Markets rise ahead of the Fed rate setting meeting on Wednesday

Dow climbed 355, advancers over decliners a mild 3-2 & NAZ was up 110.  The MLP index fell 2 to the 242s & the REIT index slid back 1+ to the 319s.  Junk bond funds were mixed & Treasuries saw more selling, driving yields higher (more below).  Oil dropped 2+ to the 82s & gold gained 8 to 2007.

AMJ (Alerian MLP Index tracking fund)

 

 

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The nation's leading economists stopped short of forecasting a full-blown recession, but they do see headwinds for the US economy.  "The October 2023 Business Conditions Survey results suggest a more challenging business environment as the economy slows," said National Association of Business Economists (NABE) pres Ellen Zentner, chief US economist.  "Sales are seen as growing but at a slower pace, and profit margins are reported to be declining" according to the survey.  More participants in the survey, which reflects 3rd-qtr & near-term views, report falling sales, while fewer report rising sales over the past 3 months vs the Jul survey.  Slowing sales, combined with declining profit margins, can be a headwind for companies with the group's NRI index for profit margins falling to the 2nd-lowest reading since the pandemic.  The Federal Reserve is expected to leave rates unchanged at Wed's meeting while leaving the door open for another increase in Dec.  NABE participants, 55%, also cited higher interest rates as one of the biggest downside risks to their businesses, while 51% named cost pressures.  While the US economy grew by a whopping 4.9% during Q3, many say that it is unsustainable as the lion's share of the growth came from summer concert-goers & record air travel.  Estimates for 4Q are seen dropping to around 1.5%.  Still, while cautious in their outlook, NABE participants believe the US will be able to side-step a recession with the majority (79%) forecasting a "probability of 50% or less" of a downturn, up from 71% in the Jul survey. 

Slowing economy presenting more challenges: NABE

McDonald's (MCD), a Dow stock & Dividend Aristocrat, reported quarterly earnings & revenue that beat expectations as price hikes offset falling traffic to its US restaurants.  Despite higher menu prices in some regions, execs said that the burger chain is still beating rivals across most of its biggest markets when it comes to consumers' perception of value & affordability.  “It’s clear that our customers continue to seek reasonably priced meals as rising costs persist, and our markets around the world continue to respond,” CFO Ian Borden said.  The fast-good giant reported 3rd-qtr EPS of $3.17, up from $2.68 a year earlier.  Excluding items, EPS was $3.19.  Revenue rose 14% to $6.7B.  Global same-store sales grew 8.8% in the qtr, beating estimates of 7.8%.  US same-store sales increased 8.1%, fueled by strategic price increases.  Execs said they expect pricing will be up about 10% for 2023, but 3rd-qtr menu prices came down slightly.  The chain also credited its marketing campaigns & digital & delivery orders for its sales growth.  US traffic fell, marking the first qtr this year that the metric dipped.  Across the restaurant industry, consumers making less than $45K visited less often, accounting for the drop in its traffic, according to CEO Chris Kempczinski.  The stock advanced 4.04.
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McDonald’s revenue climbs 14% as price hikes boost U.S. sales

Treasury yields were higher to kick off a big week of events including a Federal Reserve monetary policy meeting & the release of key economic data.  The yield on the 10-year Treasury was up by more than 5 basis points at 4.898% & the 2-year Treasury yield was trading 4 basis points higher at 5.054%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  The Fed is set to announce its latest interest rate decision on Wed, with markets currently pricing in an over 96% chance that the Fed will keep rates unchanged, according to CME's FedWatch tool.  Investors are hoping for guidance on what's ahead for monetary policy & whether the central bank is done hiking.  Uncertainty has grown since the last Fed meeting in Sep, when policymakers suggested 1 further rate hike this year was likely.  However, Treasury yields have spiked since then, with the 10-year Treasury yield rising above 5% last week, prompting several Fed officials to say rates do not need to go any higher as elevated yields effectively work to ease the economy.

Treasury yields rise as investors look to Fed meeting, key data due this week

Investors are feeling good about the Fed meeting at mid week, although the advance decline ratio is only modest.  This week there will also be important economic reports as well as more earnings.  Expect a choppy time for the stock market.

Dow Jones Industrials

Markets sell off on increased war fears in the MidEast

Dow sank 366 near session lows, decliners over advancers 3-1 & NAZ finished up 47.  The MLP index fell 3+ to the 243s & the REIT index tumbled 6+ to the 319s.  Junk bond funds drifted lower & Treasuries were pretty much flattish keeping yields little changed.  Oil rebounded up 1+ to the high 84s & gold finished up 18 to 2016 as the Israeli war intensifies (more on both below).

AMJ (Alerian MLP Index tracking fund)

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Mortgage rates continued their upward trajectory this week, inching closer to 8% yet again as purchase demand sputters.  Freddie Mac reported that the average rate for the benchmark 30-year fixed mortgage has now hit 7.79%, up from 7.63% last week & from 7.08% a year ago.  The rate for a 15-year mortgage also climbed, averaging 7.03% after coming in last week at 6.92%.  One year ago, the rate on a 15-year fixed note averaged 6.36%.  This is the 7th week in a row that rates have risen, marking the longest stretch of consecutive increases since spring 2022, Freddie Mac said.  "Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers," Freddie Mac chief economist Sam Khater said.  "Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory."  With mortgage rates at their highest level in more than 2 decades, more would-be buyers are balking at the cost of a house payment.  At the same time, more would-be sellers are opting to keep their homes rather than move & take on an interest rate that may be twice their current rate.  Economists project 2023 will mark the slowest year for home sales since 2008, when the housing bubble burst.  Redfin estimates there will only be roughly 4.1M sales of existing homes across the nation by year's end due to persistently high mortgage rates & elevated home prices amid low inventory, which are causing prospective buyers to reconsider their plans.  The real estate brokerage also reported that 16.3% of home purchase agreements in the US were canceled last month, the highest rate in nearly a year.  Data released last week by the Mortgage Bankers Association showed mortgage applications also tumbled in Sep to the lowest level since 1995.

Mortgage rates jump again, home purchases now at 'virtual standstill'

Chevron (CVX) posted 3rd-qtr profit that missed estimates by a wide margin,year-ago levels.  Oil earnings have slumped from record year-ago levels as crude prices eased & higher costs crimped refining & chemical profits.  Results remain strong by historical standards but are well off year-ago levels.  EPS was $3.48 compared to $5.78 last year.  Adjusted EPS was $3.05, compared to the expected $3.75, according to LSEG data.  The earnings miss came after the company warned that maintenance in its oil & gas production & refining businesses would hurt results.  Profit from pumping oil & gas fell about 38% to $5.76B in the qtr from $9.3B a year ago.  But volume rose to 3.1M barrels of oil & gas per day (boed) on its acquisition of PDC Energy.  It pumped 3.0M boed a year ago.  Oil prices recently rebounded from a mid-year slump as tighter supplies drove up crude prices.  Its refining business posted an operating profit of $1.68B, down from $2.53B a year ago.  Gains by its US refining business were offset by weakness overseas, where margins & inputs fell.  The stock dropped 10.33 (7%).
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Chevron's profit slumps, shares fall

Contract negotiations between the United Auto Workers (UAW) & General Motors (GM) reconvened after intense talks occurred last night & into the morning, according to sources familiar with the discussions.  The potential deal is being based on a tentative agreement the union reached Wed with Ford Motor (F) & appears to be nearing the finish line.  Both GM CEO Mary Barra & UAW Pres Shawn Fain participated in the marathon bargaining, however the union leader was doing so virtually, said the sources.  Fain was attempting to simultaneously negotiate with GM & Chrysler parent Stellantis (STLA), which were hosting talks with the union roughly 30 minutes from one another.  STLA, including North American COO Mark Stewart, also held extensive talks overnight.  STLA also could be closing in on a deal after the sides also negotiated into the early morning, however issues still remained.  The sides are scheduled to reconvene currently.  GM stock dropped 1.33 (5%).
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GM, UAW may be nearing a labor deal after marathon negotiating session

Gold closed at the highest in nearly 3 months, as treasury yields fell off early gains after the US reported the Federal Reserve's preferred inflation measure rose as expected last month, while US airstrikes on Iranian targets in Syria & intensifying Israeli attacks on Gaza heightened concerns over a spreading conflict in the Middle East.  Gold for Dec closed up $1 to $1998 per ounce, the highest since Jul 31.  The metal also traded above the $2000 mark during the session for the first time since that date.  The rise comes as Israel stepped up ground attacks as it readies an invasion of the Gaza Strip to wipe out the Hamas militant group following terror attacks on Oct 7 that killed hundreds of civilians.  Concerns over the war spreading to other Middle East countries were not eased after the US launched overnight airstrikes on Iranian targets in Syria following attack on US forces in Iraq & Syria.  The US reported the Sep core personal consumption expenditures price index, the Federal Reserve's preferred inflation measure rose 0.3%, matching expectations, but above the 0.1% rate in Aug.  Treasury yields rose following the data, but surrendered early gains.  The yield on the US 2-year note was last seen unchanged at 5.046%, while the 10-year note was paying 4.842%, down 0.5 basis points.

Gold Closes Higher as US Airstrikes in Syria and Expanding Attacks on Gaza Raise Worries of a Spreading War

West Texas Intermediate (WTI) crude oil closed higher as the risk premium rose after the US carried out airstrikes in Iranian targets in Syria following attacks on US military sites in Iraq & Syria, while Israel intensifies ground attacks on Gaza, raising worries of a spreading war in the Middle East.  WTI crude for Dec closed up $2.22 to settle at $85.54 per barrel, while Dec Brent crude, the global benchmark, was last seen up $2.66 to $90.59.  Secretary of Defense Lloyd Austin said the attacks were "narrowly tailored strikes in self-defense (and) were intended solely to protect and defend U.S. personnel in Iraq & Syria. They are separate and distinct from the ongoing conflict between Israel and Hamas, and do not constitute a shift in our approach to the Israel-Hamas conflict."  Still, they come as Israel steps up ground attacks on Gaza prior to an invasion of the strip to wipe out the Hamas militant group following terror attacks on Oct 7 that killed hundreds of civilians.  The country is facing significant pressure to limit casualties to Gaza's 2M civilians, even as it continues to withhold water, power, fuel & food to the territory.  There are also concerns that other Middle East nations could enter the conflict.

WTI Oil Rises After US Airstrikes on Iranian Targets in Syria and Iraq Raise Concerns over a Widening Middle East War

Gold is back in demand on increased war fears in the MidEast.  Meanwhile the Fed has its big meeting next week.  While no increase in in interest rates are expected, comments about the future for the future will a lot of interest as usual.  Dow was even in the first ½ of the week.  Then it was all downhill after that.  For this ugly week Dow dropped 710 & is struggling to hold above 32K.  Not good!!

Dow Jones Industrials 

Markets dip lower on inflation worries, while Nasdaq rebounds

Dow fell 90, decliners over advancers better than 3-2 & NAZ recovered 113 on strong earnings reports.  The MLP index dropped 2+ to the 244s following recent strength & the REIT index was off 2+ to the 323s.  Junk bond funds fluctuated & Treasuries saw limited selling, boosting yields.  Oil was up pennies in the 83s & gold slid back 4 to 1992.

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Inflation accelerated in Sep but consumer spending was even stronger than expected, according to a Commerce Dept report.  The core personal consumption expenditures (PCE) price index, which the Federal Reserve uses as a key measure of inflation, increased 0.3% for the month, in line with the estimate &  above the 0.1% level for Aug.  Even with the pickup in prices, personal spending kept up & then some, rising 0.7%, which was better than the 0.5% forecast.  Personal income rose 0.3%, one-10th of a percentage point below the estimate.  Including volatile food & energy prices, the PCE index increased 0.4%.  On a year-over-year basis, core PCE increased 3.7%, one-10th lower than Aug, while headline PCE was up 3.4%, the same as the prior month.  The Fed focuses more on core inflation on the belief that it provides a better snapshot of where prices are headed over the longer term.  Core PCE peaked around 5.6% in early 2022 & has been on a mostly downward trek since then, though it is still well above the Fed’s 2% annual target.  The Fed prefers PCE as its inflation measure as it takes into account changing consumer behavior such as substituting lower-priced goods as prices increase.  This is the last inflation report the Fed will see before its 2-day policy meeting next week. Traders are pricing in a near-100% chance that the central bank will announce no rate hike when the meeting concludes next Wed. 

Key Fed inflation gaug'e rose 0.3% as expected in September; spending tops estimate

Americans plan to spend a record $12.2B on Halloween this year, beating last year's blowout of $10.6B, according to a report by the National Retail Federation (NRF).  The per-person spend this Halloween is forecasted to jump to $108.24, up from the previous record of $102.74 in 2021.  Shoppers' most significant splurge will be on costumes.  Consumers could shell out a collective $4.1B on costumes this year, up from $3.6B in 2022.  Money spent on decorations is expected to reach $3.9B & cash allocated to candy purchases will jump to $3.6B from $3.1B last year.  More Americans also plan to join in on Halloween fun, with 73% of respondents saying they will participate in Halloween-related activities this year, up from 69% in 2022.  Despite the optimistic spending forecast, a report by PowerReviews said that economic challenges will impact how 73% of Americans shop for the upcoming Halloween holiday.  24% plan to reuse/recycle existing costumes & 34% will buy cheaper Halloween candy.  "More Americans than ever will be reaching into their wallets and spending a record amount of money to celebrate Halloween this year," NRF Pres & CEO Matthew Shay said.   "Consumers will be shopping early for festive decor and other related items and retailers are prepared with the inventory to help customers and their families take part in this popular and fun tradition."

Halloween spending will hit a new record but consumers weary of inflation's impact: report

Intel (INTC), a Dow stock, jumped after the company beat expectations for profit & sales.  The chipmaker reported EPS of 41¢, adjusted, versus the LSEG estimate of 22¢.  It posted $14.2B in revenue for the qtr, ahead of expectations for $13.5B, but down 8% from the year-ago qtr.  It marked INTC's 7th consecutive qtr of declining sales.  The boost was largely due to strong demand for PCs & management’s ability to stay on course for a number of initiatives it had previously laid out for the company.  JPMorgan analysts raised their price target from $35 to $37, writing that INTC's next year of data center product launches & more could help predict how the company's goals will progress over the next 3-5 years.  The stock soared 3.14 (10%).
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Intel pops 10% after earnings beat shows progress toward $3 billion in cost savings

High inflation remains a worry & strong holiday sales, beginning with Halloween sales, are being considered.  Meanwhile the housing market is under pressure & auto business continues to be sluggish (that's being kind).  The Dow has had a very tough time in the last 3 months (see below).

Dow Jones Industrials