Markets edge higher ahead of tomorrow's CPI report

Dow went up 125, advancers over decliners better than 3-1 & NAZ slid back 48.  The MLP index rose 3+ to the 262s & the REIT index was off fractionally to the 377s.  Junk bond funds remained slightly higher & Treasuries had minimal buying, reducing yields.  Oil remained flattish in the high 76s & gold was off 5 to 2033 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Just as inflation eases & more economists bet on a soft landing for the US economy, a new risk is emerging, a policy push & pull.  The divide between fiscal & monetary policy is increasingly worrying America's most noted economists.  "Panelists are more optimistic about the outlook for the domestic economy," added National Association of Business Economics (NABE) Policy Survey Chair Sam Khater, chief economist for Freddie Mac said, "but they have increasing concerns on the balance of risks around monetary policy that is ‘too restrictive’ versus a fiscal policy that is ‘too stimulative’" the group noted in its Feb survey.  57% believe current fiscal policy is "too stimulative," up from 54% in Aug & has been steadily rising.  Economists see reducing the deficit & debt as the 2 most important goals for promoting "medium-to-long-term growth."  The national debt, which measures what the US owes its creditors, increased to $34,228,699,143,453 as of Fri, published by the Treasury Dept.  By comparison, just 4 decades ago, the national debt hovered around $907B.  Additionally, last week the nonpartisan Congressional Budget Office (CBO) predicted the debt held by the public will soon surpass the size of the US economy & exceed a historical record in 4 years.  Spending will likely be driven by Social Security & Medicare as well as interest payments.  Debt held by the public, a key metric for tracking the size of the national debt used by economists, totaled $26.2T in 2023 & is set to rise to $27.9T in 2024.  Over the next decade, it is projected to rise to $48.3T in 2034, according to its budget & economic outlook for the 2024-2034 period.  As for monetary policy, the majority of NABE economists feel policy is "about right" but shifts are underway with those who feel its "too restrictive" rising by 21%, up from 14% in both Mar & Aug 2023.  Policymakers have indicated rate cuts are on the table for 2024, with expectations for the first rate cut taking place in Mar.  However, at the Federal Reserve's Jan meeting, Chair Jerome Powell dialed that back.  "I would tell you that I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that," he said during the Q&A session.  The Fed left rates unchanged for a 4th time last month, leaving rates at 5.25%-5.50%.  On a positive note, the majority do not believe the US will enter a recession this year, but there are other risks on the horizon.  "As for the most likely geopolitical risks, NABE respondents express the greatest concerns about the Middle East conflict driving up oil prices or disrupting supply chains, a stagnant Chinese economy, and instability around U.S. elections" said Ellen Zentner, NABE pres.

Monetary, fiscal policy divide pose risks: NABE

ARM (ARM) rose again, extending last week's rally as investors continue to applaud the chipmaker’s better-than-expected 3rd-qtr earnings & its position in the artificial intelligence boom.  Arm is now up over 90% since it reported quarterly financials on Feb 8, though without any clear catalyst for today's move.  The stock is up 142% since its IPO in Sep & is now worth about $148B.  Last week, ARM said it could charge twice as much for its latest instruction set, which accounts for 15% of the company's royalties, suggesting it can expand its margin & make more money off new chips.  It also said it was breaking into new markets, such as cloud servers & automotive, due to AI demand.  Its royalty strength combined with ARM's optimistic growth forecast has made the company the latest AI darling among investors, despite a higher earnings multiple than Nvidia (NVDA) or AMD (AMD).  However, its value may become clearer next month when a 180-day lockup expires.  SoftBank (SFBQF) still owns 90% of the outstanding stock, meaning its stake in ARM has increased more than $61B since the company's report last week & is now worth upward of $131B.  ARM stock surged 33.76 (29%).

Arm shares jump 25% as post-earnings rally extends to second week

In the 24 years since JetBlue Airways's (JBLU) first flight, the New York-based airline has pushed the envelope for a carrier of its size.  Now, with some veteran exec hires & cost-cutting, it's trying to get back to basics.  JBLU was a pioneer in seat-back entertainment, free Wi-Fi, good snacks & a business-class cabin with lie-flat seats that debuted at lower prices than rivals.  More recently, it's ventured across the Atlantic with flights to London, Paris, Amsterdam & Dublin.  While JetBlue has never lacked big ideas, it has come up short on profits, cost control & reliability.  Those challenges will be top of mind for incoming CEO Joanna Geraghty when she takes the helm today, succeeding Robin Hayes.  Geraghty, 51, has been at JBLU for nearly 2 decades, most recently as pres & COO.  By naming her CEO, the company is promoting an insider who knows the complexities of running an airline with quirks like New York's congested airspace.  She's the first woman to lead a US passenger airline.  The stock rose 13¢.

JetBlue resets with new CEO, industry veterans to run on time, and profitably

Gold closed lower even as the $ & treasury yields weakened ahead of US Jan inflation data coming tomorrow.  Gold for Apr closed down $5 to $2033 per ounce.  The drop comes ahead of tomorrow's release of the US Jan consumer price index, which is expected to show inflation slowed to 2.9% annualized from 3.4% in Dec.  Excluding volatile energy & food prices, inflation is expected to slow to 3.7% from 3.9%.  Gold remains stuck in a tight trading range with tomorrow's US inflation report being the next potential directional catalyst for gold.  The $ weakened in of the key report, giving up early gains, with the ICE dollar index last seen down 0.07 points to 104.05.  Treasury yields eased, with the 2-year note last seen paying 4.463%, down 2.1 basis points & the yield on the 10-year note down 1.9 basis points to 4.148%.

Gold Closes Lower Ahead of Key US Inflation Data

West Texas Intermediate (WTI) crude oil closed with a small gain rising for a 6th-straight session but remaining firmly rangebound as concerns over violence in the Middle East are being offset by adequate supply & weak demand.  WTI crude oil for Mar closed up 8¢ to settle at $76.92 per barrel, while Apr Brent crude, the global benchmark, was last seen down 25¢ to $81.94.  The rise comes as Israel pushes its war against Hamas into the crowded city of Rafah in Gaza, while Yemen's Houthi militia continues to attack shipping in the Middle East.  However Iran's foreign minister said he believed the Israel-Hamas war is moving towards a diplomatic solution, easing concerns the conflict will spread to the key oil-producing Persian Gulf.  Weak demand from China as its economy slows & rising supply from the US & other non-OPEC+ countries that are offsetting production cuts from the cartel are also keeping prices rangebound.

WTI Crude Oil Closes With a Small Gain on Mideast Concerns

The CPI report tomorrow will give investors a first insight into how cool inflation is running in 2024 &, alongside an update on consumer spending, will set expectations for the timing & pace of Federal Reserve interest rate cuts this year.  Dow's rise today to a new record, suggests the market is betting on favorable reports.

Dow Jones Industrials 

Markets struggle ahead of key economic data this week

Dow was up 55, advancers over decliners better than 3-1 & NAZ gained 54.  The MLP index rose 2+ to the 261s & the REIT index was staedy in the 377s.  Junk bond funds inched higher & Treasuries were about even (more below).  Oil hardly budged in the 76s (more below) & gold fell 11 to 2027.

AMJ (Alerian MLP Index tracking fund)

Cisco (CSCO) a Dow stock, is planning to cut thousands of jobs as it restructures its business.  The  network giant is trying to turn its focus on high-growth areas.  However, the exact number of layoffs hasn't been determined yet.  As of Jul 2023, the company had approximately 85K employees globally.  This isn't the first time the company laid off employees.  CSCO cut about 5% of its global workforce in 2022.  It marks the latest in a string of layoffs that have been announced since the beginning of the year.  Globally, about 141 tech companies have already cut over 34K jobs.  However, companies across a variety of industries, from media to financial firms, have also announced layoffs in recent weeks amid ongoing inflation & high interest rates.  The stock fell 35¢.

Cisco to cut thousands of jobs: report

Treasury yields were slightly lower as investors looked ahead to key economic data & fresh comments from Federal Reserve officials that could provide hints about the interest rate outlook.  The yield on the 10-year Treasury was last down less than one basis point at 4.18% & the 2-year Treasury yield was also 1 basis point lower at 4.48%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors looked ahead to key economic data & remarks from Federal Reserve officials slated for this week as uncertainty about when rate cuts may begin & how many will take place this year has persisted.  Jan's consumer price index is due tomorrow, before the producer price index, retail sales figures & further data points which are slated for later in the week.  Investors are hoping that the data will suggest that the Fed could begin cutting rates sooner rather than later.  This comes as Fed officials in recent weeks have indicated that economic data will play a major role in their decision making when it comes to interest rate cuts & suggested they are unlikely to cut rates in Mar, which many investors had been hoping for.

Treasury yields dip as investors await key data, Fed comments

Oil prices were largely flat today after rallying more than 6% last week on escalating Middle East tensions.  The West Texas Intermediate contract for Mar was last up 1 penny to trade at $76.85 a barrel & the Brent contract for Apr was last trading at $81.96 a barrel, down 23¢.  US crude & the global benchmark popped last week after Israel rejected Hamas' proposal for a ceasefire & vowed to press on with its Gaza offensive to the southern city of Rafah, which is located on the border with Egypt.  “We’re going to do it. We’re going to get the remaining Hamas terrorist battalions in Rafah, which is the last bastion, but we’re going to do it,” Israel Prime Minister Benjamin Netanyahu said.  “Those who say that under no circumstances should we enter Rafah are basically saying lose the war, keep Hamas there,” Netanyahu added.  The prime minister said Israel would provide safe passage for civilians out of the southern city.  Oil prices have struggled to breakout of a $10 trading range despite tensions in the Middle East.

Oil prices hang on to last week’s gains after rally on Middle East tensions

There is very little excitement in the stock market today.  Tomorrow the consumer price index will get a lot of attention.

Dow Jones Industrials 

Markets rise again with stock averages at or near record highs

Dow fell 54, advancers over decliners about 2-1 & NAZ rose 196.  The MLP index continued to stay in the 259s & the REIT index was off fractionally to the 276s.  Junk bond funds edged higher & Treasuries had limited selling, bringing yields a little bit lower.  Oil crawled higher in the 76s & gold was off 8 to 2039 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The electric vehicle (EV) push is eating into Ford's (F) profit margins as the company seeks to find the right mix between profitable vehicles consumers want today & the next generation of EVs that may be in higher demand as the market's preferences shift in the future.  Model e, the company's EV division, had a net loss of $4.7B last year, with $1.6B of that in the last qtr, & Ford's CFO John Lawler explained that both "the quarter and year were impacted by challenging market dynamics and investments in next-generation vehicles."  Lawler added that Ford expects Model e "losses to widen to a range of $5 billion to $5.5 billion, driven by continued pricing pressure and investmfents in our next-generation vehicles" while noting that the company expects "our first-generation vehicles to improve their profits throughout the year."  If Ford weren't selling Mustang Mach-E & F-150 Lightning vehicles while also investing in the next generation of EVs that will eventually supplant those, the automaker's adjusted operating profit would be about 50% higher than it currently is.  CEO Jim Farley said that the EV market is going through a "seismic change" over the last 6 months of last year that will "rapidly sort our winners and losers in our industry."  He said the catalyst for the change is a shift in EV makers cutting prices by 20% across major markets as well as an influx of investment & capacity in the 2-row crossover segment.  Ford's targets for its next generation of EVs will be for them to be profitable within 12 months of their launch & that it will spend less on making larger EVs by focusing those models on "geographies and product segments where we have a dominant advantage, like trucks and vans."  The stock lost 15¢.

Ford projected to lose $5 billion in profits over EV production

New York Community Bank (NYCB) was hit with its 3rd credit downgrade as fears linger that the regional bank could be in peril nearly a year after the regional banking sector was hit by a crisis that triggered some of the largest bank failures in US history.  Morningstar downgraded NYCB's credit rating & cited "outsized" exposure to commercial real estate (CRE) that the bank has pledged to reduce in the months ahead.  CRE borrowers have been under pressure due to the higher interest rate environment as well as lower occupancy rates due to the rise of remote work.  The downgrade comes after rating agencies Fitch & Moody's also lowered NYCB’s ratings in the last week.  Last Fri, Fitch cut NYCB's rating from BBB to BBB-, its lowest investment grade rating, while Moody’s lowered NYCB's rating to Ba2, a non-investment grade or "junk" tier, on Wed.  "Liquidity appears sufficient, but given the bank failures last spring, we remain cautious given that the adverse headline risk, including a significant decline in NYCB’s stock price, could eventually spook customer and depositor confidence," Morningstar said of its downgrade.  Investor concerns about NYCB came to a head last week after the company posted a surprise loss & announced a div cut to boost reserves required by banking regulations, along with its exposure to the CRE market.  Those worries sent the bank's stock plunging to its lowest level since 2000.   NYCB’s management has tried to bolster investor confidence as the company's stock has fallen over 59% in the last month, including a more than 6% decline yesterday's trading.  Newly-appointed exec chair Alessandro DiNello said on Wed that NYCB will consider the sale of loans in its commercial real estate portfolio or let them run off the balance sheet naturally.  The stock rebounded 49¢ (71%) but remains depressed.

Regional bank hit with 3rd credit downgrade as crisis concerns linger

PepsiCo (PEP), a Dividend Aristocrat, reported mixed quarterly results as North American demand for its food & drinks weakened.  CEO Ramon Laguarta said that US sales broadly slowed down in the 4th qtr.  “Part of that is a slowdown due to pricing and [consumers’] disposable income situation,” he said.  He added that US consumers are also shifting their behavior from eating & drinking at home to picking up more of their snacks & Gatorade from convenience stores.  But Laguarta expressed optimism about the overall state of the consumer, citing low unemployment & hopes that interest rates will fall by the summer & wages will rise faster than inflation.  4th-qtr was 94¢, up from 37¢, a year earlier.  Excluding items, the food & beverage giant earned $1.78 per share.  Net sales dropped less than 1% to $27.8B, it's the first qtr since 2020 that the quarterly revenue has declined compared with the year-ago period.  Currency exchange rates dragged net sales down by 1.5%.  Organic revenue, which excludes acquisitions & divestitures, rose 4.5% in the qtr, helped by higher prices.  But those same raised prices have hurt demand for the company's food & drinks.  Its volume, which strips out pricing & currency changes, slid again this qtr.  Execs said high borrowing costs & lower personal savings have squeezed consumers' budgets, particularly in North America.  They also said consumers are increasingly choosing smaller pack sizes for convenience & their low price points.  For 2024, PEP anticipates organic revenue will rise at least 4% & core constant currency EPS will climb at least 8%.  The company previously forecast an increase in organic revenue on the high end of 4-6% & core constant currency EPS growth in the high single digits.  The stock dropped 6.18 (4%).

PepsiCo earnings top estimates, but quarterly revenue slides for the first time in nearly four years

Gold closed lower for a 2nd day despite a weaker $ as treasury yields rose.  Gold for Apr closed down $9 to settle at $2038 per ounce.  The drop comes amid listless trade for the $ & little fresh economic data to spur activity.  The ICE dollar index was last seen down 0.9 points to 104.07.  Treasury yields were higher, with the 2-year note last seen up 1.3 basis points to 4.463%, while the yield on the 10-year note was up 2.6 basis points to 4.183%.

Gold Closes Lower on Rising Treasury Yields at the Dollar Weakens

West Texas Intermediate (WTI) closed higher for a 5th-straight day on demand hopes & geopolitical worries, though prices failed to break out of the range it has traded within for months.  WTI crude oil for Mar closed up 62¢ to settle at $76.84 per barrel, while Apr Brent crude, the global benchmark, was last seen up 52¢ to $82.15.  Prices rose this week after Israel rejected cease-fire overtures from Hamas & US strikes on Iranian-backed militias continued, keeping worries of a spreading war in the Middle East high, while gasoline & distillate stocks in the US fell last week, seen as a positive sign for demand, even as crude oil inventories rose more than expected.  But the bullish notes are offset as rising production from the US, Canada & other non-OPEC+ countries are offsetting OPEC+ cuts, while demand from China remains weak, leaving oil trading within a tight range for much of the past 3 months.

WTI Crude Oil Rises for a Fifth Day, Though Prices Remain Rangebound

The yields on the 10 year Treasury dropped sharply for months & then has risen for almost 2 months.  Now it's back above 4%, near 4.2%.  During most of this time stock averages have rallied to record highs with little profit taking (helped by the glamorous tech stocks).  YTD Dow is up almost 1000, not bad all considered.

Dow Jones Industrials 

Markets waver after encouraging inflation news

Dow fell 77, advancers slightly ahead of decliners & NAZ went up 143.  The MLP index remained in the 259s & the REIT index slid back 2+ to the 375s.  Junk bond funds inched higher & Treasuries were about even & yields were flattish (more below).  Oil rose in the 76s & gold was off 9 to 2038.

AMJ (Alerian MLP Index tracking fund)

The prices consumers pay in the marketplace rose at an even slower pace than originally reported, according to closely watched revisions the gov.  Updates to the consumer price index showed that the broad basket of goods & services measured increased 0.2% on the month, less than the originally reported 0.3%, the Labor Dept’s Bureau of Labor Statistics (BLS) said.  While the change is only modest, it helped confirm that inflation was moderating as 2023 ended, giving more leeway to the Federal Reserve to start cutting interest rates later this year.  The revisions are done as a matter of course for the BLS, but garnered extra attention this year after the market reacted sharply to last year's changes.  Indications that inflation in 2022 rose more than anticipated drove Treasury yields higher & sparked worry from investors that the Fed might keep monetary policy more restrictive.  Fed Governor Christopher Waller, in particular, had called attention to the 2022 revisions, sparking market attention for the latest round.  Excluding food & energy, core CPI increased 0.3% for the month, the same as originally reported.  Fed policymakers tend to focus more on core measures as they provide a better indication of long-run movements in inflation.  Also, the headline Nov reading was revised higher, up 0.2% versus the initial 0.1% estimate.  In aggregate, the revisions indicate that headline CPI accelerated at a 2.7% annualized rate in the 4th qtr, down 0.1 percentage point from the initially stated figures.  Traders still largely expect the Fed to hold its benchmark overnight borrowing rate steady when it meets in Mar, then cut in May, to be followed by 4 more qtr percentage point reductions by the end of the year, according to CME Group projections.

Inflation in December was even lower than first reported, the government says

Treasury yields were little changed as investors weighed encouraging consumer price index revisions that showed inflation rising at a slower pace than previously reported for Dec.  The 10-year Treasury yield was flat at 4.17% & the yield on the 2-year Treasury was a basis point higher at 4.469%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  The Labor Dept's Bureau of Labor Statistics revisions to the consumer price index showed the inflation gauge rose 0.2% in Dec, less than previously reported.  Treasury yields briefly traded lower after the report.  Recent data releases have shown signs of ongoing resilience in the economy & labor market, with initial weekly jobless claims data yesterday coming in at 218K, less than the 220K expected.  The figures added to expectations that the Fed will likely take some time before cutting interest rates & comes as speculation mounts over the timeline for reductions.  Commentary from Fed officials in recent weeks suggests a more cautious stance toward cuts, dashing investor hopes for one as soon as Mar.  Remarks from policymakers have also added to concerns that there could be fewer rate cuts than expected this year, with Minneapolis Fed Pres Neel Kashkari sayingthat he anticipates 2 or 3 rate cuts in 2024.

Treasury yields are flat after Labor Department revises December inflation data lower

Mortgage rates ticked slightly higher this week, with the 30-year fixed rate note continuing to hover in the mid-6% range.  The stalled housing market signals consumers still want to hold off on making a move until rates come down & data indicates homebuyer sentiment is overwhelmingly pessimistic right now.   Freddie Mac's latest Primary Mortgage Market Surveyshowed that the average rate for the benchmark 30-year fixed mortgage increased to 6.64% this week, up from 6.63% last week.  The 30-year average rate was 6.12% a year ago.  At the same time, the rate on the 15-year fixed mortgage edged lower, averaging 5.9% after coming in last week at 5.94%.  One year ago, the rate on the 15-year fixed note averaged 5.25%.  "The economy and labor market remain strong with wage growth outpacing inflation, which is keeping consumer spending robust," said Sam Khater, Freddie Mac's chief economist, noting that rates "remain stagnant."  "Meanwhile, affordability in the housing market is an ongoing issue due to continued high home prices, elevated mortgage rates & low supply of homes on the market, particularly for first-time & low-income homebuyer," he added.  Many would-be buyers & sellers are waiting on the sidelines for rates to come down & the latest Fannie Mae national housing survey released yesterday showed a record-high 36% of respondents expect rates to come down in the next 12 months.  But the data also found an overwhelming majority believe it is best to hold off on making a move until that happens, with only 17% saying in Jan it was a good time to buy a home, near a historic low.  Although the housing market typically picks up leading into spring, demand actually fell last week.

Mortgage rates rise slightly as homebuyer sentiment tanks

Well-received quarterly earnings has buoyed stocks in a week thin on economic updates, which have been driving shifts in the stock market.  Fed officials have continued to stress they're taking their time to check price pressures really are cooling before making any interest rate cuts.  Dow is still higher, up an impressive 955 YTD, but Treasury yields have been rising recently.

Dow Jones Industrials 

Markets climb cautiously after warnings by Fed officials

Dow went up 48, advancers over decliners 4-3 & NAZ gained 37.  The MLP index stayed in the 258s & the REIT index was up 3+ to the 377s.  Junk bond funds drifted a little lower & Treasuries were sold, driving yields higher.  Oil jumped 2+ to the 76s & gold slid 4 to 2047 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Richmond Fed Pres Tom Barkin said it would be smart for the central bank to "take our time" on rate cuts despite "remarkable" data showing that inflation is dropping.  Barkin made these comments, arguing that while it's possible for the US to return to a pre-pandemic economy "seamlessly," it’s also possible that the landing could be "bumpier."  "That’s why I think it is smart for us to take our time," he said.  "No one wants inflation to reemerge. And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down."  Barkin is the latest policymaker to pump the brakes on expectations for an aggressive pace of cuts in 2024.  Boston Fed Pres Susan Collins & Cleveland Fed Pres Loretta Mester both said this week they need to see more to feel confident inflation is heading back to the central bank’s 2% target, predicting that would likely happen "later this year."   "I will need to see more evidence before considering adjusting the policy stance," Collins said yesterday.  "That said, as we gain more confidence in the economy achieving the committee’s goals ... I believe it will likely become appropriate to begin easing policy restraint later this year."  Mester used similar language Tues, saying the central bank could lower interest rates "later this year" while warning it would be a "mistake" to cut too soon.  Investors began the year predicting 6 cuts starting in Mar & Fed officials have been pushing back on those expectations for the last month.  That includes Fed Chair Jay Powell, who said last week that a Mar cut is "probably not the most likely case or what we'd call the base case."  He also made the same point in an interview on TV last Sun night.

Fed’s Barkin says it makes sense to be ‘patient’ on rate

Inflation is coming down faster than most economists expected, but Americans hoping for a widespread drop in prices may be disappointed, according to Treasury Secretary Janet Yellen.  While testifying before the Senate Banking Committee, Yellen admitted that prices for most items are unlikely to return to where they were before the inflation crisis began in 2021.  "I don't expect the level of prices to go down. Some prices will be higher than they were before the pandemic, and will stay higher," Yellen said during a contentious exchange with Sen John Kennedy.  "But wages have risen considerably, and the pace of price increases has now receded over the past six months."  Prices for everything including groceries, new cars & health insurance surged in 2021 & 2022 as the result of rampant inflation, which was caused by pandemic-induced disruptions in the global supply chain, an extremely tight labor market & increased consumer demand fueled in part by stimulus cash.  But even though the pace of inflation has cooled sharply in recent months, prices for most goods have not yet receded, &  unlikely to do so, Yellen added.  "We don't have to get the prices down, because wages are going up," she said, noting that the median worker in the US can buy the same basket of goods as they did in 2019 with $1400 leftover.  "So Americans, on average, are better off in spite of the fact that the level of prices is higher."  While inflation has fallen considerably from a peak of 9.1% notched during Jun 2022, it remains above the Federal Reserve's 2% goal.  When compared with Jan 2021, shortly before the inflation crisis began, prices are up a stunning 17.6%

Janet Yellen warns high prices could be here to stay

The number of Americans filing new claims for unemployment benefits fell slightly more than expected last week, pointing to underlying labor market strength despite a recent surge in announced layoffs, mostly in the technology industry.  The report from the Labor Dept also showed unemployment rolls shrinking a bit in late Jan after swelling to a 2-month high earlier.  Labor market resilience is underpinning the economy & the latest claims readings suggested that the strong economic growth momentum from the 4th qtr continued in early 2024, potentially delaying an anticipated interest rate cut this year.  Initial claims for state unemployment benefits dropped 9K to a seasonally adjusted 218K last week.  The decline reversed the bulk of the prior week's increase, which had lifted claims to just over a 2-month high.  Economists had forecast 220K.  Claims are little changed compared to the same period last year.  Unadjusted claims dropped 31K to 232K last week amid sharp declines in filings in California, Ohio, Oregon, New York & Pennsylvania.  The decreases in these starts partially unwound surges in the prior week.  Applications in Oregon had soared in the prior week, attributed to layoffs in the construction & healthcare & social assistance industries.  The jump in New York was blamed on layoffs in the transportation & warehousing, construction as well as healthcare & social assistance industries.

US Weekly Jobless Claims Fall More Than Expected

Gold closed lower as the $ rose after the US reported fewer than expected initial jobless claims last week, showing continuing strength in the labor market.  Gold for Apr closed down $3 to settle at $2047 per ounce.  The Labor Dept said initial jobless claims last week fell to 218K from 224K a week earlier, while the consensus expectation called for 220K new claims.  The robust data is the latest sign the US job market is not cooling despite high interest rates & the strength could push off expected cuts to US rates.  The $ moved higher following the data, making gold more expensive for intl buyers.  The ICE dollar index was last seen up 0.1 points to 104.16.  Treasury yields were mixed, with the 2-year note last seen unchanged at 4.446% while the yield on the 10-year note was up 5.5 basis points to 4.151%.

Gold Closes with a Small Loss as Fewer than Expected New Job Claims Boosts the Dollar

West Texas Intermediate (WTI) crude oil rose for a 4th-straight session on signs of higher demand after the Energy Information Administration a day earlier said inventories of refined products fell despite a rise in crude oil stocks, while Mideast tensions continue.  West Texas Intermediate crude oil for Mar closed up $2.36 to settle at $76.22 per barrel, while Apr Brent crude, the global benchmark, was last seen up $2.39 to $81.60.  The rise comes after the EIA offered traders some good news on demand, with gasoline stocks dropping 3.1M barrels last week & distillate inventories down 3.2M barrels, rose a more than expected 5.5M barrels & production returned to a record 13.3M barrels per day.  Geopolitical risks are also supporting prices, as Israel rejected a cease-fire offer from Hamas.  However Secretary of State Antony Blinken said the Hamas offer contained some "delusional" conditions but the offer created space for further negotiations.  However Israel's rejection of the offer triggered algorithmic buying, adding upward pressure on prices.   

WTI Crude Oil Rises for a Fourth Day on Higher US Refined Product Demand and Mideast Tension

Today investors were thinking more about interest rates cuts being slowed by the Fed.  As a reminder, those guys will offer simple advice that they are not allowed to forecast specifics about rate changes because they are dependent on future economic data.  Even the smartest don't know everything.  Stock averages remain essentially at record levels which should provide a small degree of comfort for the time being.

Dow Jones Industrials 

Markets pause after reaching new highs yesterday

Dow dropped 125, decliners barely ahead of advancers & NAZ was up 30.  The MLP index was steady in the 259s & the REIT index was steady in the 374s.  Junk bond funds slid lower & Treasuries had more selling, raising yields.  Oil rose 1+ to the 75s (more below) & gold fell 6 to 2045.

AMJ (Alerian MLP Index tracking fund)

Disney (DIS), a Dow stock, theme parks & continued cost-cutting efforts, as it announced an investment in Fortnite-maker Epic Games.  Even before the report was given, CEO Bob Iger announced  that the company would take a $1.5B stake in Epic & work with the company to create a "huge Disney universe."  "This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion," Iger said.  The announcement signals another attempt at interactive entertainment, which in 2016 shut down its Disney Interactive Studios, publisher of the toys-come-to-life game series "Infinity," & announced it would instead license its characters to outside game companies.  The board of directors also authorized a $3B share repurchase program for the current fiscal year & declared a div of 45¢.  That represents a 50% increase from the div paid in Jan.  The board also authorized a $3B share repurchase program for the current fiscal year.  The company posted EPS of $1.22, excluding certain items, ahead of the forecast for 99¢ for Oct thru Dec.  Quarterly revenue was comparable to a year ago, at $23.5B, but short of projections of $23.6B.  "Just one year ago, we outlined an ambitious plan to return the Walt Disney Company to a period of sustained growth and shareholder value creation," Iger said.  "Our strong performance this past quarter demonstrates we have turned the corner and entered a new era of growth for our company."  The stock jumped 11.75 (12%).

Disney tops earnings forecast

Crude oil futures prices rose for the 4th day in a row after the US killed a militant commander in Iraq & Israel rejected a ceasefire proposal by Hamas.  The West Texas Intermediate futures contract added $1.64 (2.2%) to $75.50 a barrel & the Brent contract for April gained $1.7 (2.1%) to trade at $80.91 a barrel.  US crude and the global benchmark are up 2.2% & 2.8% respectively for the week as the Middle East teeters between another round of violent escalation & a possible truce in the Gaza war.  Secretary of State Antony Blinken is on a diplomatic tour of the region this week in an effort to secure an extended humanitarian pause in Gaza in exchange for the release of hostages by Hamas.  Blinken met Israel Prime Minister Benjamin Netanyahu to discuss a counterproposal by Hamas that demands a permanent end to the fighting.  Netanyahu rejected the Hamas' proposal, vowing to press on to the southern city of Rafah on the border with Egypt & achieve “total victory” in Gaza.  A Hamas delegation is in Egypt to continue ceasefire talks.  The US, meanwhile, killed a senior leader of the militant group Kata'ib Hezbollah in a drone strike in Baghdad in response to attacks on American troops, according to Central Command.  Prices also found support this week after the Energy Dept forecast that domestic crude production would grow slower than originally expected this year, easing worries among traders that the global market is oversupplied.

Oil rises for a fourth day after Israel rejects Hamas ceasefire proposal

Under Armour (UAA) said that its holiday-qtr sales slowed, but its earnings beat estimates as the athletic apparel retailer worked to rein in costs.  Soft demand in North America & a slowdown in wholesale orders led revenue to drop 6% during the period, but the company posted big gains in its gross margin.  UAA now anticipates full-year sales will decline slightly more than it previously expected.  Even so, it raised its expectations for full-year gross margin & earnings just weeks away from the end of its fiscal year.  EPS for the 3-month period that ended Dec 31 was 26¢, compared with  27¢ a year earlier.  Excluding one-time items related to the sale of its MyFitnessPal platform, tax impacts & litigation reserves, UAA's adjusted EPS was 19¢.  For the full fiscal year, which is expected to conclude at the end of Mar, UAA is projecting sales to fall 3-4%, compared with its previous expectation of down 2-4%.  Analysts had expected sales to drop 2.8%.  The retailer is expecting to bring in EPS of 57-59¢, up from a previous estimate for 47-51¢.  It anticipates it will post adjusted EPS of 50-52¢.  Analysts had expected EPS of 49¢.  “Despite a mixed retail environment during the holiday season, our third quarter revenue results were in line with our expectations; we were able to deliver better than anticipated profitability and remain on track to achieve our full-year outlook,” CEO Stephanie Linnartz said. “As we close out fiscal 2024 and our strengthened leadership team begins to come up to speed in the quarters ahead – we are working to reset Under Armour toward a path of improved revenue growth and enhanced value creation in the future.”  The stock was flat.

Under Armour shares jump after it raises profit expectations amid sliding sales

Investors are questioning whether gains can be sustained, given the concentrated group of a limited number of stocks driving them.  Bets on a Mar interest rate cut have been scaled back thanks to a drumbeat of comments this week by Fed officials.  The stock market needs to take a rest.

Dow Jones Industrials 

Markets advance after a majority of earnings reports are in

Dow went up 156 (eking out a new record), advancers modestly ahead of decliners & NAZ gained 147.  The MLP index stayed in the 258s & the REIT index fell 1 the 373s.  Junk bond funds were higher along with stocks & Treasuries had limited buying which brought slightly higher yields.  Oil continued higher in the 73s & gold was flattish (more on both below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Governor Adriana Kugler said inflation is showing solid signs of slowing down, but she is not ready yet to start lowering interest rates.  In her first major policy address since being confirmed to the Board of Governors in Sep 2023, Kugler said 3 factors are converging to ease inflation pressures: moderating wage growth, changes in how often companies are raising prices & survey indicators that the pace of price increases is expected to continue to fall.  With all that in mind, however, Kugler wants more confidence that it's time to cut rates.  “So I am pleased with the disinflationary progress thus far and expect it to continue. I must emphasize, however, that the [Federal Open Market Committee’s] job is not done yet,” she said.  “At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate,” Kugler added.  “On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress on our dual mandate.”  The policymaker added that she expects consumer spending to grow & core services inflation excluding housing to pull back.  Additionally, she sees indications that firms which raised their prices frequently during the big inflation run-up of 2021-22 are doing so less now.  Should inflation continue to recede toward the Fed's 2% goal, that likely will lead to cuts later this year.  However, like other Fed officials, Kugler did not commit to a timetable, despite market pricing for aggressive reductions ahead.  “It all depends,” Kluger said on the pace of rate cuts once the Fed does move.  “I don’t think we can call it out now.”  She did add that “every meeting is live,” meaning the committee hasn't ruled out moving at any point.  As a governor is a permanent FOMC voter.  “I am pleased by the progress on inflation, and optimistic it will continue, but I will be watching the economic data closely to verify the continuation of this progress,” Kugler continued.  Fed officials generally have expressed broad satisfaction with the balance of growth & inflation as the central bank seeks to steer the economy back into stable inflation without halting growth.  “That drumbeat you hear is the soft landing,” Richmond Fed Pres Thomas Barkin said.  “All of these metrics are very strong, and inflation is coming down. So I’m very supportive of being patient to get to where we need to get,” he added.  “I see at this point, the trade off, which is coming into better balance, is still being in favor of continuing to work on inflation.”

Fed Governor Kugler backs caution on rates

Housing demand ground to a halt last week as mortgage rates inched closer to 7%, squeezing many would-be buyers out of the market ahead of the pivotal spring season.  The Mortgage Bankers Association's (MBA) index of >mortgage applications rose 3.7% last week, compared with the previous week, according to new data.  But the increase was entirely due to current homebuyers who refinanced their mortgages.  Applications for a mortgage to purchase a home fell 1% compared with the previous week as high mortgage rates continued to limit housing supply; application volume remains down 19% compared with the same time last year.  "Purchase activity has been strong to start 2024 compared to the final quarter of 2023," said Joel Kan, an MBA economist.  "However, activity is still weaker than a year ago because of low housing supply."  The data also showed that the average rate on the popular 30-year loan rose to 6.8% from 6.78% the previous week.  However, that does not take into consideration the sharp jump in mortgage rates that took place after the Jan jobs report came in much stronger than expected.  Rates on the 30-year loan surged 29 basis points on Fri, the largest one-day jump in more than a year, & continued to trend higher on Mon, crossing 7% for the first time since Dec, according to Mortgage News Daily.  Despite higher rates, demand for refinancing moved higher last week, rising 12% from the previous week.  Compared with the same time last year, refinance applications are up 1%.  The interest rate-sensitive housing market has cooled rapidly in the wake of the Federal Reserve's aggressive tightening campaign.  Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation & slow the economy.

Weekly mortgage demand from homebuyers is flattening as interest rates rise

Uber (UBER) reported 4th-qtr results that beat estimates on the top & bottom lines.  Uber reported EPS of 66¢, compared with 29¢ in the same qtr last year.  Uber's net income includes a $1B net tail wind thanks to “unrealized gains” from revaluations of its equity investments.  Revenue for the qtr was up 15% from the same qtr last year & gross bookings came in at $37.6B, up 22% year over year.  CEO Dara Khosrowshahi said 2023 marked a year of “sustainable, profitable growth for Uber.”  He said the continued shift in consumer spending from retail to services has been a boon for the company.  “We continue to see consumer strength, and especially consumer strength as it relates to services,” Khosrowshahi added.  “People are going out to dinner, they’re going out to concerts, sports events, etc. And when people go out and they spend money, or when they want anything delivered to their home, Uber benefits.”  Reported adjusted EBITDA was $1.28B, up 93% year over year, which is slightly above the $1.23B expected & adjusted EBITDA also came in above the company’s guidance of $1.18-1.24B.  For the first qtr of 2024, Uber expects to report gross bookings of $37-38.5B, compared with estimates of $37.4B.  Uber anticipates adjusted EBITDA of $1.26-1.34B, compared with the $1.26B expected by analysts.  The number of monthly active platform consumers reached 150M in its 4th qtr, up 15% year over year from 131M.  There were 2.6B trips completed on the platform during the period, up 24% year over year.  The stock went up 20¢.

Uber beats estimates as revenue and bookings see double-digit growth

Gold closed with a small gain as the $ edged down while treasury yields were mixed.  Gold for Apr inched higher at $2051 per ounce.  After rising to a record in late Dec, the outlook for gold prices is uncertain, as much hinges on the timing of US interest-rate cuts & their effect on the value of the $ & Treasuries.  Gold prices are likely to remain stuck until there is a better understanding about the timing, pace & depth of future US rate cuts.  During the past week, the short-term rates market has gone from pricing in more than 6 25 basis points US rate cuts this year to less than 5, while bets on the first cut being delivered at the Mar 20 meeting has slumped to less than 20%.  All developments that highlight just how volatile markets can be in the runup to a change in monetary policy.  The ICE dollar index was last seen down 0.12 points to 104.1.  Treasury yields were higher, with the 2-year note last seen up 0.8 basis points to 4.42%, while the US 10-year note was paying 4.114%, up 1.1 basis points.

Gold Closes with a Small Gain as the Dollar Drops and Treasury Yields Rise

West Texas Intermediate (WTI) crude oil rose for a 3rd-straight session even after a report showed US inventories rose more than expected last week.  WTI crude for Mar closed up 55¢ to settle at $73.86 per barrel, while Apr Brent crude, the global benchmark, was last seen up 36¢ to $78.95.  In its weekly survey, the Energy Information Administration reported US oil inventories rose by 5.5M barrels last week, ahead of the consensus estimate for a 1.9M barrel increase. Gasoline & distillate inventories fell.  The report was the 2nd in as many days from the EIA, after yesterday 's releasing its influential Short-Term Energy Outlook that said US oil production is likely to fall off a record 13.3M barrels per day & not return to fresh record levels until 2025, while saying inventories are declining in the current qtr due to OPEC+ cuts.  Production is expected to return to almost 13.3M b/d in Feb but then decrease slightly thru the middle of 2024 & should not exceed the Dec 2023 record until Feb 2025.

WTI Crude Oil Rises Again Despite Larger Than Expected Rise in US Inventories

Dow had an advance in the first hour of trading held that level for the rest of the day.  The advance decline ratio continues to be low.  Meanwhile, gold is holding near its record highs & oil continues sideways in the 70-75 range.  For the time being investors are accepting thoughts about slower cuts in rates to help bring lower inflation.

Dow Jones Industrials 

Markets rise as investors digested a fresh inflow of quarterly earnings

Dow went up 150, decliners barely ahead of advancers & NAZ added 118.  The MLP index hardly budged in the 258s & the REIT index slid back 1 to the 373s.  Junk bond funds inched higher & Treasuries had limited buying with yields sliding a little lower.  Oil edged higher in the 75s & gold was up 5 to 2056.

AMJ (Alerian MLP Index tracking fund)

Minneapolis Federal Reserve Pres Neel Kashkari said he expects the central bank to cut rates only a few times this year, contrary to market expectations.  “Sitting here today, I would say, two or three cuts would seem to be appropriate for me right now,” he said.  “But again, I don’t want to prejudge things, but that’s, that’s my gut, based on the data we have so far.”  Markets have been pricing in an aggressive path this year for the Fed, with the first reduction happening as soon as May & 5 total qtr percentage point cuts happening before the end of the year, according to the CME Group's FedWatch measure of futures pricing.  However, multiple Fed officials have been pushing back on that narrative.  Fed Chair Jerome Powell a week ago & again on Sun all but completely took a Mar cut off the table & said he expects policymakers to move carefully as they measure the progress of inflation against broader economic growth.  “We just need to look at the actual inflation data to guide us,” Kashkari said.  “So far, the data has been resoundingly positive. I hope it continues. And then the question will simply be, at what pace do we then start to adjust rates back down?”  He added that there are “compelling arguments to suggest we could be in a longer, higher rate environment going forward.”  Kashkari is a nonvoting member this year on the rate-setting Federal Open Market Committee.  Earlier this week, he penned an essay where he suggested that the real fed funds rate when adjusted for inflation may not be as high as it looks.  In a series of hikes that ran from Mar 2022 to Jul 2023, the FOMC took its benchmark overnight borrowing rate from near zero to a target range between 5.25%-5.50%, the highest in 23 years.  However, economic data has held solid during that time.  Kashkari said the trend indicates that interest rates may not be exerting as much pressure on the economy as expected.  Labor market growth has stayed strong as consumers continue to spend.  “That’s all really good news, and that tells me maybe monetary policy is not putting as much downward pressure on demand as we would otherwise think,” he added.  “That gives us more time to access that data before we start reducing interest rates. So I think this is a good problem to have.”

Fed’s Neel Kashkari expects only two or three interest rate cuts this year

Ford (F) is rethinking its electric vehicle strategies, including “reassessing” the need for vertical integration of batteries, CEO Jim Farley said.  The Detroit automaker previously confirmed plans to delay or cut $12B in spending on all-electric vehicles, but the comments made yesterday are the most detailed about Ford's changing plans for EVs, sales of which are growing at a slower-than-expected rate.  “One of the things we’re taking advantage of in taking some timing delays is rationalizing the level and timing of our battery capacity to match demand and actually reassessing the vertical integration that we’re relying on, and betting on new chemistries and capacities,” Farley said.  He reiterated the company still believes EVs will grow, but noted widespread adoption for mass-market consumers won't happen until the costs are more in line with traditional vehicles.  EVs are typically thousands of $s more expensive than their gas-powered counterparts.  CFO John Lawler said in addition to reassessing the vertical integration in new battery chemistries, the company is further looking into adjusting installed production capacity to match demand & potentially delaying next-generation EVs to “to ensure they meet our criteria for profitability, given the new market reality.”  Its EV business, known as Model e, lost $4.7B last year, including $1.57B during the 4th qtr of 2023, offset by profits in the company's fleet & traditional internal combustion engine units.  Both businesses earned more than $7B each last year.  Lawler said that the unit will have to stand on its own “sooner rather than later.”  He also said the company is pulling a target for its EV unit that called for 8% margin by 2026.  The company had already set a target of 2M vehicles sold annually by that time.  As Ford pulls back & reevaluates the EV business, it intends to lean in on sales of hybrid vehicles, specifically trucks.  The company expects its hybrid sales to increase 40% this year.  It sold 133K hybrid vehicles in the US in 2023.  The stock gained 33¢.

Ford is reassessing its EV plans, including vertical battery integration

Treasury yields held steady as investors considered what could be ahead for monetary policy, especially when interest rates may be cut.  The yield on the 10-year Treasury was up by nearly 2 basis points to 4.11% & the 2-year Treasury  yield was last flat at 4.412%.  Yields & prices move in opposite directions & 1 basis point equals 0.1%.  Uncertainty about the outlook for monetary policy has been widespread, prompting investors to reassess the potential timetable for interest rate cuts.  That comes as comments from Federal Reserve Chair Jerome Powell suggested that rate cuts may not take place until later than many investors had been expecting.  He also indicated that central bank policymakers were looking for further evidence that the economy is easing & would be cautious when it comes to making decisions around interest rates.  Powell's comments not only led investors to believe rates may stay at their current level for longer than anticipated, but also that there may be fewer rate cuts than expected this year.  This fueled concerns about the impact of elevated rates on the economy & if they could lead to a recession in the US.  More Fed officials are due to make remarks today

Treasury yields are little changed as investors weigh monetary policy outlook

Even though the stock averages are higher, advancers versus decliners are about equal.  That is not a good sign.  Also NYCB (NYCB), a regional bank, has had its credit rating downgraded to junk by Moody's, raising fears about the banking industry.  Currently about 1/3 of earnings have been reported & they have generally exceeded expectations.

Dow Jones Industrials