefly yesterday.  The 2-year Treasury  yield was last up by 5 basis points at 4.372%.  Yields & prices move in opposite directions & one basis point equals 0.01%.  Investors are considering the outlook for Federal Reserve interest rate cuts, including when they could begin & how drastic they could be.  After its last policy meeting in Dec, the central bank said it expected 3 rate cuts to take place in 2024.  However, traders have been hoping that there will be more than extensive rate cuts this year & that the first one could be coming soon.  Minutes from the Fed's Dec meeting indicated uncertainty about the path ahead for interest rates even as policymakers believe rate cuts are likely.  Fed officials noted the importance of a “careful and data-dependent approach to making monetary policy decisions” & stated that restrictive policy would continue to be appropriate “for some time” until inflation sustainably falls to the central bank’s target range.  Investors now, but when it turn their attention to tomorrow's nonfarm payrolls report when a gain of 170K is expected.

10-year Treasury yield approaching 4% again after strong jobs data

Investors are becoming nervous on the future for interest rate cuts after rates have been climbing in the past week.  Retail sales data sounds good.  But when it is attributable to more borrowing sends the wrong message to the Fed which wants to control inflation.  Today's sort of rally is not impressive.

Dow Jones Industrials 

Markets slump after Fed meeting minutes were released

Dow retreated 284 near session lows, decliners over advancers more than 2-1 & NAZ gave back 173.  The MLP index gained 2+ to the 257s & the REIT index dropped 9+ to 390 on concerns about future rate cuts.  Junk bond funds remained weak & Treasuries continued in demand, bringing higher yields.  Oil recovered 2+ to the 72s & gold dipped 28 to 2044 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve officials in Dec concluded that interest rate cuts are likely in 2024, though they appeared to provide little in the way of when that might occur, according to minutes from the meeting.  At the meeting, the rate-setting Federal Open Market Committee agreed to hold its benchmark rate steady at 5.25-5.50%.  Members indicated that they expect 3 qtr-percentage point cuts by the end of 2024.  However, the meeting summary noted a high level of uncertainty over how, or if, that will happen.  “In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves,” the minutes stated.  Officials noted the progress that has been made in the battle to bring down inflation.  They said supply chain factors that contributed substantially to a surge that peaked in mid-2022 to have eased.  In addition, they cited progress in bringing the labor market better into balance, though that also is a work in progress.  The “dot plot” of individual members’ expectations released following the meeting showed that members expect cuts over the coming 3 years to bring the overnight borrowing rate back down near the long-run range of 2%.  “In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024,” the document stated.  However, the minutes noted an “unusually elevated degree of uncertainty” about the policy path.  Several members said it might be necessary to keep the funds rate at an elevated level if inflation doesn’t cooperate & others noted the potential for additional hikes depending on how conditions evolve.  “Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective,” the minutes noted.  Despite the cautionary tone from Fed officials, markets expect the central bank to cut aggressively in 2024.  Fed funds futures trading points to 6 qtr-point cuts this year, which would take the fed funds rate, which primarily sets what banks charge each other for overnight loans but also influences multiple consumer debt products, down to 3.75-4.00%.  The minutes indicated that “clear progress” had been made against inflation, with a 6-month measure of personal consumption expenditures even indicating that the inflation rate has edged below the Fed’s 2% target.  However, the document also noted that progress has been “uneven” across sectors, with energy & core goods moving lower but core services still moving higher.

Fed officials in December saw rate cuts likely, but path highly uncertain, minutes show

Oil rose more than 3% as the US warned Houthi militants against further attacks in the Red Sea & OPEC pledged to remain united in supporting prices.  Protests in Libya have also shut down the Sharara oil field, which produces 300K barrels per day.  The West Texas Intermediate contract for Feb gained $2.31 (3.3%) to trade at $72.72 a barrel & the Brent  contract for Mar added $2.32 (3.1%) to trade at $78.21 a barrel.  Houthi militants, who are based in Yemen & backed by Iran, claimed that they targeted the CMA CGM Tage container ship.  French shipping giant CMA CGM said that the vessel “did not suffer any incident.”  This comes a day after Danish shipping giant Maersk halted all shipping thru the Red Sea until further notice due to repeated Houthi attacks on vessels.  German shipping company Hapag-Lloyd confirmed today that it would continue to avoid the Red Sea.  The US & 11 of its allies called today for the Houthis to immediately halt “these illegal attacks,” warning that militants would “bear the responsibility of the consequences should they continue to threaten lives, the global economy,  free flow of commerce in the region’s critical waterways.”  Oil prices have been volatile this week, with US crude & the global benchmark settling more than 1% lower yesterday despite Maersk's decision to continue avoiding the Red Sea due to attacks by the Houthis.  OPEC & its allies issued a statement pledging to remain united in the group's “efforts to maintain oil market stability going forward.”  Several members of the group pledged in Nov to cut 2.2M barrels per day thru the first qtr of this year to support prices.  Traders have been skeptical of that pledge because it is voluntary & OPEC has struggled to maintain a united front.  The promised voluntary cuts have done little to support prices as the US pumps crude at a record clip & demand weakens in China.  US crude & the global benchmark fell more than 10% in 2023 on worries that the market is oversupplied.

Oil rises on mounting Middle East tensions, OPEC pledge to support market

General Motors (GM) US vehicle sales increased 14.1% last year to represent the automaker's best year since 2019, prior to the effects of the Covid-19 pandemic & years long supply chain problems.  The automaker reported sales of roughly 2.6M vehicles in 2023, including 625K cars & trucks sold during the 4th qtr, roughly flat compared to a year earlier.  The automaker sold about 2.3M vehicles in 2022 & 2.9M units in 2019.  GM's sales are in line with expectations for overall industry sales.  Edmunds expects industrywide sales to hit 15.5M in 2023, which would be a roughly 14% increase compared to 2022.  GM said it expects total US industry sales to hit 16M in 2024.  That would mark the highest industry sales since more than 17M units in 2019 & the high end of industry forecasts.  “GM has tremendous momentum. We grew our market share in 2023, maintaining strong pricing and low incentives,” Marissa West, GM’s senior VP & pres of North America, said.  Sales of all-electric vehicles for GM were disappointing in 2023.  Its EV sales totaled 76K units, or 2.9% of overall sales last year.  A vast majority of those were sales of its now discontinued Chevrolet Bolt models.  The company has experienced problems in ramping up production of its newer “Ultium” EVs, including a major issue with battery module assembly.  To assist EV sales this year, the company expects to increase production of the vehicles & offer $7500 in incentives on models that no longer qualify for up to $7500 in federal tax credits due to new, more stringent requirements for assembly & materials for the vehicles their batteries that took effect Jan 1.  “We are committed to the future of EVs and will have the sales and marketing support to sell these ineligible vehicles. Beginning in January, GM will provide the equivalent EV tax credit purchase amount for any vehicles that became ineligible due to the new guidelines,” GM said.  The stock fell 77¢.

GM’s 2023 U.S. vehicle sales were its best since 2019

Gold fell for a a 4th session, under pressure from a strengthening $ as investors began the year in bearish mood.  European stocks & US futures extended declines, while the greenback rose to a near-2-week high.  That weighed on bullion, which declined as much as 0.3%.  The metal hit a record in early Dec & ended 2023 up 13% on speculation the Federal Reserve is set to loosen monetary policy in 2024 as inflation abates, which would benefit non-yielding assets.  Swaps traders still see 6 rate cuts over the next year, despite officials pushing back against rapid easing.  Recent swings in the US bond market suggest traders are tempering their bets on rate cuts this year.  US gold futures were $27 lower at $2046.

 

Gold Declines as Stronger Dollar Adds Pressure Ahead of US Data

Oil prices dipped slightly after sharp moves earlier in the week, with investors cautious about the US economy amid supply disruptions from persistent tensions in the Red Sea.  Brent crude fell 39¢ to $75.50 a barrel, while US West Texas Intermediate crude futures slipped 51¢ to $69.87 a barrel.  Prices had climbed around $2 earlier in the week following attacks on vessels in the Red Sea by Houthi rebels.  Yesterday they fired 2 anti-ship ballistic missiles into the Southern Red Sea, though no damage was reported.  A wider conflict could close crucial waterways for oil transportation & disrupt trade flows.  Although the supply of oil has not been affected, as reflected in yesterday's oil price sell-off, the nervousness is conspicuous.  Both benchmarks ended yesterday more than 1% down, with optimism about early & aggressive US interest rate cuts also ebbing ahead of the release of Federal Reserve meeting minutes & jobs data today.

Oil prices edge lower with investors cautious ahead of U.S. data

Investors are disappointed that Fed officials can not announce detail plans for rate cuts going forward because they are data dependent.  That's nothing new.  The goings on in the Red Sea will get a lot of attention.  Among other things, shipping goods all the way around Africa will add the cost of the goods which becomes a negative for controlling inflation.

Dow Jones Industrials 

Markets decline as yields rise and rate cut bets change

Dow fell 243, decliners over advancers 3-1 & NAZ was off 114.  The MLP index added 1+ to the 255s & the REIT index dropped 6+ to the 392s on concerns about higher interest rates.  Junk bond funds retreat & Treasuries are sold & rates climb.  Oil rose 2+ to the 72s & gold sank 30 to 2042.

AMJ (Alerian MLP Index tracking fund)

US job openings dropped in Nov to the lowest level in more than 2 years, the latest evidence that the Federal Reserve's interest-rate hike campaign is continuing to cool the labor market.  The Labor Dept said there were 8.79M job openings in Nov, a decrease from the upward revised 8.85M openings reported the previous month.  The forecast expected a reading of 8.85M.  It marked the lowest level for job openings since Mar 2021.  The Federal Reserve closely watches these figures as it tries to gauge labor market tightness & wrestle inflation under control.

Job openings fall in November to fresh 2-year low

Richmond Federal Reserve Pres Thomas Barkin expressed confidence that the economy is on its way to a soft landing, but obstacles remain that will require caution from him & his fellow policymakers.  While noting progress made on inflation as economic growth has stayed afloat, he said interest rate hikes remain “on the table” even though Fed officials at their most recent meeting in Dec indicated that this round of policy tightening is probably over.  “We’re making real progress,” Barkin, a voting member this year on the rate-setting Federal Open Market Committee, said in prepared remarks for a speech.  “Now, everyone is talking about the potential for a soft landing, where inflation completes its journey back to normal levels while the economy stays healthy. And you can see the case for that.”  Inflation by the Fed's preferred measure of personal consumption expenditures prices rose 2.6% in Nov from a year ago & was up 3.2% excluding food & energy.  That's well below its mid-2022 peak but still above the Fed's 2% target.  However, Barkin noted that PCE inflation on a 6-month basis is at 1.9%.  He compared the Fed's job to a pilot bringing an airplane in for a landing, and noted 4 risks ahead: The economy could “run out of fuel” & growth could reverse; “unexpected  & turbulence” such as geopolitical events or the banking shock that hit in Mar 2023; the possibility of “approaching the wrong airport,” where inflation holds above the Fed's 2% target; & a “delayed landing,” where demand holds unexpectedly high, boosting inflation.  “The airport is on the horizon. But landing a plane isn’t easy, especially when the outlook is foggy, and headwinds and tailwinds can affect your course,” Barkin added.  “It’s easy to oversteer and do too much or understeer and do too little.”  Barkin didn't indicate where his “dot” was on the Fed's closely followed dot-plot matrix of individual members rate hikes.  However, he noted risks that the central bank's job bringing down inflation may not be over.  “Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing,” he said.  “While you might think this would be a first-class problem, strong demand isn’t the solution to above-target inflation. That’s why the potential for additional rate hikes remains on the table.”

Fed’s Barkin sees likely soft landing ahead but notes rate hikes still a possibility

The US national debt topped $34T for the first time ever, crossing a critical milestone at a time when gov spending is already under scrutiny.  The national debt, which measures what the US owes its creditors, hit $34T on Fri, according to new data published by the Treasury Dept.  By comparison, just 4 decades ago, the national debt hovered around $907B.   "We are beginning a new year, but our national debt remains on the same damaging and unsustainable path," said Michael Peterson, CEO of the Peter G. Peterson Foundation, which advocates for fiscal sustainability.  The historic debt level comes as Congress races to finalize critical funding bills in order to prevent a gov shutdown.  The national debt is expected to nearly double in size over the next 3 decades, according to the latest findings from the Congressional Budget Office.  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.  "Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing," said Maya MacGuineas, pres of the Committee for a Responsible Federal Budget.  Even more worrisome is that the spike in interest rates over the past 1½ years has made the cost of servicing the national debt more expensive.  That is because as interest rates rise, the federal gov's borrowing costs on its debt will also increase.  In fact, interest payments on the national debt are projected to be the fastest-growing part of the federal budget over the next 3 decades, according to the CRFB.  Payments are expected to triple from nearly $475B in fiscal year 2022 to a stunning $1.4T in 2032.  By 2053, the interest payments are projected to surge to $5.4T.  To put that into perspective, that will be more than the US spends on Social Security, Medicare, Medicaid & all other mandatory & discretionary spending programs.

US national debt tops $34T for first time in history

Stocks are being sold again on worries about higher interest rates.  Additionally the markets are vastly overbought & some traders are taking their profits in the new year.

Dow Jones Industrials 

Markets ease lower on supply disruptions in the Red Sea shipping route

Dow finished up 25 with buying into the close, decliners over advancers 4-3 & NAZ dropped 245.  The MLP index continued flat in the 254s & the REIT index went up 4+ to the 399s.  Junk bond funds inched higher & Treasuries were sold, increasing yields.  Oil was pulled back 1+ to go below 71 & gold eased back 1 to 2070, remaining in record territory (more on both below).

AMJ (Alerian MLP Index tracking fund)

Apple (AAPL), a Dow stock, fell after Barclays downgraded the stock to underweight & slightly trimmed its price target from $161 to $160.  Barclay analyst Tim Long wrote that the iPhone 15's current “lackluster” sales, specifically in China, presaged similarly weak iPhone 16 sales, weakness that Long expects will hold true for AAPL's hardware sales broadly.  “We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads and wearables,” Long wrote.  Analysts & investors had noted specific weakness in China iPhone sales as far back as Oct.  Bloomberg has previously reported that the Chinese gov has issued informal guidance forbidding state employees from using iPhones.  The Chinese gov has denied issuing such guidance.  Long expects that AAPL's lucrative services business will also see decelerated growth, in part due to regulatory scrutiny.  Gross margin in its services businesses is roughly double the margin AAPL makes on all its hardware products, & CEO Tim Cook highlighted “better-than-expected” growth in that unit on an earlier investor call.  But Barclays doesn't necessarily believe that growth is reliable in the long term.  “In 2024, we should get an initial determination on the Google TAC, and some app store investigations could intensify,” Long wrote, referring to the payments Google makes to AAPL to retain its default search status.  AAPL stock sank  7.96 (4%).

Apple shares slip after Barclays downgrade

Oil prices rose nearly 2% at the start of the new year amid fears of supply disruptions with the ongoing conflict in the Middle East, as well as expectations for strong holiday demand & an economic stimulus in China, a top importer of crude.  Brent Crude rose $1.28 (1.7%) to $78.32 a barrel while US West Texas Intermediate crude was at $72.69 a barrel, up $1.04 (1.5%).  Economists & analysts forecast that Brent Crude will average $82.56 a barrel in 2024, a slight increase over the 2023 average of $82.17.  Analysts expect weak global growth to limit demand for oil, although geopolitical tensions could provide support.  Oil supply is threatened as Iran-backed proxy forces in the Middle East continue to harass shipping vessels in the Red Sea, increasing risks that the Israel-Hamas war will spiral into a wider regional conflict & disrupt intl trade.  US helicopters repelled an attack yesterday by Iran-backed Houthi militants on a Maersk container vessel in the Red Sea, sinking 3 Houthi ships & killing 10 militants.  "The oil price may be affected by the escalation ... in the Red Sea over the weekend and the peak demand season during China's Spring Festival," said Leon Li, a Shanghai-based CMC Markets analyst said.  Li added that forecasts for increased demand during China's Lunar New Year holiday in Feb were also raising expectations for price increases this month.  China may also introduce new stimulus measures that could potentially boost oil demand after manufacturing activity shrank for a 3rd month in Dec.  Meanwhile, wider conflict in the Middle East could close key shipping lanes for oil transport in the Red Sea & the Strait of Hormuz in the Gulf.  After yesterday's attack, an Iranian warship sailed into the Red Sea.  Tracking data shows that at least 4 tankers transporting diesel & jet fuel from the Middle East & India to Europe are making costly detours around Africa to avoid the Red Sea.  Maersk said yesterday it will once again pause all transits thru the Red Sea & Gulf of Aden.  The announcement came just one week after Maersk officials said it would resume routes through the area which were stopped because of similar attacks.  The Denmark-based shipping giant said routes thru the Bab el-Mandeb Strait were paused in early Dec because of attacks against its ships & the Suez Canal, which is heavily traversed by ships from around the world, became unstable for most routes.

Oil prices up after US strikes back at Houthis in Red Sea

Shares of Moderna (MRNA) jumped after Oppenheimer upgraded the stock to “outperform,” saying the Covid vaccine maker could market 5 products by 2026.  The upgrade follows a dismal 2023 with only commercially available product is its Covid shot.  Oppenheimer analyst Hartaj Singh said the its Covid sales could hit a low point in 2024 due to factors such as vaccine fatigue.  But the firm expects Covid vaccine sales to rise in 2025 & beyond as education about Covid & spending on awareness about the disease increase.  Singh was even more upbeat about MRNA's pipeline potential, highlighting a handful of possible product launches over the next 12-18 months that could boost sales in 2025.  That includes a potential approval this year for an experimental vaccine that aims to protect older adults from respiratory syncytial virus, which typically causes mild, cold-like symptoms but more severe cases in seniors & children.  The company has said that the Food & Drug Administration will make a decision on its RSV vaccine in Apr.  Its experimental flu vaccine could also win approval in 2024 or 2025.  In Sep, the company said its shot produced a stronger immune response against 4 strains of the virus than a currently available flu vaccine in a late-stage trial.  Also, MRNA reiterated that it expects to see sales growth in 2025.  The company highlighted its RSV vaccine & the possible approval for its combination shot targeting Covid & the flu, which could come “as early as 2025.”  MRNA in its 3rd-qtr earnings release said it expects revenue to fall to $4B in 2024 before it grows again in 2025.  The company expects to “break even” in 2026.  The company also said in Nov that it would only hit the low end of its sales forecast of $6-8B for 2023, reflecting weaker demand for Covid vaccines.  MRNA has also said it plans to launch up to 15 products in the next 5 years, a goal it first outlined during its annual research & development day in Sep.  The stock jumped 13.08 (13%).

Moderna stock pops after Oppenheimer says company could launch more products over next two years

Oil futures fell to kick off the new year, giving up the sharp gains seen in early trading after an Iranian warship entered the Red Sea, heightening tensions & fears of potential crude-supply disruptions caused by attacks on shipping vessels by Iran-backed Houthi rebels in Yemen.  West Texas Intermediate crude for Feb was down $1.20 (1.7%) to $70.44 a barrel after trading as high as $73.64.  Mar Brent crude, the global benchmark, fell $1.10 (1.5%) to $75.92 a barrel after setting a session high at $79.06.

Oil prices turn lower despite escalating Red Sea tensions, Maersk’s shipping pause

Gold futures rose on market expectations that the Federal Reserve will soon start cutting interest rates.  The most active gold contract for Feb rose 1 to close at 2073 per ounce.  Market generally expects that the Fed will start cutting interest rates in Mar, therefore the broader prospects of gold remain upbeat.  Gold market should brace for volatility this week as a slew of economic indicators will be released, including the jobs report on Fri. The seasonally adjusted S&P Global US Manufacturing Purchasing Managers' Index (PMI) posted 47.9 in Dec, down from 49.4 in Nov & lower than the earlier released flash estimate of 48.2.

Gold Rises On Fed Rates Cutting Expectations

The bulls did not come out in force, so the bears took stock prices lower although a few returned in the last hour of trading.  The Red Sea is a major shipping route not only for oil, but also for cargo which is carried on huge container ships.  Fighting in that route will damage global trade, starting with oil.

Dow Jones Industrials 

Markets fall as investors weigh expectations over interest rate cuts

Dow inched up 16, decliners slightly over advancers & NAZ lost 250.  The MLP index was off pennies at 254 & the REIT index went up 2+ to the 397s.  Junk bond funds edged higher & Treasuries were sold, raising yields (more below).  Oil inched higher pennies in the 71s & gold slid back 4 to 2067.

AMJ (Alerian MLP Index tracking fund)

Tesla (TSLA) published its 4th-qtr vehicle production & deliveries report for 2023:

Total deliveries Q4 2023:            484,507
Total production Q4 2023:          494,989
Total annual deliveries 2023:   1,808,581
Total annual production 2023: 1,845,985

In 2022, the Elon Musk-led automaker reported annual deliveries of 1.31M & production of 1.37M electric vehicles.  The new numbers represent delivery growth of 38% year over year & production growth of 35% year over year.  In 2022, the company reported 40% growth year over year in deliveries from 2021.   In Oct, execs offered guidance that the company would notch at least 1.8M deliveries for the full year, a number they had revised down from a 2M goal earlier.  Analysts had expected  deliveries of 477K for the year-ending qtr as of Dec 28.  Deliveries are the closest approximation of sales reported but are not precisely defined in the company's shareholder communications.  In Oct, CEO Musk said the company's Model Y entry-level SUV was likely to “be the bestselling car on Earth, but not just in revenue, but in unit volume,” for the year.  TSLA does not break out delivery & production numbers by individual model but reported combined numbers of: TSLA produced 476,777 Model 3 & Model Y vehicles during the qtr & reported 461,538 deliveries for these models.  It didn't break down Model S or X production or delivery numbers, instead batching them into “Other Models.”  It produced 18K other models & delivered 23K during the qtr.  The stock rose 27¢.

Tesla reported 485,000 deliveries for the fourth quarter, bringing 2023 total to 1.8 million

Denmark-based shipping giant Maersk said it will once again pause all transits thru the Red Sea & Gulf of Aden after one of its vessels came under attack by Houthi rebels on Sat.  The announcement comes just one week after Maersk officials said it would resume routes thru the area which were stopped because of similar attacks.  Maersk said routes thru the Bab el-Mandeb Strait were paused in early Dec because of attacks against its ships & the Suez Canal, which is heavily traversed by ships from around the world, became unstable for most routes.  On Dec 19, National Security Council spokesman John Kirby said ships & aircraft of several nations would join the US in conducting surveillance & taking defensive action against Houthi rebels who target commercial ships in the Red Sea, in what is being called, "Operation Prosperity Guardian."  With the operation in place, Maersk said on Fri that it was resuming voyages thru the Red Sea & Gulf of Aden, as well as the Suez Canal, as a gateway between Asia & Europe.  Everything changed Sat, when the container ship Maersk Hangzhou reported they were struck by a missile while transiting the Southern Red Sea.  The container ship requested assistance, & the USS Gravely & USS Laboon responded.  While responding, the USS Gravely shot down 2 anti-ship ballistic missiles fired from Houthi-controlled areas in Yemen toward the ships.  Maersk said that after being struck by an unknown object & seeing no indication of fire on the ship, it continued its transit north in the Red Sea.  Then, 4 boats approached the vessel & opened fire in an attempt to board the ship.  Maersk Hangzhou's security team, along with a helicopter deployed from a nearby navy vessel, thwarted the attempt & the crew of the Hangzhou was reported to be safe.  "The safety of our crew is our utmost priority and all necessary security measures have been implemented to protect them," Maersk said. "Maersk is currently working to ascertain the full details of the incident involving Maersk Hangzhou."  Maersk said it is pausing voyages in the area until at least Jan 2, at which point the company expects to provide customers with an update on the situation.

Maersk pauses Red Sea voyages a day after Houthis attack ship

Treasury yields climbed as 2024 trading kicked off & questions about the outlook for interest rates & the state of the economy remained.  The yield on the 10-year Treasury was up by 8 basis points at 3.943% & the 2-year Treasury yield was also last up 8 basis points higher at 4.328%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  2023 marked a tumultuous year for bond markets, with the 10-year Treasury yield rising above 5% in Oct before ending the year below 3.9%.  The interest rate hikes, persistent inflation, recession fears & market shocks like the regional banking crisis in the US were among factors that shaped bond markets in 2023 & several of them will likely also have a significant impact in the year ahead.  Markets are widely expecting the Federal Reserve to have reached the end of its rate-hiking cycle, with the central bank having left rates unchanged at its last 3 meetings.  Rate cuts are expected in 2024, with the Fed saying it was anticipating 3 cuts.  When they will take place remains unclear.  Even after these initial rate cuts, interest rates will remain higher, which has caused concerns about how this will affect the economy & whether the US will dip into a recession this year.

Treasury yields climb as 2024 trading begins

Stocks drifted lower as investors assess uncertainties.  While interest rate cuts are expected, timing  by definition is unpredictable, Q4 GDP is expected to be under the 4.9% rate in Q3 & with the goings on in the Red Sea, the future for oil prices, a key part of inflation, can not be predicted & the stock market is heavily overbought after the extraordinary run in the last 2 months.  This could be a wild year in the stock market.

Dow Jones Industrials 

Markets drift lower today, but stocks & gold had spectacular years

Dow fell 20, decliners over advancers better than 2-1 & NAZ dropped 83.  The MLP index was steady in the 254s & the REIT index gave back 4+ to the 295s.  Junk bond funds fluctuated & Treasuries continued to see slightly lower prices which took yields a little higher.  Oil was off chump change in the 71s & gold retreated 6 to 2077 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Oil prices are on pace to close out the year about 10% lower as bearish sentiment has taken over due to worries that the market is oversupplied from record production outside OPEC.  The West Texas Intermediate contract for Feb gained 10¢ to trade at $71.87 to barrel today & the Brent contract for Mar rose 12¢ to trade at $77.27.  But US crude & the global benchmark were headed for the first annual decline since 2020 despite ongoing geopolitical risk in the Middle East due to the devastating war in Gaza.  Oil prices rose nearly 3% on Tues on worries that militant attacks on shipping in the Red Sea would disrupt global trade & crude supplies.  However, WTI is down over 10% for the year & Brent has lost 9.9%.  While fears of escalation in the Middle East have triggered brief spikes in crude prices, traders are primarily focused on the supply & demand balance.  The US is producing crude at a record pace, pumping an estimated 13.3M barrels per day last week.  Output is also at a record in Brazil & Guyana.  The historic production outside OPEC has collided with an economic slowdown in major economies, above all China. OPEC & its allies, meanwhile, have promised to cut production by 2.2M barrels per day in the first qtr of 2024, but traders apparently have little confidence that the bloc's policy will bring the market into balance.  Oil production outside OPEC, above all in the US, is expected to more than cover demand growth in 2024, according to the Intl Energy Agency (IEA).  Global oil demand growth is expect to fall by ½ to 1.1 mbd next year, while output outside OPEC is expected grow by 1.2 mbd.  The shift in crude supply from the Middle East to the US & other Atlantic countries is “profoundly impacting the global oil trade,” the IEA said in its Dec outlook.  The US was responsible for 2/3 of the growth in supply outside OPEC this year.  This is challenging efforts by producers in the Middle East to defend their market share & lift oil prices, according to the IEA.  OPEC seems to have little room to maneuver, with production cuts falling on deaf ears.  Brazil has agreed to ally itself with the bloc, but it is not clear what that means for markets.

Oil poised to end the year 10% lower in first annual decline since 2020

Apple (AAP) stock, in the Dow, rallied in 2023, but its performance was outshined by all of its mega-cap tech peers, as the company suffered 4 straight qtrs of declining revenue.  It's the longest such slide for AAPL since the dot-com bust of 2001.  Some of its troubles this year were due to a bad economic environment for phones & computers.  Over the summer, total smartphone sales were the slowest in more than a decade.  But AAPL also dealt with some company-specific issues.  AAPL didn't release new iPad models in 2023, the first time that's happened in a calendar year since the product was launched in 2010.  Without new models, it has less to promote & older versions of the product don't see official price cuts that boost sales.  Earlier this month, all current model iPads were shipping from AAPL's website in a day, according to Morgan Stanley analysts.  That’s a sign of weak demand because with the hottest products, AAPL doesn't have enough supply to ship that quickly.  In fiscal 2023, which ended in Sep, iPad revenue dropped 3.4% to $28.3B.  On a unit basis, iPad sales were even worse, falling 15%, according to a recent estimate from Bank of America analyst Wamsi Mohan.  To make matters worse, new Apple Watch models were removed from its stores in the US days before Christmas over an intellectual property dispute.  After a late Dec appeal, the devices have been returned to store shelves, but Morgan Stanley analysts estimate AAPL lost about $135M in sales per day during the brief ban.  Even for its new products, like Mac computers, consumers showed less interest in opening their wallets for devices with minor upgrades.  Sales of Mac PCs & laptops fell nearly 27% to $10.2B in fiscal 2023.  Unit sales declined 11%, according to Bank of America's estimate.  In order to return to revenue growth & support its $3T market cap, AAPL needs some new products to hit & global demand for smartphones & laptops to recover.  The stock fell 97¢ 1.07.

Apple’s stock underperformed top tech peers in 2023 due to longest revenue slide in 22 years

Alphabet (GOOG) Google has agreed to settle a lawsuit claiming it secretly tracked the internet use of Ms of people who thought they were doing their browsing privately.  US District Judge Yvonne Gonzalez Rogers in Oakland, California, put a scheduled Feb 5, 2024 trial in the proposed class action on hold, after lawyers for Google & for consumers said they had reached a preliminary settlement.  The lawsuit had sought at least $5M.  Settlement terms were not disclosed, but the lawyers said they have agreed to a binding term sheet thru mediation & expected to present a formal settlement for court approval by Feb 24, 2024.  The plaintiffs alleged that Google's analytics, cookies & apps let the GOOG unit track their activity even when they set Google's Chrome browser to “Incognito” mode & other browsers to “private” browsing mode.  They said this turned Google into an “unaccountable trove of information” by letting the company learn about their friends, hobbies, favorite foods, shopping habits, & “potentially embarrassing things” they seek out online.  In Aug, Rogers rejected Google's bid to dismiss the lawsuit.  She said it was an open question whether Google had made a legally binding promise not to collect users' data when they browsed in private mode.  The judge cited Google's privacy policy & other statements by the company that suggested limits on what information it might collect.  Filed in 2020, the lawsuit covered “millions” of Google users since Jun 1, 2016, & sought at least $5000 in damages per user for violations of federal wire-tapping & California privacy laws.  GOOG stock fell 48¢.

Google settles $5 billion consumer privacy lawsuit

Gold prices held steady as they headed towards the end of their best year since 2020 at levels comfortably above $2000 an ounce, buoyed by hopes the Federal Reserve could cut interest rates as early as Mar.  Spot gold was at $2064 per ounce, little changed from the previous session.  US gold futures settled 0.6% lower at $2071.  Bullion has so far risen 13% in a year that saw prices swing between lows near $1800 & a record high of $2135.  Gold investors anticipate record-high prices next year, when the fundamentals of a dovish pivot in US interest rates, continued geopolitical risk & central bank buying are expected to support the market.  The dollar index (.DXY) was headed for a 2% decline in 2023, while benchmark 10-year Treasury yields languished near their lowest levels since Jul.

Gold Sits Above $2,000 on Track for Best Year Since 2020

US crude oil closed out the year more than 10% lower as bearish sentiment has taken over due to worries that the market is oversupplied from record production outside OPEC.  The West Texas Intermediate contract for Feb shed 12¢ to settle at $71.65 a barrel & the Brent contract for Mar lost 11¢ settle at $77.04.  US crude & the global benchmark booked the first annual decline since 2020 despite ongoing geopolitical risk in the Middle East due to the devastating war in Gaza.  WTI is down 10.7% for the year & Brent has lost 10.3%.  Oil prices rose nearly 3% on Tues on worries that militant attacks on shipping in would disrupt global trade and crude supplies.

U.S. Crude Oil Sheds more than 10% for the Year in First Annual Decline Since 2020

After choppy times in the first 10 months of 2023, Dow & gold were bid to new heights in Nov-Dec.  WTI rose 256 in 2023 while Dow soared 4550.  Now the bulls have the challenge of extending both of these runs.  Especially for stocks, waiting for maybe 3 rate cuts in 12 months may not be easy for investors with a presidential race in the background.  Have a good holiday & a better new year!  😀😀

Dow Jones Industrials 

Markets slipped lower with stocks and gold near records

Dow slid back 31, decliners over advancers 2-1 & NAZ were off 82.  The MLP index added 1 to the 255s & the REIT index declined 2+ to the 397s.  Junk bond funds inched higher & Treasuries had limited selling which brought higher yields.  Oil was up pennies in the 71s & gold fell 9 to 2074.

AMJ (Alerian MLP Index tracking fund)

Treasury yields were higher as investor attention remained focused on the path ahead for the economy & monetary policy.  The yield on the 10-year Treasury  was up nearly 3 basis points to 3.877% & the 2-year Treasury yield was last around 2 basis points higher at 4.299%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  As investors look ahead to the outlook for 2024, questions remain as to when & how often the Federal Reserve will cut interest rates.  The central bank said earlier this month that it expects to cut rates 3 times next year, however some investors are hoping for further reductions.  Markets are broadly pricing in the first rate cut to take place in Mar 2024, according to CME Group's FedWatch tool.  Uncertainty has also continued about the state of the US economy & whether the Fed will achieve a soft landing to avoid a recession even as interest rates remain elevated.  US bond markets will close early today & remain closed Monday in celebration of the new year holiday.

Treasury yields tick higher as investors prepare for the new year

Aircraft manufacturer Boeing (BA), a Dow stock, is urging airlines to inspect 737 MAX airliners for a possible loose bolt in the jet's rudder control system, the Federal Aviation Administration (FAA) said.  The FAA said that it is "closely monitoring targeted inspections" of Boeing 737 MAX airplanes after BA notified operators of newer single-aisle airplanes to look at specific tie rods that control rudder movement to see if there is any loose hardware.  BA recommended the inspections after an intl operator of the 737 MAX found a bolt with a missing nut during routine maintenance on a mechanism in the rudder control linkage.  The company also found an additional undelivered aircraft with a nut that wasn't properly tightened.  "The issue on the particular airplane has been remedied," BA said.  "Out of an abundance of caution, we are recommending operators inspect their 737 MAX airplanes and inform us of any findings. We informed the FAA and our customers and will continue to keep them aware of the progress."  BA noted that there have been no in-service incidents caused by this issue & that flight crews routinely conduct checks before departing the airport gate that would alter them if the rudder weren't functioning properly.

Boeing, FAA urge operators to inspect 737 MAX jets for loose bolt

US patients & drugmakers will get a first glimpse of how much Medicare can negotiate down drug prices in 2024, setting the precedent for a controversial process that may affect what seniors pay for dozens of medications by the end of the decade.  It could also be a pivotal year for the lawsuits that drugmakers have filed against the price talks.  Decisions could come down in some of the cases next year, which could eventually escalate the issue to the Supreme Court.  Pres Biden's Inflation Reduction Act, which passed in a party-line vote last year, gave Medicare the authority to directly hash out drug prices with manufacturers for the first time in the federal program's nearly 60-year history.  Medicare is negotiating prices for the first round of 10 prescription drugs in a bid to make those costly treatments more affordable for older Americans.  By the fall, the federal gov will publish the agreed-upon prices for those medications, which will go into effect in 2026.  The outcomes of the talks will have huge stakes for the pharmaceutical industry, which views the process as a threat to its revenue growth, profits & drug innovation.  The final prices will determine how much revenue the companies that make the drugs can expect to lose in a few years.  The figures will also give other drugmakers an idea of how much their sales could be affected if their medications are selected for future rounds of negotiations.  But the final agreed-upon prices are also significant for patients, who will get a first look at how much money the talks will save them at a time when many older people increasingly struggle to afford medications.

Medicare drug price negotiations will face major tests in 2024

Volume is thin as traders close out positions for 2023.  The tremendous advance in 2023 is attributable to the Nov-Dec rally.  It will be a major challenge to replicate such performance going forward.

Dow Jones Industrials 

Markets rise as stocks aim for a 9th straight weekly advance

Dow gained 53 with a little selling into the close, decliners slightly over advancers & NAZ slipped back 4.  The MLP index stayed close to 255 & the REIT index was up 1+ to the 399s.  Junk bond funds were mixed & Treasuries had more selling which increased yields.  Oil was off 2+ to 72 as some companies are using the Red Sea again & gold dropped 14 to 2078 after its recent run (more on both below).

AMJ (Alerian MLP Index tracking fund)

Mortgage rates marched down again this week in a hopeful sign for prospective buyers, but flat pending home sales indicate the recent declines have so far not been sufficient to get the housing market moving again.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate for the benchmark 30-year fixed mortgage fell to 6.61% this week, down from 6.67% last week but still higher than 6.42% a year ago.  At the same time, the rate on the 15-year fixed mortgage fell nearly a full point, averaging 5.93% after coming in last week at 6.95%.  One year ago, the rate on the 15-year fixed note averaged 5.68%.  Meanwhile, the National Association of Realtors' latest index of pending home sales showed contracts to purchase previously-owned homes held steady at a record low in Nov.  The forecast expected a rise of 1% from Oct's reading of 71.4, which was the lowest recorded since the index was created in 2001, reflecting the damage that inflation, high mortgage rates & a shortage of supply have inflicted on the housing market.  However, the Commerce Dept reported housing starts surged 14.8% last month, signaling progress in the stagnant market.  "Buyers over the last year have gravitated toward new construction as existing home supply has remained limited and builders are willing to incentivize purchases with lower rates," said Realtor.com chief economist Danielle Hale.  "Today’s data signal that home sales activity could register better than expected in Realtor.com’s 2024 Housing Forecast if mortgage rates are able to hold on to the improvement garnered in the last two months, which has been faster than anticipated," Hale added.  She continued, "With home prices likely to remain high, mortgage rates will be an important determinant of both affordability and overall activity."

Mortgage rates drop again, but pending home sales stall

The number of Americans filing initial claims for unemployment benefits rose last week, indicating the labor market continues to cool in the year's 4th qtr.  New state unemployment benefit claims rose by 12K last week to 218K, according to the Labor Dept.  The forecast called for an increase to 210K initial claims.  The rolls of those receiving benefits after one week of aid rose 14K from the week prior, reaching 1.87M.  Continued unemployment claims, a measure for hiring, have increased since mid-Sep, indicating those already out of work may be having difficulties getting a job.  In Nov's economy, 199K new jobs emerged, up from 150K in Oct according to the Labor Dept's non-farm payrolls report.  The unemployment rate also fell moderately from the month prior, to 3.7% from 3.9%.  Amid slower job growth & milder inflation, the Federal Reserve has left its benchmark interest rate unchanged for 3 consecutive policy meetings & it is expected that its rate hike campaign to be at an end.

New US jobless claims rise again as labor market cools

Israeli tanks advanced deep into a town in the central Gaza Strip after days of relentless bombardment that forced tens of thousands of already displaced Palestinian families to flee in a new exodus.  A Palestinian journalist posted pictures of Israeli tanks near a mosque in a built-up area of Bureij, the armored contingent having apparently advanced from orchards on the eastern outskirts.  Further south, Israeli forces struck the area around a hospital in the heart of Khan Younis, the Gaza Strip’s main southern city, where residents feared a new ground push into territory crowded with families made homeless in 12 weeks of war.  An Israeli air strike later today killed 20 Palestinians & wounded 55 in Rafah, a major town near Gaza's southern border with Egypt, Gaza health ministry spokesman Ashraf Al-Qidra said.  The building that was hit was housing displaced civilians, according to local medics & residents.  Palestinian health authorities said earlier that 210 people were confirmed killed in Israeli strikes in the past 24 hours, raising the toll of Palestinians killed in the war so far to 21K, nearly 1% of Gaza's population.  Thousands more dead are feared to be buried or lost in the ruins.  Over the course of the war, the Israeli military has expressed regret for civilian deaths but it blames Hamas for operating in densely populated areas & using civilians as human shields, a charge the group denies.  Israel has escalated its ground offensive in Gaza sharply since just before Christmas despite public pleas from its closest ally the US to scale the campaign down in the closing weeks of the year.  It launched the war to destroy the militant Islamist Hamas movement that runs Gaza after fighters rampaged thru Israeli towns in a cross-border raid on Oct 7, killing 1200 people & taking about 240 hostages.  Of the hostages, 110 were freed during a short truce in late Nov & another 23 have now been declared dead in absentia, an Israeli gov spokesperson said.  The main focus of fighting is now in central areas south of the wetlands that bisect the narrow coastal strip, where Israeli forces have ordered civilians out over the past several days as their tanks close in.

Israeli tanks push deep into central Gaza town, air strike kills 20 in south

Gold held gains after a 4-day rally as strong demand for Treasuries signaled investors are confident the Federal Reserve will loosen monetary policy next year.  US bonds rallied yesterday, dragging down yields to levels not seen in months, on growing expectations that inflation will keep decelerating to a level low enough to coax the Fed into soon slashing interest rates.  Falling yields also drove the $ lower, boosting the appeal of commodities priced in the currency.  Swaps markets are pricing in about an 84% chance of a cut by Mar.  Lower yields & rates are usually bullish for non-interest bearing assets like gold.  The precious metal is up about 14% in 2023, on track for its first annual increase in 3 years.  Gold was little changed at $2077 an ounce.  The Bloomberg Dollar Spot Index fell for a 5th day, losing 0.3% to the lowest level in 5 months.

Gold Holds Gains as Bond Markets Rally on Rate-Cut Optimism

Oil prices fell around 1% as concerns eased about shipping disruptions along the Red Sea route, even as tensions in the Middle East continue to fester.  Front month Feb Brent crude futures were down 90¢ (1.1%) at $78.75 a barrel in subdued trade ahead of their imminent expiry, while the more active Mar contract was down 69¢ (0.9%) at $78.85 a barrel.  US WTI crude futures were trading 80¢ (1.1%) lower at $73.31 a barrel.  Oil prices dropped nearly 2% yesterday as major shipping firms began returning to the Red Sea.  Denmark's Maersk will route almost all container vessels sailing between Asia & Europe thru the Suez Canal from now on while diverting only a handful around Africa, a breakdown of the group's schedule showed.  Major shipping companies, including container giants Maersk & Hapag-Lloyd, stopped using Red Sea routes & the Suez Canal earlier this month after Yemen's Houthi militant group began targeting vessels, disrupting global trade.  However, a US-led coalition to quell tensions in the Red Sea has not so far yielded coordinated action as hoped.

Oil Prices Slide as Red Sea Transport Disruptions Ease

Trading is subdued with some traders starting their long holiday early.  Stocks have had a very good year but 2024 will begin with a vastly overbought market.  There are still numerous problems starting with the southern border disaster, elevated high interest rates that will linger, continuing federal budget deficits, out of control crime & 2 gov shutdowns looming.  For the time being, the bulls are still in charge of the stock market.

Dow Jones Industrials