Markets lose traction as earlier gains diminish

Dow slid back 99, decliners ahead of advancers 5-4 & NAZ went up 55.  The MLP index rose 1+ to the 259s & the REIT index dropped 5+ to the 276s on higher yields.  Junk bond funds edged higher & Treasuries saw selling, driving yields higher.  Oil climbed to the 75s & gold was off 11 to 2014 (more on both below).

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Treasury yields were lower as investors brace themselves for 2 key pieces of economic data in the 2nd ½ of the week.  The yield on the benchmark 10-year Treasury note was down more than 1 points at 4.136% & the yield on the 2-year Treasury note  rose less than 1 basis point to 4.355%.  Yields move inversely to prices.  2 significant pieces of economic data are on the slate this week: a preliminary 4th-qtr GDP growth figure is due tomorrow, followed by the Commerce Dept's closely watched personal consumption expenditures price index for Dec on Fri.  Both data points will inform the Federal Reserve as it maps out when & by how much to begin cutting interest rates, which will be a key factor in determining the path of markets & the economy this year.  Focus on rates is likely to ramp up over the coming week, according to Deutsche Bank's Head of Global Economics Jim Reid, with the Bank of Canada announcing a policy decision on Wed, followed by the ECB on Thurs & the Fed on Jan 31.  “For the Fed, the chance of a cut by March fell to just 38% at the intraday low yesterday, but this rose to 49% at the close, with most of this rise appearing to follow some dovish interview comments by former St Louis Fed President Bullard,” Reid said.  “When it comes to 2024 as a whole, 137bps of cuts are now priced in by the December meeting, up from the near-two-month low of 133bps on Monday. So that’s still a sizeable amount of cuts expected this year, particularly in a non-recession scenario, but a notable shift back since the intraday peak on January 12, when 170bps of cuts were priced in for 2024.”

Treasury yields pull back as big economic data releases come into view

A key measure of home-purchase applications rose again last week even as mortgage rates ticked higher.  The Mortgage Bankers Association's (MBA) index of mortgage applications rose 3.7% last week, compared with 1 week earlier.  The data also showed that the average rate on the popular 30-year loan started the year at 6.78%.  While that is down from a peak of 8% in Oct, it is slightly higher than it was the previous week.  "Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity," said Joel Kan, MBA's deputy chief economist.  The rise in mortgage rates has done little to cool housing demand at the start of the new year.  Applications for a mortgage to purchase a home climbed 8% from 1 week earlier, although volume is down 18% compared with the same time last year.  However, demand for refinancing moved lower last week, falling 7% from the previous week.  Compared with the same time last year, refinance applications are down about 8%.  "Refinance applications declined over the week and remained at low levels," Kan said.  "There is still little incentive for homeowners to refinance with rates at these levels."  Higher rates have not only dampened consumer demand over the past year, but also severely limited inventory.  That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a 2-decade high, leaving few options for eager would-be buyers.  Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.

Mortgage demand rises again even as interest rates increase

Chipotle Mexican Grill (CMG) hopes to recruit 19K new employees to make its burritos & bowls this spring, the company said.  The company's hiring target suggests it’s expecting an even busier spring than usual, despite another round of menu price hikes in Oct.  The chain's recruitment goal is about 27% higher than a year ago, when it sought 15K new workers for its burrito season in Mar thru May.  Having enough workers becomes even more important during its busy period because the chain needs plenty of employees to meet higher demand.  The spring weather lures back customers who stayed away during the winter months, but the chain's concentration in college towns means sales usually slow in the summer.  The compoany has more than 110K workers.  Attracting workers has become more difficult for the restaurant industry in recent years, largely due to the pandemic.  Hundreds of thousands of restaurant jobs disappeared as bars & eateries shuttered, either temporarily or permanently.  Industry veterans switched to white-collar or warehouse jobs, seeking safety from Covid-19, better working conditions or both.  In Sep, the restaurant workforce finally bounced back to pre-pandemic levels, according to the Dept of Labor.  But even before Covid, restaurants struggled to hire & retain younger workers, who often seek internships instead.  CMG is expected to report its 4th-qtr earnings on Feb 6.  The stock advanced 9.77. 

Chipotle wants to hire 19,000 workers for busy spring season

Gold closed lower, reversing early gains as treasury yields rose following robust economic data.  Gold for Apr closed down $10 to settle at $2035 per ounce.  The drop come as treasury yields rose sharply after the S&P flash US manufacturing purchasing managers index showed growth in the sector, rising to 50.3 points this month, up from 47.9 in Dec & ahead of expectations of a 47.2 reading.  A reading above 50 indicates growth.  The 2-year note was last seen paying 4.394%, up 4.5 basis points, while the yield on the 10-year note was up 4.5 basis points to 4.183%.  The ICE dollar index was last seen down 0.43 points to 103.19.

Gold Closes Lower as Yields Climb After Positive Manufacturing PMI Index

West Texas Intermediate (WTI) crude oil closed with a gain as a report showed a larger than expected drop in US oil inventories last week as China reported new economic stimulus measures.  WTI crude oil for Mar closed up 72¢ to settle at $75.09 per barrel, while Mar Brent crude, the global benchmark was last seen up 37¢ to $79.92.  China is cutting the amount of reserves banks must hold, boosting cash in the #1 oil importer's economy which is struggling to cope with a debt crisis in its real-estate sector.  The Energy Information Administration reported US oil inventories fell by 9.2M barrels last week, triple the expectation, as much of the country suffered thru a bitter cold snap.  Gasoline & distillate inventories also fell.  The drop in inventories comes as turmoil in the Middle East continues & a new threat to Russian exports after Ukraine on the weekend attacked a port on Russia's Baltic Sea coast, raising concerns over the security of its western exports.  Still, prices remain rangebound as supply threats are countered by weak seasonal demand & rising non-OPEC+ supply.

WTI Crude Oil Rises on China Stimulus Measures and a Big Drop in US Inventories

Even though earnings are center stage, the debate over when the Federal Reserve will cut interest rates persists.  Investors are nervous about the future of rate cuts & the Fed can not indicate its plans.  After the Dow rose 735 in the last week, the stock market stalled at 38K in the last 2 days.  GDP data tomorrow may not help the bulls.

Dow Jones Industrials 

Markets rise with tech earnings in the spotlight

Dow went up 132 taking it over 38K again, advancers over decliners better than 3-2 & NAZ advanced 147.  The MLP index gained 2+ to 261 & the REIT index was off 2 to 381.  Junk bond funds were higher along with stocks & Treasuries were about even.  Oil was up 1 to the 75s & gold fell 9 to 2015.

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Netflix (NFLX) added 13.1M subscribers during the 4th qtr, stronger growth than  expected as the streamer builds its ad-supported service & cracks down on password sharing.  NFLX now has 261M paid subscribers, a new record for the service.  The subscriber growth easily tops the 8.76M paid membership adds reported in the 3rd qtr.  The company also blew past 4th-qtr expectations of 8-9M.  EPS rose to $2.11 versus 12¢ in the prior-year period.  The company posted revenue of $8.8B for the qtr, up from $7.8B in the year-ago qtr.  As it focuses on improving profits, the company increased its 2024 full-year operating margin forecast to 24%, up from 22-23%.  It cited the weakening of the $ & a stronger-than-forecast 4th-qtr performance.  The company also projects EPS of $4.49 for the fiscal first qtr of 2024, higher than the $4.10 that had been expected.  “As our competitors adjust to these changes, it’s logical to expect further consolidation, particularly among companies with large and declining linear networks,” the company said.  “We’re not interested in acquiring linear assets. Nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade.”  The stock zoomed 56+ (11%).

Netflix adds 13.1 million subscribers, tops revenue estimates as membership push gains steam

The head of the Federal Aviation Administration (FAA) is vowing that the agency will have "boots on the ground" at Boeing's (BA), a Dow stock, 737 MAX factory until it feels "comfortable" that its quality control system is working.  The statements from administrator Mike Whitaker come as 737-9 MAX planes remain grounded by the FAA in the wake of a Jan 5 incident in which one of the aircraft operated by Alaska Airlines (ALK) lost a passenger door plug while in flight.  The FAA has since announced an "audit involving the Boeing 737-9 MAX production line & its suppliers to evaluate BA's compliance with its approved quality procedures."  "We've got a lot of inspectors on the ground, visually inspecting the aircraft as it comes through," Whitaker said.  "We're shifting from more of an audit approach to a direct inspection approach."  "Until we're comfortable that the [quality control] system is working properly... we're going to have boots on the ground," he reportedly added.  Whitaker also said the FAA has sent a "couple of dozen" inspectors to look over the planes & that the inspections have "been longer" than the estimated 4-8 hours per aircraft.  "We've required a lot of measurements," Whitaker said.  "Once the area's exposed, we want to understand bolt tensions and gaps and things of that nature. So we've required more data than would normally be the case because we really wanted to understand the issue."  Meanwhile, CEO Dave Calhoun is reportedly planning to meet with a group of senators on Capitol Hill this week.  BA stock was up 2.46.

FAA reportedly supervising Boeing 737 MAX factory until quality control reached

eBay (EBAY) will begin reducing its workforce by approximately 9% (1000 full-time roles) in efforts to "better position eBay for long-term, sustainable growth," the company announced.  Pres & CEO Jamie Iannone said the "fundamental changes" put into place over the past 3 years have "accelerated the pace of innovation" & resulted in increased customer satisfaction & improved market growth, but "there is more" the company can do to be successful.  "We need to better organize our teams for speed – allowing us to be more nimble, bring like-work together, and help us make decisions more quickly," Iannone wrote.  Described as the "most significant and toughest of the decisions," Iannone said the company will reduce its current full-time workforce by an estimated 9%, which is approximately 1000 roles.  eBay will also be cutting down on the number of contracts it has within its alternate workforce.  "These are not actions we take lightly – and we recognize the impact they will have on all eBayers. We have to say goodbye to people who have made so many important contributions to the eBay community and culture, and this isn't easy," Iannone wrote.  The company's decision to eliminate some roles was made after it became clear the "overall headcount and expenses have outpaced" EBAY's growth.  Going forward, some teams will be consolidated & aligned with organizational changes that improve experiences better meet customers needs.  The stock went up 18¢.

eBay to eliminate 1,000 roles, reducing full-time workforce by 9%: 'This is not easy'

Highlighted by the NFLX report above, tech stocks are clearly in demand.   Additionally, Dow is hoping to set another record over 38K.

Dow Jones Industrials 

Markets struggle as investors digest sluggish earnings

Dow fell 96, advancers barely ahead of decliners & NAZ went up 65.  The MLP index inched up in the 258s & the REIT index was off 1+ to 383.  Junk bond funds remained about even & Treasuries continued to be sold which increased yields.  Oil slid lower to the 74s & gold gained 7 to 2029 (more on both below).

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Johnson & Johnson (JNJ), a Dow stock & Dividend Aristocrat, reported 4th-qtr earnings & revenue that narrowly edged expectations as sales in the company's pharmaceutical & medical devices businesses surged.  JNJ also provided full-year guidance for 2024, forecasting sales of $87.8-$88.6B & adjusted EPS of $10.55-10.75.  JNJ, whose financial results are considered a bellwether for the broader health sector, booked $21.4B in total sales for the final 3 months of 2023, up 7.3% from the same qtr in 2022.  The pharmaceutical giant reported EPS of $1.70 during the qtr versus $1.22 for the year-ago period.  Excluding certain items, adjusted EPS was $2.29 for the 4th qtr of 2023.  The results come 6 months after J&J completed its separation from its consumer health unit Kenvue (KVUE), the company's biggest shake-up in its nearly 140-year history.  JNJ execs said earnings growth in H1 of the year will benefit from a 191M share reduction in Kenvue.  The 3rd qtr will see a “partial benefit,” they added.  Its medical devices business generated sales of $7.67B, up 13.3% from the 4th qtr of 2022.  The forecast expected revenue of $7.5B.  Meanwhile, JNJ reported $13.7B in pharmaceutical sales, marking 4.2% year-over-year growth.  JNJ has said it expects sales in its pharmaceutical unit to grow at a compounded annual rate of 5-7% between 2025 & 2030.  JNJ stock fell 2.74

Johnson & Johnson narrowly tops estimates as pharmaceutical, medtech sales jump

2023 was one of the most volatile years in history for the housing market.  Last year saw the fewest existing home sales since the financial crisis in 2008.  The Fed cutting rates throughout the year paired with a recovering economy will lead to this slow upturn in the housing market.  Plus, the effects of the 2020-2021 price hikes & home demand are lessening, balancing out the market a bit, according to Fannie Mae.  Single-family mortgage originations are expected to hit $1.98T in 2024 & rise even higher to $2.44T in 2025, a large increase from the $1.5T in originations in 2023.  Housing affordability hit its lowest point in 2023, with just 15.5% of listings considered affordable for an average US household, according to Redfin. To give some context, in 2022, 20.7% of listings were affordable & before the pandemic, over 40% of homes were deemed affordable.  Certain groups bore the brunt of this lack of affordable housing, Redfin reports. Black households saw a lower level of affordability, with just 6.9% of homes in 2023 designated affordable for the community.  Latino households also struggled to find affordable home listings as 10.4% of homes on the market were affordable for them in 2023.  For white households in 2023, 21.6% of homes were considered affordable &  Asian households saw the highest affordability rate with over 27% of homes considered affordable.  While home affordability isn't set to budge much this year, home listings are slowly increasing.  Many potential sellers delayed listing their home in 2023 due to high mortgage interest rates & now that rates are declining, they're more likely to list.  Fannie Mae's forecast for the last qtr of 2024 reports the potential for 4.5M units sold, up from 3.8M in Q4 2023.  With limited listings on the market & inflated prices for those that are listed, new construction remains a popular choice for many buyers.  Dec saw an increase in new construction homes, up both from Nov 2023 & Dec of 2022.  Census Bureau information shows building permits for privately-owned houses reached 1495K, up 1.9% from Nov.  The adjusted annual rate is also 6.1% higher than in Dec 2022.

Mortgage rates finally expected to dip below 6% in 2024, but affordability remains low

General Motors (GM) is redesigning its gas-powered Chevrolet Equinox crossover to look more rugged than its predecessors in an attempt to move the vehicle upmarket and attract new buyers.  The 2025 Equinox, which GM revealed, will feature additional standard safety & convenience features.  Brad Franz, director of Chevy car & crossover marketing, said the changes to the Equinox are meant to boost the appeal of the vehicle, which GM introduced about 20 years ago.  The compact crossover has grown to be among GM's best-selling vehicles.  “It’s critically important for us to be introducing this product right now. We feel it’s going to be just as important, if not more, than [before],” he said.  “We still expect it to be the #2 Chevy volume vehicle and, frankly, it plays in the biggest segment in the industry at 22% [market share]. We don’t see that declining.”  Sales of the Equinox have been level the past 2 years at more than 212K units.  The sales remain far below pre-Covid pandemic levels of nearly 350K units in 2019.  The 2025 model will have heated seats & a heated steering wheel standard on all models, a first for the Equinox & many mainstream brands.  Some automakers have implemented or discussed including such features in monthly or annual subscription fees rather than offering them as standard or optional features.  GM said about 90% of owners surveyed wanted the features.  Pricing for the 2024 Equinox ranges be $28,000 - $35,000, including mandatory destination fees.  The vehicle will be produced at a plant in Mexico, where Franz says GM has room to increase production, if needed.  The 2025 Equinox will continue to be powered by a 1.5 liter, 4-cylinder turbocharged engine that produces up to 175 horsepower & 203 foot-pounds of torque.  The vehicle is standard with front-wheel drive & available in all-wheel drive.  The stock fell 8¢.

GM unveils 2025 Chevy Equinox with new rugged design, standard heated seats

Gold prices inched higher, as investors awaited a slew of US economic data this week for more clues to the Federal Reserve's timeline for interest rate cuts.  Spot gold was up $4 to $2025 per ounce.  Gold futures settled $4 higher at $2025.  Focus this week will be on the US flash PMI report on tomorrow, 4th-qtr advance GDP estimates due on Thurs & personal consumption expenditures data on Fri.  Fed officials last week said the central bank needs more inflation data in hand before any rate cut judgment could be made and that the baseline for cuts to start was in the 3rd qtr.  Markets are pricing in the central bank to hold rates unchanged at the end of the policy meeting on Jan 30-31 & have pared back the timing of the first interest rate cut, according to CME's FedWatch Tool.  Lower interest rates decrease the opportunity cost of holding bullion.  Meanwhile, the ECB meets on Thurs & is expected to hold monetary policy steady.  On the physical front, India increased the import duty on gold & silver findings, used in making jewellery.

Gold edges up as traders eye cues on US rate cuts

Oil prices were largely flat today after Libya restarted production at a major oilfield & as output slowly recovered in North Dakota after a winter storm.  The West Texas Intermediate contract for Mar lost 39¢ (0.5%) to settle at $74.37 a barrel & Brent contract for Mar fell 51¢ (0.6%) to settle at $79.55 a barrel.  Libya restarted production at the Sharara oilfield yesterday, which has the capacity to produce 300K barrels per day.  The oilfield was shut down for about 2 weeks due to protests.  Oil output is also slowly recovering in North Dakota after a blast of Arctic weather hit the 3rd-largest crude producing state in the US.  Oil production today was down by 250K to 300K barrels per day, compared to 700K bpd last Wed, according to the state pipeline authority.

Oil prices flat as Libya restarts production, North Dakota output slowly recovers

Earnings are coming in short of impressive.  Since the early returns tends to be the better ones, the outlook going forward is not good.  A report from the Atlanta Fed on GDP growth later this week is expected to show only meager GDP growth.

Dow Jones Industrials 

Markets wobble. looking for direction

Dow pulled back 134 after yesterday's rise. decliners modestly ahead of advancers & NAZ was off 6.  The MLP index slid back fractionally to 258 after yesterday's advance & the REIT index fell 3+ to the 381s on higher interest rates.  Junk bond funds fluctuated & Treasuries were sold, raising yields.  Oil was up chump change to 75 (more below) & gold gained 5 to 2027.

AMJ (Alerian MLP Index tracking fund)

Procter & Gamble (PG), a Dow stock & Dividend Aristocrat, reported mixed quarterly earnings & revenue for its fiscal 2nd qtr of 2024 as price hikes helped boost revenue 3%.  The company also narrowed its outlook for full-year adjusted EPS to $6.37-6.43, although its forecast for unadjusted earnings fell due to its plans to write down Gillette & restructure certain markets.  Excluding the impacts of restructuring & intangible impairment, EPS was $1.84.  Net sales rose 3% to $21.4B.  Organic revenue, which strips out the impact of acquisitions, divestitures & foreign exchange, climbed 4% in the qtr.  After roughly 2 years of higher prices on their Charmin toilet paper & Downy fabric softener, consumers have pulled back on their purchases of PG products.  Volume was flat overall for the qtr & only its grooming business reported volume growth.  The metric excludes the impact of currency & pricing changes to reflect demand.  Demand has improved in North America & Western Europe.  However, other markets saw weaker demand.  For example, Greater China saw its organic sales shrink 15%.  Execs cited further declines in consumer confidence as one reason for the decline in its 2nd-largest market.  For fiscal 2024, the company now anticipates core EPS growth of 8-9%, narrowing its prior range of 6% to 9%.  However, it now expects unadjusted EPS to be flat to down 1%, significantly lower than a prior forecast of 6-9% growth. PG reiterated its forecast for fiscal 2024 sales growth of 2-4%.  The stock rose 6.48 (4%).

Procter & Gamble price hikes boost revenue while Gillette write-down weighs on earnings

Global shipping rates are skyrocketing as the Iran-backed Houthi militants in Yemen step up their attacks on commercial shipping vessels in the Red Sea, a critical waterway for world trade.  New data from Freightos Terminal shows that rates for shipping goods from Asia to Northern Europe surged 461% compared to mid-Oct, before the diversion of vessels in the region began.  Rates on the route from Asia to the North American East Coast & to the North American West Coast have also skyrocketed, climbing a respective 130% & 97% since the end of Oct.  Carriers have also announced surcharges that are $500 to as much as $2700 per container.  About 15% of world shipping traffic, including 30% of global container trade, passes thru the Suez Canal to & from the Red Sea.  But to avoid being attacked or having their cargo stolen, many ships are instead sailing around the Cape of Good Hope, which is the long way around Africa.  The Houthi attacks on commercial ships have not stopped even after the US & the UK launched strikes against Houthi assets in Yemen.  The group has said that the attacks on shipping are a response to Israel's military campaign against Hamas in the Gaza Strip.  "This has added significant cost, and also significant delays, to shipments that are coming from the Middle East, to and from Europe and other regions in that area that rely on the Suez Canal a great deal," Robert Handfield, a professor of operations & supply chain management at North Carolina State University, said.  UBS has estimated that routing ships around Africa, which increases the journey length by about 2½ weeks, reduces an Asia-Europe trip's effective capacity by about 25%.  Drought-like conditions in the Panama Canal are compounding the pain from the attacks in the Red Sea.  The Panama Canal has restricted the number of ships going thru it due to extremely low water levels, further backing up global shipments, Handfield said.

Global shipping rates skyrocket as Red Sea crisis deepens

Oil prices were largely flat as investors monitored reports that Israel has proposed a 2-month pause of fighting in Gaza, which would mark significant de-escalation in the war.  The West Texas Intermediate (WTI) contract for Mar lost 15¢ to $74.61 a barrel & Brent  contract for Mar lost 26¢ to $79.80 a barrel.  The 2-month pause in fighting would come in exchange for Hamas releasing the remaining hostages, an Israeli gov official said.  It would be the longest pause since the war began in Oct.  But Hamas has rejected the proposal, a senior Egyptian official said.  The militant group is demanding that Israel end its offensive & withdraw from Gaza, an Egyptian official added.  In a bullish sign for the market, China is considering a $278B rescue package to boost its struggling stock market.  A rescue package in China would raise oil demand expectations, said Phil Flynn, an analyst with the Price Futures Group.  Traders have worried for months that a slowing economy in China would bring down crude demand.  Oil prices rallied about 2% yesterday after a suspected Ukrainian drone strike against a major Russian fuel terminal on the Baltic Sea highlighted the geopolitical threats to crude supplies.  “The attack by Ukrainian forces on the Russian company Novatek in the Baltic is a timely reminder that a bigger, more influential war is still waging on,” John Evans with PVM Oil Associates wrote.  The US & Britain yesterday also launched another round of airstrikes against Houthi militants in Yemen.  The militants have repeatedly attacked commercial vessels in the Red Sea over the past 2 months, forcing container ships & oil tankers to pause transit thru the key waterway.  On the supply side, the signals were mixed with cold weather hitting output in the US as Libya restarts production in a major oilfield.  Oil output in North Dakota, the 3rd largest crude producing state in the US, was down 400K barrels per day as of Fri due to a blast of Arctic cold this month, according to state authorities.  Potential threats to crude supplies have been tempered by Libya restarting production at the Sharara oilfield, which was shut down for about 2 weeks due to protests.  The oilfield has the capacity to produce 300K barrels per day.

Oil prices fall as investors monitor supply threats, Libya production restart

Stocks meanders while traders are waiting for more earnings reports.  A lot is going on in the oil market (see above), but WTI is still stuck in a sideways trend in the low to mid 70s.

Dow Jones Industrials 

Markets climb as optimism for rate cuts remain high

Dow gained 138 taking it just over 38K, advancers over decliners better than 3-1 & NAZ was up 49.  The MLP index remained up 4+ to the 258s & the REIT index added 2+ to the 385s.  Junk bond funds edged higher & Treasuries continued to see limited buying, reducing yields.  Oil remained up 1+ to the 75s & gold slid back 7 to 2022 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Even though Ford's (F) F-150 Lightning truck sits shiny & pretty on the Celebrity of Toms River dealership floor, that’s apparently the only place the car is going.  "It's a really beautiful truck, but we're having some trouble getting it off of our lot," Veronica Maoli, America's youngest female Ford dealer, said.  "There's a lot of charging concerns. A lot of commercial companies don't really want to have to spend the time to charge," she continued.  "And they add weight to the back of the truck. It's a little bit of a struggle right now."  Maoli claimed the sales for the electric version of Ford's iconic F-150 truck have been dismal at her New Jersey dealership.  Her comments come just days after the automaker announced it would dial back production of the electric truck as demand wanes.  The company said it will reduce the number of shifts at the Rouge Electric Vehicle Center, where it builds the EV pickups, to 1, in Apr.  The move will affect 1400 workers, including 700 who will move to the company's Michigan Assembly Plant.  Some employees will be placed in roles at the Rouge complex or other Ford facilities in southeast Michigan & others can "take advantage of the Special Retirement Incentive Program agreed to in the 2023 Ford-UAW contract," Ford said.  "I think that we all know, and we all talk about how… the infrastructure is not there yet for EVs," Maoli added.   "And I think that they're trying to move a little bit too fast."  The stock was off a penny.

Ford dealership details 'struggle' with EV truck as 'concerns' mount

Arkhouse Management & partner Brigade Capital Management, which already has a significant stake in Macy's thru Arkhouse-managed funds, issued an unsolicited proposal in Dec to acquire all the outstanding shares of the 165-year-old department store chain for $21 per share in cash.  Macy's said its board "conducted a careful review of the proposal" with independent legal, financial & real estate advisors & ultimately determined that the offer "failed to provide evidence of a viable financing plan."  "In light of the Board’s concerns, as well as the lack of compelling value in their non-binding proposal, the Board has determined not to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade," Macy's said.  Macy's CEO Jeff Gennette said that the company is still "open to opportunities that are in the best interest of the company and all of our shareholders."  Arkhouse said in an earlier statement that the real estate investment firm & Brigade engaged privately with Macy's regarding a potential acquisition in recent weeks.  To push the deal thru, it even offered to potentially give "a meaningful increase to our original proposal if we are granted access to the necessary due diligence."  The stock rose 62¢.

Macy's rejects $5.8B takeover bid to go private

Many Americans who turned to buy now, pay later to fund their holiday shopping last year to avoid credit card debt but are now having trouble paying off those bills.  In an era where persistent inflation & record-high interest rates are shaping financial decisions for many shoppers, services helped fuel a boom in overall online spending that topped out at $222B from Nov 1 thr the end of Dec.  During the season, buy now, pay later usage hit an all-time high, rising a staggering 14% from the prior year & contributing $16.6B to online spending.  On Cyber Monday alone, buy now, pay later use spiked nearly 43%, Adobe said.  “Sales, especially online sales, were probably juiced to some extent because of buy now, pay later usage,” said Ted Rossman, senior analyst at Bankrate.  “A lot of people are drawn to this financing method as an alternative to something like a credit card where the average interest rate is a record high 20.74%. I would caution that you can still get into trouble with buy now, pay later … it can still encourage you to overspend and kind of trick yourself.”  The surge in use of buy now, pay later comes as credit card debt hits a record high & delinquency rates have nearly doubled over the past 2 years.  While delinquencies were at historic lows during the Covid-19 pandemic, the rate of people who've gone more than 30 days without paying their credit card bill recently topped pre-pandemic levels, according to the Federal Reserve.  It's tough to say how buy now, pay later fits into the country's overall debt picture.  Providers that offer the service don't typically disclose how often those bills go unpaid, & the debts aren't reported to credit bureaus.

The buy now, pay later holiday debt hangover has arrived

Gold closed lower as the $ steadied & treasury yields were mixed.  Gold for Apr closed down $7 to settle at $2041 per ounce.  The price of the metal has steadied in recent weeks after rising to a record in late Dec & remains firmly above the $2000 mark ahead of expected, but unconfirmed, cuts to US interest rates this year.  Gold remains stuck with traders adjusting positions to reflect a potential delay in the timing of the first US rate cut.  The $ was steady, with little key economic data expected until Thurs's release of preliminary 4th-qtr GDP data.  The ICE dollar index was last seen up 0.02 points to 103.31.  Treasury yields narrowed, with the 2-year note last seen paying 4.381%, up 0.4 basis points, while the yield on the 10-year note was down 2.0 basis points to 4.111%.

Gold Closes Lower on a Steady Dollar and Mixed Treasuries

West Texas Intermediate (WTI) crude oil prices rose as Ukraine claimed responsibility for a drone attack on a Russian port in the Baltic Sea, raising concerns oil exports from the country's Western ports could be blocked, while prices were checked as Libya restarted production from a major oil field.  West Texas Intermediate crude for Feb was last seen up $1.78 to $75.19 per barrel, while Mar Brent crude, the global benchmark, closed up $1.50 to settle at $80.06.   A weekend attack on a port in the Baltic Sea that left a gas-condensate terminal with damage is raising concerns Ukraine will be able to open a new front in the war & be able to interdict tankers carrying Russian crude.  Libya restarted production from its 300K barrel per day Sharara oil field, according to reports, 3 weeks after it was shuttered due to protests.  The additional supply is easing some worries that war in the Middle East would expand to the Persian Gulf & threaten exports from key producing countries.  Still, demand remains soft on seasonal factors & slowing economies, while rising output from non-OPEC+ countries is offsetting some production cuts from the cartel & its allies.  The price of the commodity has been locked in a tight range for weeks as the supply & demand factors play off against each other.

WTI Crude Oil Rises Following Weekend Drone Attacks on a Russian Baltic Port; Libya Restarts a Major Oil Field

The bulls remain optimistic on the stock market, which is to be expected.  But optimism is their job.  However, comments from the oil market keep saying demand is soft which has kept the price flattish for several months despite a major war in the Mideast (a key source of oil).  The current estimate for GDPnow from the Atlanta Fed is:

Latest estimate: 2.4 percent -- January 19, 2024

Dow Jones Industrials 

Markets advance to new records as earnings season begins

Dow went up 141, advancers over decliners better than 3-1 & NAZ gained 55.  The MLP index advanced 4+ to the 257s & the REIT index added 2+ to the 385s.  Junk bond funds were higher along with stocks & Treasuries rose which lowered yields.  Oil added 1+ to the 74s (more below) & gold was off 5 to 2024.

AMJ (Alerian MLP Index tracking fund)

The pace of job cuts by US employers accelerated in 2023, with the number of layoffs surging 98% compared with the previous year.  That is according to a new report published by Challenger, Gray & Christmas, which found that companies planned 721K job cuts last year, a substantial increase from the 363K layoffs reported in 2022.  The problem could get worse in 2024 as the labor market continues to soften in the face of high interest rates & stubborn inflation.  "Labor costs are high," said Andy Challenger, senior VP of Challenger, Gray & Christmas.  "Employers are still extremely cautious and in cost-cutting mode heading into 2024, so the hiring process will likely slow for many job-seekers and cuts will continue in the first quarter."  Technology bore the brunt of the job losses in 2023, with the industry shedding 168K employees, a stunning 73% increase from the previous year.  The total falls slightly short of the annual record of 168K cuts announced for the sector in 2001.  "The tech sector will continue to be impacted by the onset of AI, mergers and acquisitions, and realigning of resources and talent," Challenger said.  Retail companies also accounted for a large swath of the job cuts last year, slashing 79K positions.  That marks a 274% increase from the layoffs announced in the sector during the same period one year prior.  Challenger said retailers need to "be on their toes" this year, even though many companies exercised caution & flexibility in their hiring.  Health care & products manufacturers, including hospitals, also cut a significant number of jobs.  They eliminated 58K positions in 2023, a 91% increase from the layoffs announced in 2022.  The top reason cited for job cuts last year was deteriorating market & economic conditions as the country grappled with still-high inflation, a sharp rise in interest rates & ongoing geopolitical tensions.  Companies also blamed stores closing, bankruptcy & artificial intelligence for the layoffs.

Layoffs surged 98% in 2023; It could get worse this year

Treasury yields pulled back as investors geared up for another big week of economic data.  The yield on the benchmark 10-year Treasury note  was down 5 basis points at 4.094%.  Last week, it reached levels last seen in Dec.  The yield on the 2-year Treasury bond slid 2 basis points to 4.385.  Yields move inversely to prices.  The moves come as markets try to gauge when the Federal Reserve will begin cutting interest rates, which will be a key determinant of the trajectory of the economy & markets this year.  2 significant pieces of economic data are on the slate this week, with a preliminary 4th-qtr GDP growth figure due Thurs & the Commerce Dept's closely-watched PCE price index for Dec on Fri.  The forecast expects the economy to have grown by 1.7% for the final 3 months of 2023, the slowest rate since the 0.6% decline registered in the 2nd qtr of 2022.  The forecast for core PCE prices, which exclude the volatile food & energy components, is 0.2% growth for the month & 3% for the full year.

Treasury yields retreat ahead of big week for economic data

Oil prices rose as investors monitored the war in Ukraine & conflict in the Middle East for any potential impact on crude supplies.  The West Texas Intermediate  futures contract for Feb gained $1.36 (1.8%) to trade at $74.77 a barrel & the Brent contract for Mar rose $1.07 (1.4%) to trade at $79.63 a barrel.  Crude prices rose after Russian energy infrastructure came under attack over the weekend.  Ukrainian drones struck a major fuel processing & export facility near St Petersburg, a source said.  The Ust-Luga facility processes gas condensate into jet fuel & gasoil among other products.  In the Middle East, several US personnel are being evaluated for “traumatic brain injuries” after militants allied with Iran attacked an airbase in Iraq on Sat with ballistic missiles & rockets, according to US Central Command.  US forces stationed in Iraq & Syria have repeatedly come under attack by Iran-allied militants since Israel's military operation in Gaza began.  Houthi militants, also allied with Iran, have continued their attacks on shipping thru the Red Sea, a crucial trade artery, despite US airstrikes.  The attacks have stoked worries that the US & Iran are getting drawn into a regional conflict that could disrupt oil supplies.  Libya's National Oil Corp, meanwhile, resumed full production at the Sharara oilfield yesterday after protests shut down output for 2 weeks.  Sharara is one of Libya's largest oilfields with capacity to pump 300K barrels per day.  Traders have generally been more focused on the supply & demand outlook than geopolitical risk.  The Intl Energy Agency has a bearish forecast for 2024, projecting that production outside OPEC, particularly in the US, will rise by 1.5M barrels per day, more than covering global demand growth of 1.2M barrels per day.  OPEC, on the other hand, has presented a stronger outlook with oil demand forecast to grow by 2.2M barrels per day, while production outside OPEC will grow by 1.3M barrels per day.

Oil prices rise as investors monitor Ukraine war, Middle East conflict

While today's news was bearish investors are buying with hopes earnings will be good & expectations are for interest rate cuts this year.  Federal Reserve officials whose comments have buffeted stocks will stay quiet ahead of policymakers' meeting next week.

Dow Jones Industrials 

Markets zoom, taking the Dow to a new record

Dow soared 395, advancers over decliners 2-1 & NAZ jumped 255.  The MLP index remained in the 253s & the REIT index rose 4+ to the 383s.  Junk bond funds edged lower & Treasuries were flattish, keeping yields little changed.  Oil slid below 74 & gold gained 10 to 2030 (more on both below).

AMJ (Alerian MLP Index tracking fund)

ECB Pres Christine Lagarde said she does not expect a return to economic “normality” in 2024, despite seeing a balancing of certain data points throughout the last 12 months.  Speaking at the World Economic Forum in Davos, Lagarde described the post-pandemic period as “strange, extraordinary and difficult to analyze” & identified three trends that began to normalize last year: consumption, trade & inflation.  The pandemic saw spending fall & people's savings grow, while global trade was also disrupted.  In Oct 2022, euro zone inflation hit 10.6% but dropped off in 2023, coming in at 2.9% in Dec.  “In ’23 we have seen the beginning of normalization,” she said.  “When you look at consumption for instance, around the world … consumption is still a driving force for growth, but the tailwind that we had the benefits of, are gradually fading,” Lagarde said.  Consumption softened as the jobs market became a little less tight & consumers' savings reduced.  Trade, meanwhile, was disrupted by consumers' preference for buying services over goods in 2021 & 2022.  “But it is beginning now to really pick up and in October, we had global trade numbers that for the first time in many months was up.”  The World Trade Organization (WTO) expects trade to increase by 3.3% in 2024, per a forecast released in Oct.  Lagarde also noted the broad fall in inflation in 2023.  “Around the world, inflation is coming down, and we have seen it in November [in] both headline inflation and core inflation,” she added.  “So that’s what I call the normalization that we have observed in ’23,” Lagarde said, adding somewhat cryptically: “And maybe you’ll give me the floor another time to talk about it how it is not normality that we are heading to.”  WTO Director General Ngozi Okonjo-Iweala agreed that the economy is “maybe moving towards normalization” but she described it as “not normal, because trade growth is still trending below GDP growth.”  Okonjo-Iweala noted uncertainties that make forecasting “difficult,” including geopolitical conflicts, disruption in the Red Sea & elections around the world.

Leaders at Davos see a global economy moving toward a new normal

A stealth inflationary cost is biting into corp profits.  While some companies are now seeing lower input & freight costs, one expense is not falling: insurance.  In its earnings report today, Dow component Travelers (TRV) said insurance premiums that it charges are still soaring.  Premiums on business policies jumped 14% in the last qtr.  Consumers are feeling the pinch, too.  Homeowner renewal premiums spiked 21%, while those for auto policies jumped 17%.  Those higher prices aren't deterring demand, though.  The insurer noted “retention remained historically high” & “new business increased significantly.”  Although rising premiums are good news for insurance firms such as Travelers, they are bad news for customers, whether they are individuals or companies.  The stock advanced 13+ (7%).

A stealth inflationary cost is hitting corporate profits and consumer wallets

Stellantis (STLA) won't sell electrified vehicles such as hybrids & all-electric models at a loss like other automakers have, CEO Carlos Tavares said.  Tavares, who has been skeptical about consumer adoption of EVs, said the company is currently making money on its electrified vehicles & will continue to do so with its next-generation vehicles, which STLA released additional details.  “Being in Europe as much as in the U.S., we are making money with the electrified vehicles,” Tavares said.  “We are making money, and it is in our discipline to make sure that whatever we sell we make money with because, if not, then the company will not be sustainable.”  Some automakers, including one of STLA's predecessors, Fiat Chrysler, have sold EVs at a loss to spur sales, meet fuel economy standards or build up capacity in hopes of eventually making the vehicles profitable.  STLA currently has 25 EV models available globally & expects to launch another 23 thru the end of this year.  The company previously announced an all-electric version of the Jeep Wrangler SUV & a Dodge muscle car.  An all-electric version of the Ram 1500 pickup is also expected to be released early next year.  Tavares said the automaker remains committed to its plans to invest €50B ($54.4B) in electrified vehicles & related technologies thru 2030, despite slower-than-expected adoption in many countries.  “There is no such thing as slowing down for the EV road map for Stellantis,” he added.  However, Tavares did say those plans could shift based on consumer demand & potential political changes that could result from elections this year in the US & Europe.  The stock was up 6¢.

Stellantis CEO says automaker won’t sell EVs at a loss like other carmakers

Gold closed higher, backed by a lower $ even as treasury yields moved higher again.  Gold for Feb closed up $7 to settle $2029 per ounce.  The price of the metal is running counter to the rise & fall of the $, touching a record 2093 on Dec 27, when the ICE dollar index dropped to a 5 month low of 100.99.  The index was last seen down 0.22 to 103.32.  Geopolitical worries are also backing the price of the metal, as tensions in the Middle East rise amid Israel's war on Hamas & attacks from Iranian-backed militant groups. Treasury yields rose, raising the carrying cost of owning gold.  The 2-year note was last seen up 6.4 basis points to 4.419%, while the yield on the 10-year note was up 2.3 basis points to 4.169%.

 

Gold Rises Again as the Dollar Weakens and Yields Widen

West Texas Intermediate (WTI) crude oil closed with a loss, with trading continuing in a tight range as weak demand & sufficient supply is balanced with geopolitical worries amid rising Middle East tensions.  WTI crude oil for Feb closed down 67¢ to settle at $73.77 per barrel, while Mar Brent crude, the global benchmark, was last seen down 41¢ to $78.69.  The price of West Texas Intermediate has mostly remained in a tight range of $70-75 since the beginning of Dec as rising Middle East tensions, though supplies in the region have not yet been threatened by the turmoil, & Russia's war on Ukraine, is countered by weak demand as developed economies slow.  The Intl Energy Agency yesterday said its forecast for 2024 demand growth to 1.2M barrels per day over 2023, down from its 2023 estimate of a 2.3M barrel per day rise, while production is expected to increase by 1.5M bpd as output from non-OPEC countries is on the rise.

WTI Crude Oil Closes Lower Despite Rising Tensions as Supply Remains Robust

Tech stocks are back in demand & thoughts about rates cuts by the Fed are bringing out buyers for stocks.  Investors view the outlook for the stock market as the best of all worlds even though there are multiple headwinds around.  Dow finished up 271 for the week. 

Dow Jones Industrials 

Markets advance after improved consumer confidence

Dow went up 80, advancers over decliners 2-1 & NAZ gained 73.  The MLP index was off 1+ to the 253s & the REIT index was steady in the 379s.  Junk bond funds slid lower & Treasuries had more selling, raising yields.  Oil were bid higher in the 74s & gold added 4 to 2026.

AMJ (Alerian MLP Index tracking fund)

Sales of previously owned homes fell 1% in Dec compared with Nov to a seasonally adjusted annualized rate of 3.78M units, according to the National Association of Realtors (NAR).  Sales were 6.2% lower than in Dec 2022, marking the lowest level since 2010.  Full-year sales for 2023 came in at 4.09M units, the lowest tally since 1995.  Regionally, on a month-to-month basis, sales were unchanged in the Northeast & fell 4.3% in the Midwest.  Sales were down 2.8% in the South but rebounded 7.8% in the West.  On a year-over-year basis, sales were lower in all regions.  The count of home closings is based on contracts likely signed in late Oct.  In Nov, mortgage rates were considerably higher than they are now.  The average rate on the 30-year fixed loan rose to about 8% in Oct before falling to the 7% range in Nov.  It is now at 6.89%, according to Mortgage News Daily.  “The latest month’s sales look to be the bottom before inevitably turning higher in the new year,” said Lawrence Yun, NAR's chief economist.  “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”  Inventory fell 11.5% from Nov to Dec, but it was up 4.2% from Dec 2022.  There were 1M homes for sale at the end of Dec, making for a 3.2-month supply at the current sales pace.  A 6-month supply is considered balanced between buyer & seller.  Tight supply continues to reheat home prices.  The median price of a home sold in Dec was $382K, an increase of 4.4% from Dec 2022, the 6th consecutive month of year-over-year price gains.  The median price for the full year was $389K, a record high.  “With rents continuing to ease and more multi-family homes entering the market for rent, investors may continue to tread more cautiously in the housing market,” said Danielle Hale, chief economist at Realtor.com.  “This would mean one less source of competition for potential first-time home buyers who are approaching the 2024 market with optimism despite the challenge of trying to buy a home at a below-median price point, one that investors also often target.”  First-time buyers are still struggling, making up just 29% of Dec sales, down from 31% the year before.  Historically they make up 40% of the market.

December home sales slump to close out worst year since 1995

Macy's (M) said it will cut about 3.5% of its workforce & close 5 of its namesake mall locations as the legacy department store moves to trim costs & turn around slowing sales.  The move will affect approximately 2350 positions across its corp office & stores, company spokesman Chris Grams said.  “As we prepare to deploy a new strategy to meet the needs of an everchanging consumer and marketplace, we made the difficult decision to reduce our workforce by 3.5% to become a more streamlined company,” the company said.  The company notified employees about the layoffs on & the last day for impacted employees will be Jan 26.  CFO & COO Adrian Mitchell hinted that Macy's would take another hard look at its stores.  He said the company had to “deliver relevant products, strong value and a more enjoyable shopping experience,” & some of that would include “optimizing our physical footprint. We are committed to bringing more inspiration on a daily basis to our customers,” he said.  “We look forward to sharing more on how that ladders to long-term profitable growth on our fourth quarter call.”  Mitchell also told investors on the call that Macy's “anticipated closure of less than 10 locations in early 2024.”  The stock fell 57¢.

Macy’s to cut more than 2,300 jobs, about 3.5% of its workforce, and close five stores

Consumers have grown more confident about the direction of the economy & inflation at onset of 2024, despite persistent worries about a looming slowdown, a survey showed.  The University of Michigan's Consumer Survey of Consumers showed a reading of 78.8 for Jan, its highest level since Jul 2021 & up 21.4% from a year ago.  That followed a big jump in Dec & comes despite public opinion surveys showing concern about the nation's direction.  On a 2-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey's director.  “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said.  “Democrats and Republicans alike showed their most favorable readings since summer of 2021. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.”  Along with the improved outlook on general conditions, survey respondents displayed more confidence that inflation is coming down.  The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in Dec for the lowest reading since Dec 2020.  The Federal Reserve has boosted short-term interest rates to their highest level in more than 22 years & inflation has followed suit lower, though it remains above the central bank's 2% target.  At the same time, the survey's index of current conditions also leaped higher, rising to 83.3, 21.6% higher than a year ago.  Consumer sentiment has improved amid a drop in gasoline prices & solid stock market gains.  The price at the pump for a gallon of regular gas is about 30¢ lower than it was a year ago, according to AAA.

Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows

The consumer confidence survey was encouraging.  But interest rates keep climbing, reflecting worries about the path for rate cuts which makes investors nervous.  Also, activity in the Red Sea is a very dark cloud over the stock market.

Dow Jones Industrials