Markets stumble ahead of an important week with the Fed meeting

Dow crawled up 28, decliners over advancers 3-2 & NAZ pulled back 163.  The MLP index fell 2+ to the 231s & the REIT index was off 1+ to the 402s.  Junk bond funds fluctuated & Treasuries had a little selling, raising yields (more below).  Oil slid lower in the 79s & gold declined 4 to 1941.

AMJ (Alerian MLP Index tracking fund)

 

 

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Treasury yields climbed as investors awaited the start of the Federal Reserve's first meeting of the year & considered the outlook for the economy.  The yield on the benchmark 10-year Treasury was up 2 basis points to 3.538% & the 2-year Treasury yield was trading over 4 basis points higher at 4.251%.  Yields & prices move in opposite directions & olne basis point equals 0.01%.  Many investors are expecting a 25 basis point increase at the conclusion of the Fed's latest interest rate decision on Wed.  That would be a further slowdown of the pace of rate hikes implemented by the Fed in its battle against inflation.  Many investors have been hoping for this as concerns about the central bank leading the US economy into a recession by increasing rates too much & too quickly have spread.  Data released earlier this month showed that both consumer & wholesale prices fell on a monthly basis in Dec.  On Fri, the personal consumption expenditure index, one of the Fed's favored inflation measures, indicated that though prices are still rising, they are doing so at a reduced pace.

Treasury yields rise ahead of Fed meeting

The Centers for Disease Control & Prevention (CDC) urged people with weak immune systems to take extra precautions to avoid Covid after the dominant omicron subvariants knocked out a key antibody treatment.  These precautions include wearing a high quality mask & social distancing when it's not possible to avoid crowded indoor spaces.  The guidance comes after the Food & Drug Administration (FDA) pulled its authorization of Evusheld, a combination antibody injection that people with weak immune systems took as an additional layer of protection to prevent Covid infection.  The FDA pulled Evusheld because it is not effective against 95% of the omicron subvariants circulating in the US.  This includes the XBB subvariants which are now causing 64% of new cases, as well as the BQ family that is responsible for 31% of reported infections.  Although most Americans have largely returned to normal life as the Covid pandemic has ebbed, people with weak immune systems remain at higher risk of severe disease because they do not mount as strong of an immune response to the vaccines.  Still, it is important for people with weak immune systems to stay up to date on their Covid vaccines by receiving the omicron booster because the shots can slash the risk of severe disease.

CDC urges people with weak immune systems to take extra precautions after Covid knocks out Evusheld

Wealthy Russian oligarchs are likely investing in US commercial real estate & trying to sidestep sanctions imposed after the invasion of Ukraine last year, according to a warning sent to banks by the Treasury Dept's financial crimes & intelligence unit.  The Financial Crimes Enforcement Network (FinCEN) told banks to be on the lookout for suspicious commercial real estate (CRE) transactions that may be carried out by sanctioned Russian elites, oligarchs, their family members & entities they use to move their wealth.  FinCEN's alert noted that the agency "assesses that sanctioned Russian elites and their proxies are likely attempting to exploit several vulnerabilities in the CRE market in order to evade sanctions."  "Thanks to international pressure and the economic restrictions that more than 30 countries have imposed on Russia for its brutal war against Ukraine, sanctioned Russian elites are increasingly left with fewer options for moving and hiding their ill-gotten wealth," FinCEN Acting Director Himamauli Das said.  Commercial real estate presents an attractive opportunity to potentially avoid sanctions because they "routinely involve highly complex financing methods and opaque ownership structures that can make it relatively easy for bad actors to hide illicit funds in CRE investments" the alert said.

Russian oligarchs invest in US commercial real estate, bypassing sanctions as feds warn banks

Investors are looking for direction.  Earnings reports from major companies are coming & the Fed will give its big report on Wed.  That will make for a lot of excitement.

Dow Jones Industrials

 

Markeys rally after favorable inflation data

Dow finished up only 28 after a strong performance for most of the session, advancers over decliners 3-2 & NAZ gained 109.  The MLP index was even in the 234s & the REIT index rose 5+ to the 405s.  Junk bond funds were pretty much even & Treasuries had limited selling, bringing slightly higher yields.  Oil was off 1+ to the 79s & gold was flattish at 1930 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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An inflation gauge closely watched by the Federal Reserve showed signs of slowing in Dec, but it still remained abnormally high, according to new data.  The Personal Consumption Expenditures (PCE) index showed that consumer prices rose 0.1% from the previous month & rose 5% on an annual basis, according to the Bureau of Labor Statistics.  Core prices, which strip out the more volatile measurements of food & energy, climbed 0.3% from the previous month & 4.4% year over year.  Those figures are both in line with forecasts.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation.  Both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades.  Policymakers have already approved 7 straight rate hikes, pushing the federal funds rate well into restrictive territory.  The central bank has signaled that it will raise rates higher than previously anticipated, though it plans to pause the increases at some point in 2023.  "We've continually expected to make faster progress on inflation than we have," Powell told reporters last month.  "That's why the peak rate for this year goes up between this meeting and the September meeting. You see the fact that we've made less progress than expected on inflation."  In a potentially worrisome sign, the report suggested that uncomfortably high inflation combined with steeper interest rates are finally beginning to weigh on consumer spending.  Spending climbed fell 0.2% in Dec from the previous month, compared with a decline of 0.1% in Nov.

The Fed's favorite inflation gauge cooled in December, but prices remain high

Chevron (CVX), a Dow stock & Dividend Aristocrat, posted a record $36.5B profit for 2022 that was more than double year-earlier earnings, but the bottom line fell shy of estimates, undercut by asset writedowns & rising costs.  The oil producer's adjusted net profit for 2022 exceeded its previous record set in 2011 by about $10B. Still, higher expenses & weaker oil & fuel profits left Q4 earnings 6.6% below the forecast.  The White House protested CVX's decision to triple its spending on share repurchases, now at $75B over 5 years at current guidance.  Shareholder rewards will continue to be the top priority for cash, CVX officials said.  “We can do it all,” finance chief Pierre Breber said.  After providing for shareholder dividends, CVX will allocate cash to production & repaying debt, with share buybacks a 4th priority.  This year, it will increase project expenditure to $17B, with 2/3 of outlays in the US, where oil & gas output was up 4% over 2021.  It left global oil & gas production guidance for this year at flat to up 3%.  CVX has been shifting its focus for new investments & targeting production in the US.  US production hit a record last year, led by a 16% increase in Permian, the country's main shale basin.  The stock dropped 7.16 (6%).
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Chevron annual profit doubles to record $36.5 billion, but fourth-quarter miss hits shares

The Food & Drug Administration's (FDA) independent advisory committee recommended replacing Pfizer (PFE) & Moderna's (MRNA) original Covid vaccine used in the US for everyone's first 2 immunizations with the new bivalent omicron shots.  If the FDA accepts the advisors' recommendation, the US would likely phase out these vaccines developed in 2020 against the original Covid-19 strain.  Instead, the bivalent omicron shots that target the omicron BA.5 subvariant as well as the original strain would be used for the entire vaccination series.  Currently, PFE's & MRNA's omicron shots are only authorized as a booster, while the first 2 doses are still their old shots based on the original Covid strain.  The 21 members unanimously backed the proposal, agreeing that it would simplify the US Covid vaccination program.  “This is absolutely the right thing to do for the program. It will make things simpler,” said Dr Melinda Wharton, a senior official at the National Center for Immunization & Respiratory Diseases, a division of the Centers for Disease Control & Prevention.  The proposed change would only affect people who have not yet received their 2-dose primary vaccination series.  No timeline was provided on when this switch might occur if the FDA accepts the panel's nonbinding recommendation.  The recommendation to adopt a single formulation across all doses comes as the FDA is trying to streamline Covid vaccination so that the system is easier for the public & health-care workers to understand.  “The overall thought here is that getting towards one vaccine composition for everyone will ultimately be much, much more helpful,” said Dr Peter Marks, who heads the FDA's vaccine division.

FDA advisors recommend replacing original Covid vaccine with omicron shots

Gold futures finished slightly lower, but tallied a 6th weekly gain in a row after touching their highest level in 9 months earlier this week, as the latest reading on US inflation met with most market expectations.  Gold prices for Feb fell pennies to settle at $1929 an ounce, with the most-active contract up a smidgen for the week.  Prices, which traded at a 9-month high earlier in the week, marked a 6th straight weekly gain — the longest such streak of gains since Aug 2020.

Gold Futures Slip but Tally a Gain for a Sixth Consecutive Week

Oil futures ended with a loss, with US benchmark prices under $80 to settle at their lowest in more than a week.  US crude prices are having a little tug-of-war around the $80 a barrel level until the market knows more about China's reopening momentum, what the Federal Reserve will do to the economy & what OPEC+ will decide to do with production quotas.  US benchmark West Texas Intermediate crude for Mar declined by $1.33 (1.6%) to settle at $79.68 a barrel, the lowest front-month contract finish since Jan 18.

U.S. oil prices settle at their lowest in more than week

The Dow had a good week, up about 600.  However, in the earnings reports there were many worries about the outlooks for this year.  Even if the inflation indices are showing lower numbers, consumers still have to pay significantly higher prices which could pinch retail sales.

Dow Jones Industrials 

Markets ease lower as earnings and economic data comes in

Dow slid back 14, decliners over advancers 5-4 & NAZ added 38.  The MLP index fell 1+ to the 233s & the REIT index was steady at 400.  Junk bond funds drifted lower & Treasuries had more selling, bringing higher yields.  Oil fell 1 to about 80 & gold was off 4 to 1925.

AMJ (Alerian MLP Index tracking fund);'

 

 

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Intel (INTC), a Dow stock, shares slid after the chipmaker issued Q4 results that failed to meet estimates & gave a weaker-than-expected forecast.  EPS was 10¢, adjusted, vs 20¢ expected & revenue was $14.0B vs $14.4B expected.  Revenue declined 32% year over year in Q4.  It's the 4th consecutive qtr of falling sales as the market for personal computers retreats from the Covid boom.  The company recorded a $664M net loss, compared with a profit of $4.6B in the year-ago qtr.  Investors can expect more pain in Q1.  INTC called for adjusted net loss of 15¢ per share on $10.5-11.5B in revenue.  The forecast expected earnings of 24¢ per share & $13.93B in revenue.  INTC declined to provide a full-year forecast because of “the uncertainty in the current environment,” CEO Pat Gelsinger said.  For at least H1 of 2023, INTC will deal with persistent economic headwinds,” the company said.  In Q4, its Client Computing Group, which includes PC chips, contributed $6.6B in revenue, down 36% & below the $7.7B forecast.  Demand fell mainly in consumer & education markets.  Customers lowered their inventory.  Gartner said the PC market shrank more sharply than any qtr since it began following the industry in the 1990s.  On Jan 12, INTC saw a total addressable market for 270-295M PCs in 2023.  The company said it now expects the market to be on the low end of that range.  Under-load charges, which accrue when factories are underutilized, narrowed INTC's gross margin in Q4 by 220 basis points (2.2%), CFO David Zinsner said.  In the first qtr loading issue will hurt gross margin by 400 basis points, Zinsner added.  “We would expect loadings to improve once we get past the inventory correction we’re currently experiencing,” Zinsner continued.  The stock dropped 2.39 (8%).
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Intel shares drop on weak quarterly results and more losses to come

Hasbro (HAS) said it would eliminate 1000 employee positions & warned of weak holiday-qtr results.  “Despite strong growth in Wizards of the Coast and Digital Gaming, Hasbro Pulse, and our licensing business, our Consumer Products business underperformed in the fourth quarter against the backdrop of a challenging holiday consumer environment,” said CEO Chris Cocks.  The layoff of around 15% of its global workforce comes as the company seeks to save $250-300M annually by the end of 2025.  HAS expects Q4 revenue, which includes the holiday season, to reach $1.68B, down 17% compared to the year-earlier period.  Estimates had called for revenue to reach $1.92B.  For the full year, the company foresees revenue hitting $5.86B, down 9% compared to 2021.  “While the full year 2022, and particularly the fourth quarter, represented a challenging moment for Hasbro, we are confident in our Blueprint 2.0 strategy, unveiled in October, which includes a focus on fewer, bigger brands; gaming; digital; and our rapidly growing direct to consumer and licensing businesses,” Cocks said.  The company has faced revenue woes in recent qtrs, as it contends with tough comparisons with pandemic-fueled toy sales, inflation weighing on consumers wallets and high levels of inventory.  The stock dropped 3.99 (6%).
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Hasbro warns of weak holiday quarter results, cuts 15% of its workforce

Dow (DOW) will eliminate 2000 jobs worldwide as part of a corp restructuring plan to secure $1B in cost savings in 2023, the company said.  DOW is also shutting down select assets & further evaluating its global asset base while focusing on Europe "to ensure long-term competitiveness and enhance cost efficiency."  "We are taking these actions to further optimize our cost structure and prioritize business operations toward our most competitive, cost-advantaged and growth-oriented markets, while also navigating macro uncertainties and challenging energy markets, particularly in Europe," CEO Jim Fitterling said.  "We remain committed to capitalizing on our long-term growth opportunities in a disciplined and balanced manner, and these actions further position us to advance our decarbonize and grow strategy and strengthen our competitive position," he added.  The restructuring plan will allocate $500M for structural improvements $500M in operating expense reductions with an emphasis on near-term cash flow.  The stock went up 56¢.
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Dow to cut 2,000 jobs, plans to save $1B in cost

The stories above are representative of many more which have been reported.  Companies are struggling in an economy that is not robust.  Of course, the Fed is trying to slow the economy with higher interest rates & stocks are facing headwinds.  Times are difficult which is shown in the Dow chart below.

Dow Jones Industrials