Markets mixed and gold has more selling

Dow sank 307, decliners over advancers 3-1 but NAZ went up 116.  The MLP index was steady in the 277s & the REIT index slid back 3+ to 370 on higher interest rates.  Junk bond funds traded lower & Treasuries had more selling which raised yields (more below).  Oil was a little lower in the 77s after early buying & gold tumbled another 48 to 2344.

Dow Jones Industrials 

JPMorgan's (JPM), a Dow stock, CEO Jamie Dimon says a “hard landing” for the US cannot be ruled out.  When asked about the prospect of a hard landing, Dimon replied: “Could we actually see one? Of course, how could anyone who reads history say there’s no chance?”  The CEO was speaking at the JPMorgan Global China Summit in Shanghai.  Dimon said the worst outcome for the US economy will be a “stagflation” scenario, where inflation continues to rise, but growth slows amid high unemployment.  “I look at the range of outcomes and again, the worst outcome for all of us is what you call stagflation, higher rates, recession. That means corporate profits will go down and we’ll get through all of that. I mean, the world has survived that but I just think the odds have been higher than other people think.”  However, he added that “the consumer is still in good shape” — even if the economy slips into recession.  He pointed to the unemployment rate, which has been below 4% for about 2 years, adding that wages, home prices & stock prices have been going up.  That said, Dimon pointed out that consumer confidence levels are low.  “It seems to be mostly because of inflation ...The extra money from Covid has been coming down.  It’s still there, you know, at the bottom 50% it’s kind of gone. So it’s I’m gonna call it normal, not bad.”  Dimon said interest rates could still go up “a little bit.”  “I think inflation is stickier than people think. I think the odds are higher than other people think, mostly because the huge amount of fiscal monetary stimulus is still in the system, and still maybe driving some of this liquidity.”  Is the world prepared for higher inflation? “Not really,” he warned.

JPMorgan’s Jamie Dimon says can’t rule out ‘hard landing’ for the U.S., stagflation will be ‘worst outcome’

Treasury yields rose following better-than-expected economic data.  The 10-year Treasury yield was higher by 6 basis points at 4.494%, while the 2-year Treasury yield increased by more than 7 basis points at 4.952%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Services & manufacturing gauges for May both were higher-than-expected & showed expansion in both sectors, according to purchase manager surveys from S&P Global.  The services activity index posted a 54.8 reading on the month, while manufacturing was at 50.9.  Both rose on a monthly basis & topped respective estimates for 51.5 & 50.  The 2 indices also showed that input prices “continued to rise sharply,” S&P said.  Weekly jobless claims numbers fell more than expected, signaling that any weakening in labor market demand may have stalled.  Claims for jobless benefits totaled 215K for last, down 8K from the previous period's upwardly revised level, according to the Labor Dept.  The forecast had been looking for 220K.  Minutes from the Apr 30-May 1 policy meeting of the Federal Open Market Committee pointed to uncertainty from policymakers about when it would be time to ease.

Treasury yields climb on positive economy and labor data

Crude oil futures bounced back today after a 3-day decline but are still on pace for a weekly loss.  US crude oil is down 2.4% for the week while Brent, the global benchmark, has fallen 1.8%.  West Texas Intermediate  The Jul contract at $78.04 a barrel is up 47¢ (0.6%) & YTD US crude oil is up 8.9%.  Brent  Jul contract is $82.40 a barrel, up 50¢ (0.6%) & YTD the global benchmark is up about 7%.  Oil prices have been stuck in a $3 range since their Apr highs as fears of a wider war in the Middle East ease & traders shift their focus back to basic supply & demand.  Prices have struggled to break out this month with investors remaining cautious that higher-for-longer interest rates could slow the US economy & weigh on oil demand.  Traders are also worried about a buildup in global oil inventories after a mild winter in parts of the Northern Hemisphere

Oil prices bounce back after three-day decline but still on pace for weekly loss

Investing in AI is very hot these days, driving NAZ tech stocks higher.  However the rest of the stock  market, which comprises most stocks, is stumbling, trying to gain upward momentum.  Jamie Dimon's thoughts (above) are getting a lot of attention.  Gold, after reaching new heights, is down about 80 this week.

Markets retreat after Fed meeting minutes add to infation worries

Dow dropped 201 (near session lows), decliners over advancers 5-2 & NAZ was off 31.  The MLP index fell 4+ to the 276s & the REIT index was off 4 to 374.  Junk bond funds edged higher & Treasuries had limited selling, lifting yields slightly.  Oil lost 1+ to the 77s & gold plummeted 46 to 2380 (more on both below).

Dow Jones Industrials 

Federal Reserve officials grew more concerned at their most recent meeting about inflation, with members indicating that they lacked the confidence to move forward on interest rate reductions.  Minutes from the Apr 30-May 1 policy meeting of the Federal Open Market Committee indicated apprehension from policymakers about when it would be time to ease.  The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024.  The Fed targets a 2% inflation rate, & all of the indicators showed price increases running well ahead of that mark.  Participants observed “that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary stated.  “The recent monthly data had showed significant increases in components of both goods and services price inflation.”  The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”  The FOMC voted unanimously at the meeting to hold its benchmark short-term borrowing rate of 5.25%-5.50%, a 23-year high where it has been since Jul 2023.  “Participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by intermeeting data indicating continued solid economic growth,” the minutes added.  Since then, there have been some incremental signs of progress on inflation, as the consumer price index for Apr showed inflation running at a 3.4% annual rate, slightly below the Mar level.  Excluding food & energy, core CPI came in at 3.6%, the lowest since Apr 2021.  However, consumer surveys indicate increasing worries.  For instance, the University of Michigan consumer sentiment survey showed the 1-year outlook at 3.5%, the highest since Nov, while overall optimism slumped.  A New York Fed survey showed similar results.  Fed officials at the meeting noted several upside risks to inflation, particularly from geopolitical events, & noted the pressure that inflation was having on consumers, particularly those on the lower end of the wage scale.  Some participants said the early-year increase in inflation could have come from seasonal distortions, though others argued that the “broad-based” nature of the moves means they shouldn’t be “overly discounted.”  Committee members also expressed worry that consumers were resorting to riskier forms of financing to make ends meet as inflation pressures persist.  “Many participants noted signs that the finances of low- and moderate-in-come households were increasingly coming under pressure, which these participants saw as a downside risk to the outlook for consumption,” the minutes noted.  “They pointed to increased usage of credit cards and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans.”  Officials were largely optimistic about growth prospects though they expected some moderation this year.  They also said they expect inflation ultimately to return to the 2% objective but grew uncertain over how long that would take & how much impact high rates are having on the process.

Federal minutes indicate worries over lack of progress on inflation

More than ½ of Americans think that the US is in an economic recession, although gross domestic product has been increasing for the past several years.  According to a new Guardian/Harris poll, 56% of respondents said they believe the US is in a recession & 58% say that Pres Biden is responsible for what they see as an economic downturn.  A recession is an extended period of economic decline, usually designated when GDP has declined for 2 or more consecutive fiscal qtrs.  Under those terms, the US is definitively not in a recession.  GDP grew by 1.6% in the first qtr of 2024.  Granted, that is a decelerated rate from the 3.3% growth of the 4th quarter of 2023, but it is not recessionary. US GDP growth has been outpacing that of other developed nations.  “America has the best economy in the world,” Biden said in Apr.  The Guardian/Harris poll is yet another example of an ongoing gap between economic data & economic feelings that has nagged the Biden administration in recent months.  Despite some positive signals that the economy is recovering from the pandemic chaos that disrupted supply chains & sent inflation skyrocketing, consumer attitudes have lagged, often driven by the high costs of daily living caused by stubbornly high inflation.

Most Americans falsely think the U.S. is in recession, poll shows

Target (TGT), a Dividend Aristocrat, execs issued a weak forecast in recognizing that elevated prices continue to have a "meaningful impact" on family budgets & savings.  Chief Growth Officer Christina Hennington said that 1 in 3 Americans "maxed out or is nearing the limit on at least one of their credit cards."  "For these reasons and more, we remain cautious in our near-term growth outlook," Hennington said.  She projected that discretionary spending "will continue to remain pressured in the short term" but will "normalize over time."  Sales at TGT stores open for at least a year dropped 3.7% during the 3-month period ending May 4 "as consumers continue to spend cautiously, particularly in discretionary categories," COO Michael Fiddelke said.  During the 2nd qtr, the retailer projected sales would recover from back-to-back declines, but only modestly increase to a range from flat to 2%.  TGT reported adjusted EPS of $2.03, missing estimates.  Its total revenue was $24.53B, down 3.1% from the same time a year ago, though slightly better than the $24.52B expected.  The stock dropped $12.35 (8%).

Target 'cautious' on near-term growth outlook as more Americans are maxing out credit cards

Gold dropped the most in 3 weeks, with traders booking profits as markets grow jittery about the prospect of stubbornly high inflation that could prevent central banks from easing policy as early as anticipated.  Swap markets have this week reduced the odds that the Federal Reserve will deliver 2 rate reductions this year, even as some US policymakers deliver cautiously optimistic views on the path forward for borrowing costs.  Higher rates are negative for gold, as it doesn't pay interest.  Bullion slipped as much as 1.6% to $2382 an ounce, the biggest intraday drop since Apr 30.  Still, speculators’ net-bullish wagers held near the highest level in more than 3 years in last week ending according to the latest US data.  Atlanta Fed Pres Raphael Bostic & Cleveland Fed Chief Loretta Mester yesterday reinforced a higher-for-longer message on interest rates, emphasizing a need for patience as the central bank waits for more evidence inflation is moving lower.  Meanwhile, Boston Fed Pres Susan Collins indicated she wants to see more evidence price pressures are moving toward the central bank's 2% target.  Fed Governor Christopher Waller said yesterday that a continued softening in inflation data over the next 3-5 months could allow lower borrowing costs by the end of this year.  Gold surged to a record $2450 on Mon, with its 17% gain this year also linked to long-standing supports including central-bank purchases & robust demand from Asia — especially China.  Meanwhile, elevated geopolitical tensions in Ukraine & the Middle East have boosted its haven status.  Spot gold dropped 1.4% to $2387 an ounce.

Gold Slips as Traders Book Profits and Mull Fed Rate Outlook

West Texas Intermediate (WTI) crude oil closed at the lowest in more than 2 months after a report showed an unexpected rise in US oil inventories last week, a sign demand remains low ahead of the start of the US driving season that begins on the Memorial Day weekend.  WTI crude oil for Jul closed down $1.09 to $77.57 per barrel, the lowest since Mar 12, while Jul Brent crude, the global benchmark, was last seen down 96¢ to $81.92 per barrel.  The Energy Information Administration's weekly survey showed US oil inventories rose by 1.8M barrels last week, while the estimate expected a 2.5M barrel drop in stocks.  However the drop was lighter than the 2.5M barrel rise in stocks reported on yesterday by the American Petroleum Institute.  The rise in stocks is likely to increase the market's focus on the Jun 1 OPEC+ ministerial meeting, which will consider whether to extend 2.2M barrels per day of voluntary production cuts set to expire on Jun 30 into the 3rd quarter or beyond.  Weak prices & rising inventories may convince the group to roll the cuts forward to avoid adding additional supply to the market.  A lot can happen in 10 days, especially in these itchy trigger-finger climes, but at present the current affairs surrounding oil prices could not tolerate re-instated crude supply from the cartel.

WTI Crude Oil Falls to the Lowest in More Than Two Months After US Oil Inventories Unexpectedly Rose Last Week

Traders were not happy with the minutes from the FOMC meeting.  Fed officials mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.  The stock market rally has been based on many rate cuts & they were supposed to come quickly.  That rally is heading into headwinds.

Markets hesitate before Fed minutes are released later today

Dow slid back 18, decliners over advancers 3-2 & NAZ was up 6.  The MLP index fell 2 to the 279s & the REIT index edged lower to the 376s.  Junk bond funds eased higher & Treasuries had limited selling, raising yields slightly (more below).  Oil drifted lower in the 78s & gold sank 32 to 2393 following recent strength.

AMJ (Alerian MLP Index tracking fund)

Sales of previously owned homes fell 1.9% in Apr from Mar to 4.14M, on a seasonally adjusted annualized basis, according to the National Association of Realtors.  The forecast had been for a slight gain.  Sales were also down from Apr 2023, off 1.9% from last year.  These sales are based on closings, so contracts likely signed in Feb & Mar.  Mortgage rates jumped at the start of Feb & then held around 7% for the next 2 months before moving even higher in Apr.  “When we see these mortgage rates, which is a 300 basis point increase from pre-Covid pace, we are in a new territory as to how the lock-in effect will restrain home sales,” said Lawrence Yun, chief economist for the Realtors.  Total housing inventory at the end of Apr was 1.21M units, up 9% month to month & up 16% from the year before, but still just a 3.5-month supply at the current sales pace.  A 6-month supply is considered balanced between buyer & seller.  The supply of homes priced over $1M, however, was up 40% year over year, which is why that segment of the market is most active.  Sales of homes priced below $100K fell 7.1% year over year, while sales of those priced over $1M jumped 40%.  Tight supply kept prices under pressure.  The median price of an existing home sold in Apr was $407K, an increase of 5.7% year over year, another record high price for Apr.  With multiple offers, due to strong demand, 27% of homes sold above list price.  “Home prices reaching a record high for the month of April is very good news for homeowners,” said Yun.  “However, the pace of price increases should taper off since more housing inventory is becoming available.”

Home sales slipped unexpectedly in April, despite big gains in supply

Mortgage interest rates fell for the 3rd straight week last week, sparking increased demand for refinances.  Homebuyers, however, were not impressed.  Total mortgage application volume rose 1.9% compared to the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766K or less decreased to 7.01% from 7.08%, with points decreasing to 0.60 from 0.63, including the origination fee, for loans with a 20% down payment.  Applications to refinance a home loan rose 7% for the week & were 21% higher than the same week one year ago.  Rates last week were just 32 basis points higher than they were a year ago, & that gap has been shrinking.  The vast majority of today’s borrowers still have rates significantly lower than what is offered today, so even with the weekly gain, demand is still at a very low level.  “Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications,” said Joel Kan, MBA's VP & deputy chief economist.  “VA refinances had a double-digit increase for the third consecutive week, although the current level of refinancing is still well below its historical average.”  Applications for a mortgage to purchase a home fell 1% for the week & were 11% lower than the same week one year ago.  While higher mortgage rates certainly hurt affordability, today's buyers are still facing very low supply & stiff competition, which fuels bidding wars.  Mortgage rates have not moved much so far this week, & there is not much expectation of a reaction to the release of the minutes from the Federal Reserve today.  “In this environment of high transparency and frequent speeches from Fed members, it’s hard to imagine that the minutes will cause any drama,” wrote Matthew Graham, COO at Mortgage News Daily.  “This is a bit of a paradigm shift for some market watchers who have seen the minutes send rates quickly higher or lower in the past.”

Weekly mortgage refinance demand revives as interest rates fall to 7-week low

Treasury yields were higher as investors considered the latest comments from Federal Reserve speakers about the outlook for inflation & interest rates.  The 10-year Treasury yield was up by more than 3 basis points at 4.449% & the 2-year Treasury yield was last at 4.867% after also rising by 3 basis points.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  A series of Fed officials yesterday urged patience when it comes to rate cuts as inflation remains above the Fed's 2% target.  Fed Governor Christopher Waller yesterday said he would need to see more data showing that inflation & the economy is easing before cutting rates.  “The economy now seems to be evolving closer to what the Committee expected,” he said.  “Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”  Fellow Fed officials echoed this sentiment, with Boston Fed Pres Susan Collins saying patience “really matters” right now & Atlanta Fed Pres Raphael Bostic saying he was “not in a hurry to cut rates.”  Further Fed officials are set to give remarks today & minutes from the central bank's latest meeting are due to be released.

U.S. Treasury yields rise as investors weigh Fed speaker comments

The minutes from the Fed's last meeting (in a few hours) will give more clues to the officials' thinking on interest-rate cuts.  Eyes will be on any deviation from policymakers' repeated message that they want to be more confident of a cooldown in inflation before starting to cut rates.

Dow Jones Industrials 

Markets meander ahead of the Fed meeting release tomorrow

Dow finished up 66, decliners over advancers about 5-4 & NAZ added 37.  The MLP index drifted 1+ lower to the 281s & the REIT index was even in the 377s.  Junk bond funds edged higher & Treasuries saw modest buying which lowered yields, but still at high levels.  Oil stayed fractionally higher in the  high 79s & gold fell 15 to 2423 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Biden administration will release 1M barrels of gasoline from reserves held in the Northeast to reduce prices at the pump ahead of the Fourth of July holiday & summer driving season.  “By strategically releasing this reserve in between Memorial Day and July 4th, we are ensuring sufficient supply flows to the tri-state [region] and northeast at a time hardworking Americans need it the most,” Energy Secretary Jennifer Granholm said.  Gasoline futures have rallied 19% this year as oil prices have risen due to OPEC cutting production & fears the Israel-Hamas war could spark a broader Middle East conflict that disrupts supplies.  Rising energy prices stirred speculation in Apr that the Biden administration might tap the Strategic Petroleum Reserve in Texas & Louisiana ahead of the Nov presidential election.  White House National Economic Advisor Lael Brainard said last month that the administration would “make sure gas prices remain affordable.”  But gas prices have eased in recent weeks as oil has pulled back from Apr highs hit when traders bid up crude futures on fears that Israel & OPEC member Iran were on the brink of war.  Prices at the pump averaged $3.59 per gallon nationwide today, about 4¢ higher than the year-ago average but lower than last month, according to the motorist association AAA.  Though gasoline prices have come down over the past month, broader inflation has remained stubborn, irking consumers.  Retailers & terminals will receive the gasoline no later than Jun 30, according to the Dept of Energy.  The supply will be released in quantities of 100K barrels to ensure a competitive bidding process that maximizes the impact on prices at the pump, according to the DOE.  The barrels will be sold from storage sites in New Jersey & Maine that are part of the Northeast Gasoline Supply Reserve, which was established after Superstorm Sandy knocked out refineries in 2012.  The gasoline sale comes as the separate Strategic Petroleum Reserve has fallen to the lowest level in decades.  The Biden administration released 180M barrels from the SPR in 2022 as energy prices spiked in the wake of Russia's invasion of Ukraine.

Biden to sell 1 million barrels of gasoline to reduce prices at the pump ahead of July 4

Pres Biden & other Dem lawmakers have frequently blamed corp price gouging for chronic inflation that has Americans paying more for everyday necessities.  But new research published by the Federal Reserve Bank of San Francisco suggests that corp greed is not a primary driver of the inflation spike that began in early 2021.  Although some companies jacked up prices after the COVID-19 pandemic, markups surged for things like gasoline & cars in 2021, for instance, the researchers found the overall markup rate has generally remained flat, consistent with previous economic recoveries over the past 3 decades.  "These patterns suggest that markup fluctuations have not been a main driver of the ups and downs of inflation during the post-pandemic recovery," wrote Sylvain Leduc, Huiyu Li & Zheng Liu in the bank's weekly Economic Letter.   The findings run counter to a recent push by Biden to blame "shrinkflation" – when companies reduce the package size & portions of their foods while also raising the price or holding it steady – & corp greed for still-elevated prices.  At the end of Feb, the White House launched a new task force that is intended to take on "unfair and illegal" corp pricing, which Biden has blamed for the frustratingly high price of groceries.   "Too many corporations raise their prices to pad their profits, charging you more and more for less and less," Biden said in his State of the Union address earlier this year.  "That’s why we’re cracking down on corporations that engage in price gouging or deceptive pricing from food to health care to housing."  While corp profits did rise after the pandemic, the San Francisco Fed researchers said they are "typically volatile" & frequently rise in the early stages of economic recoveries.  Data for the current recovery shows that the increase in corp profits is "not particularly pronounced compared with previous recoveries," which did not experience high inflation.  "Overall, our analysis suggests that fluctuations in markups were not a main driver of the post-pandemic surge in inflation, nor of the recent disinflation that started in mid-2022," the researchers wrote.  Prices for everything including groceries, new cars & health insurance surged in 2021 & 2022 as the result of rampant inflation that many economists, including the San Francisco Fed, agree was caused by supply chain disruptions, an extremely tight labor market & increased consumer demand fueled by trillions in stimulus money.  While inflation has fallen considerably from a peak of 9.1%, it remains well above the Fed's 2% goal.  When compared with Jan 2021, shortly before the inflation crisis began, prices are up a stunning 19.4%.

Corporate greed is not to blame for high inflation, SF Fed says

Long-expected layoffs are hitting Pixar Animation Studios.  Pixar will lay off about 175 employees, or around 14% of the studio’s workforce, a spokesperson for parent company Walt Disney (DIS), a Dow stock.  The cuts come as CEO Bob Iger works toward his overarching mandate to focus on the quality of its content, not the quantity.  Layoffs hit other DIS businesses last year, but Pixar's cuts were delayed because of production schedules.  Initially, it was reported that 20% of the animation studio's employees would be laid off.  Iger, who returned to the mantle of CEO in late 2022, has been working to reverse the company's box office woes, spurred both by the company's content decisions & pandemic shutdowns.  While DIS has seen mixed box office success with several franchises, including the Marvel Cinematic Universe, the company has found it challenging to get its animated features to resonate with audiences.  No DIS animated feature from Pixar or Walt Disney Animation has generated more than $480M at the global box office since 2019.  For comparison, just before the pandemic, “Coco” generated $796M globally, while “Incredibles 2″ tallied $1.24B globally & “Toy Story 4” snared $1.07B globally.  With Iger back at the helm, Pixar will refocus on theatrical releases & move away from short-form series for Disney+.  The stock was off 5¢.

Pixar is laying off 14% of its workforce as Disney scales back content

Gold prices cooled near a record peak hit in the previous session as the $ held ground, but stayed afloat at the $2400 level on support from safe-haven interest & prospects of US interest rates easing this year.  Spot gold fell slightly to $2420 per ounce as the $ index, opens new tab edged up, making bullion more expensive for other currency holders.  US gold futures settled 0.5% lower to $2425.  As gold scaled a record high of $2449 yesterday, the general picture has not really changed since Mar.  Concerns about the rapidly rising US gov debt as the Federal Reserve tries to make for a soft landing are drivers for some investors.  Investors will keep a tab on minutes of the Fed's last policy meeting due tomorrow.

Gold Prices Cool Near Record Peak as Dollar Holds Footing

Oil prices settled 1% lower as lingering US inflation poised to keep interest rates higher for longer & likely weighed on consumer demand at the pump, while little support came from geopolitical risk.  Brent crude futures settled down 83¢ (1%) to $82.88 a barrel & US West Texas Intermediate crude (WTI) futures for Jun , which expire today, slipped by 54¢ (0.7%) to $79.26.  The more active Jul contract settled down 64¢ at $78.66.  Higher borrowing costs tie up funds in a blow to economic growth & demand for crude, as well as pressuring consumer demand at the pump.  Despite the run up to this weekend's Memorial Day holiday, which kicks off the US. peak summer driving season, retail gasoline prices fell for the 4th consecutive week to $3.58 per gallon yesterday, the Energy Information Administration (EIA) said.  However, in a bid to ensure sufficient supply flows to the northeast, the US will sell the nearly 1M barrels of gasoline in a reserve in northeastern states, with bids due on May 28, the Dept of Energy said.

Oil Falls 1% as US Inflation Persists, Dampened Geopolitical Risk Premium

Dow had a little buying in the AM, but that did not last.  Stocks continue to drift aimlessly.  The minutes from the last Fed meeting may provide some excitement in the stock market tomorrow.

Dow Jones Industrials 

Markets mixed while bulls are holding back on purchasing stocks

Dow went up 44, advancers & decliners were about even & NAZ was flat.  The MLP index wobbled in the 282s & the REIT index hardly budged at 377.  Junk bond funds inched higher & Treasuries were a tad lower bringing slightly higher yields.  Oil slid lower in the 79s & gold pulled back 3 to 2435 (still in record territory).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Gov Christopher Waller, citing a string of data showing that inflation appears to be easing, said that he does not think further interest rate increases will be necessary.  However, the policymaker added he will need some convincing before he backs cuts anytime soon.  “Central bankers should never say never, but the data suggests that inflation isn’t accelerating, and I believe that further increases in the policy rate are probably unnecessary,” said Waller, who has recently been hawkish, meaning he supports tighter monetary policy.  Waller pointed to a string of recent data, from flattening retail sales to cooling in both the manufacturing & services sectors, to suggest that the Fed's higher rates have helped ease some of the demand that had contributed to the highest inflation rates in more than 40 years.  Though payroll gains have been solid, internal metrics, such as the rate at which workers are leaving their jobs, show that the ultra-tight labor market that had driven up wages last a level consistent with the Fed's 2% inflation goal has displayed signs of loosening, he added.  Yet Waller, who as a governor is a permanent voting member of the rate-setting Federal Open Market Committee, said he's not ready to back interest rate cuts.  “The economy now seems to be evolving closer to what the Committee expected,” he noted.  “Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”  Waller did not give his expectations on the timing or extent of cuts & said that he would “keep that to myself for now” on what specific progress he wants to see on future inflation reports.

Fed Gov. Waller wants ‘several months’ of good inflation data before lowering rates

Macy's (M) fiscal first-qtr earnings topped expectations & the retailer's revenue came in roughly in line with revenue expectations as it pointed to early signs of momentum in its turnaround strategy.  The department store operator raised its full-year earnings expectations to reflect the first-qtr beat, along with the low end of its sales outlook.  But the retailer said that it “assumes customers will continue to be discerning in their discretionary purchases.”  CEO Tony Spring said the company is in the “early innings” of turning around its namesake stores.  As the retailer has stepped up investments at 50 of its Macy's stores, customers have responded by visiting more often & buying more when they do.  “We need more variety,” he added.  “We need less redundancy. We need more interest within the assortment and I think that’s making a difference in the customer’s reception to the stores.”  Macy's anticipates net sales of $22.3-$22.9B, which would still represent a drop from $23.09B in 2023.  It expects comparable sales, which take out the impact of store openings & closures, to range from a decline of about 1% to a gain of 1.5% on an owned-plus-licensed basis & including 3rd-party marketplace sales.  It had previously expected comparable sales to decline as much as 1.5%.  It expects adjusted EPS of $2.55-2.90, raising its previous outlook of $2.45-2.85.  The retailer said it will invest in parts of the business that have fared better, including the roughly 350 Macy's stores that will stay open.  It plans to open more Bloomingdale's & Bluemercury locations, & smaller Macy's stores in suburban strip malls.  The stock fell 19¢.

Macy’s beats earnings estimates, as turnaround plan shows early progress

Lowe's (LOW) topped quarterly earnings & revenue expectations, even as do-it-yourself customers bought fewer pricey items.  LOW stuck by its full-year forecast.  LOW expects total sales of $84-$85B, which would be a drop from $86.4B in fiscal 2023.  It anticipates comparable sales will decline 2-3% compared with the prior year, & expects EPS of approximately $12.00-12.30.  CEO Marvin Ellison said “the home improvement customer is still on the sideline expressing concerns about higher cost of living and the state of the overall economy.”  He said a mix of factors have kept them from spending more freely, including continued pressure from inflation & uncertainty around when the Federal Reserve may cut interest rates.  In the 3-month period that ended May 3, EPS was $3.06, compared with $3.77 a year earlier.  Sales dropped from $22.4B in the year-ago period.  It marked the 5th qtr in a row that LOW posted a year-over-year sales decline.  LOW is lapping a year-ago qtr when the company slashed its full-year outlook & posted a year-over-year sales decline.  At the time, Ellison warned investors that the retailer expected “a pullback in discretionary consumer spending over the near term.”  For each of the 3 qtrs since then, sales have also dropped from the year-ago periods.  The stock dropped 6.23.

Lowe’s beats on earnings, revenue, even as consumers spend less on DIY projects

Investors watch quarterly reports from retailers for guidance on consumer spending & the health of the economy.  This is earnings season from retailers & they have been underwhelming.  Nervous investors keep buying gold.

Dow Jones Industrials 

Markets stumble with Dow lower while NASDAQ rises

Dow dropped 196 (near sesion lows), decliners barely ahead of advancers & NAZ rose 108.  The MLP index added 2 to the 283s & the REIT declined 2+ to the 377s.  Junk bond funds continued mixed & Treasuries had very limited selling, allowing yields to inch higher.  Oil was off chump change into the high 79s & gold jumped 20 to 2438 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Microsoft (MSFT), a Dow stock, is touting new computers with advanced chips designed to run artificial intelligence features of software for Windows, without quickly using up battery life.  The company announced Surface Laptop & a Surface Pro tablet with a Qualcomm (QCOM) chip that can run some AI tasks without an internet connection.  Other computer makers are also launching AI-ready PCs powered by Qualcomm's Snapdragon X Elite & X Plus processors, which promise longer battery life & will run its Copilot AI chatbot.  The computers adhere to MSFT's new Copilot+ standard that feature a minimum amount of performance, storage & memory.  Copilot+ PCs with AMD (AMD) & Intel (INTC), a Dow stock, chips will follow.  The PCs will be able to translate audio, recommend responses to incoming messages & suggest changes in the Settings app, & even talk with people about what's on screen.  Copilot+ PCs will start at $999 & the devices will become available in Jun.  A Recall feature will be able to search thru a log of previous actions on PCs.  Recall relies on AI models that run directly on the device, so it can run offline, & an index of the data never goes to remote servers.  AI models will be able to generate images based on written descriptions as well as drawings.  MSFT is expanding its effort to surround consumers & business users with ChatGPT-like capabilities.  OpenAI, backed by MSFT, released the ChatGPT chatbot in late 2022, & it quickly took off as a tool for quickly obtaining computer-generated poems, email drafts & summaries of historical events.  MSFT stock rose 5.14 & QCOM stock jumped 3.98.   

Microsoft announces new PCs with AI chips from Qualcomm

Boeing (BA), a Dow stock, shareholders voted to re-elect the outgoing CEO Dave Calhoun to the board of directors as he sought to reassure investors that the manufacturer is on the path to stability amid its latest safety crisis.  Calhoun in Mar said he will step down by year’s end, months after a door plug panel blew out midflight from a Boeing 737 Max 9, ushering in new scrutiny of the manufacturer's safety & quality control issues.  BA also replaced its board chair & the head of its commercial airplane unit in the shakeup.  The new chair, Steve Mollenkopf, told shareholders at the annual meeting that he has consulted with investors & customers on Calhoun's successor.  Proxy advisor Glass Lewis had recommended that shareholders vote against Calhoun & 2 other board members.  BA's latest problems have driven down deliveries of new aircraft, frustrating airline execs who have complained about having to change their flight schedules & scale back staffing.  It has also further strained BAs relationship with its regulator, the Federal Aviation Administration, which has ramped up inspections of the manufacturer.  BA stock was up 1.72.

Boeing shareholders reelect departing CEO Calhoun to board

Jamie Dimon's days as CEO of JPMorgan Chase (JPM), a Dow stock, are numbered, though its unclear by how much.  In a response to a question about the bank's succession planning, Dimon indicated that his expected tenure is less than 5 more years.  That's a key change from Dimon's previous responses to succession questions, in which his standard answer had been that retirement was perpetually 5 years away.  “The timetable isn’t five years, anymore,” Dimon said at the bank's annual investor meeting.  The ambiguity of his plans has made succession timing at JPM one of the persistent questions for the bank's investors & analysts.  Over nearly 2 decades, Dimon, 68, has made his lender the largest in America by assets, market capitalization & a number of other measures.  Still, Dimon added that he still has “the energy that I’ve always had” in managing the sprawling company.  The decision of when he moves on will ultimately be up to the board, Dimon said, & he exhorted investors & analysts to examine the execs who could take his place.  JPM stock sank a very big 9.12.

JPMorgan CEO Jamie Dimon signals retirement is closer than ever

Gold trimmed gains as traders booked profits after prices surged to a record on increasing optimism over the Federal Reserve's monetary policy & rising geopolitical tensions in the Middle East.  Bullion was slightly higher in early trading after earlier jumping as much as 1.4% to hit $2450, which surpassed a previous intraday high reached in Apr.  Traders have been boosting bets in recent sessions that the Fed may reduce borrowing costs as early as Sep, a scenario that would bolster gold since it doesn't pay interest.  A weaker $ has provided the precious metal with additional support.  Recent economic data releases indicated that the US economic recovery is slowing, which could lower inflation & reduce the need for prolonged tight monetary policy.  Gold's haven status was in the spotlight after news that Iran's Pres Ebrahim Raisi, widely seen as a candidate to become the country's next supreme leader, was killed in a helicopter crash yesterday.  His death, along with that of Foreign Minister Hossein Amirabdollahian, came at a time of turmoil in Middle East due to the Gaza war.  The incident adds a sense of rising geopolitical risks across the region after a China-bound oil tanker was hit by a Houthi missile in the Red Sea on Sat.  Hedge funds futures boosted bullish bets on gold to a 3-week high last week.  The gains suggest that bullion has broken out of what’s been a fairly narrow trading range in recent weeks amid a lack of clarity over the US rate path.  Prices are about 17% higher this year.  Spot gold was up a smidgen to $2417 an ounce.

Gold Trims Gains as Traders Book Profit After Fresh Record

Oil futures settled lower, giving up early gains that had been tied to potential risks to global crude supplies following the death of Iran's pres in a helicopter crash & concerns about the health of Saudi Arabia's king.  West Texas Intermediate crude for Jun edged down 26¢ to settle at $79.80 a barrel after trading as high as $80.60.  The contract expires at the end of tomorrow's trading session.  Jul Brent crude, the global benchmark, lost 27, dropping to $83.71 a barrel following an intraday high at $84.49.  Iranian Pres Ebrahim Raisi, along with the country's foreign minister & others, were found dead after their helicopter crashed yesterday in foggy conditions in a mountainous region of the country's northwest, according to state media.  The crash comes against the backdrop of continued tensions over the Israel-Hamas war.  Israel & Iran pulled back from the brink of all-out conflict after a series of strikes and counterstrikes last month.

Oil Prices Finish Lower, Giving Up Early Gains Seen After Death of Iran’s President

Dow began the day higher, but hawkish talk on the future of rate cuts brought selling in the PM.  The stock market is heavily overbought & enthusiasm is bassed primarily on rate cuts.  Prolonging high interest rates will be bearish for the stock market.

Dow Jones Industrials 

Markets rise cautiously, looking for direction

Dow was up 41, advancers over decliners about 3-2 & NAZ rose 92.  The MLP index added 1+ to the 282s & the REIT index hardly budged at 380.  Junk bond funds were mixed & Treasuries had some selling which took yields a little higher.  Oil was steady at 80 & gold gained 10 to 2427 for a new record.

AMJ (Alerian MLP Index tracking fund)

Inflation is likely to stick around at higher-than-desired levels for the rest of the year, according to a new survey.  "With the higher inflation expectations, panelists now anticipate the Federal Reserve’s Open Market Committee will cut rates by half a percentage point – down from three-quarters of a point and to occur later in the year than previously expected" wrote National Association of Business Economics (NABE) Pres Ellen Zentner, who is also chief economist at Morgan Stanley.  NABE's May survey, which includes 43 professional forecasters, now pegs inflation to stall at 2.6%.  While down from Apr's consumer price index reading of 3.4%, it remains above the Fed's preferred 2% target, a level expected to green-light interest rate cuts.  Still, prices have come down sharply from the 9.1% peak.  About 48% of market participants see the Fed cutting rates for the first time in Sep to 5.00-5.25%, according to the CME's FedWatch Tool, which tracks the probability of rate moves.  The Federal Funds rate is currently at 5.25%-5.50%.  Still, Fed Chair Jerome Powell was a bit downtrodden about the inflation battle in his remarks last week.  "We did not expect this to be a smooth road, but these were higher than I think anybody expected," he said.  "What that has told us is that we will need to be patient and let restrictive policy do its work," he said during a panel discussion at the Foreign Bankers' Association in Amsterdam.  His remarks followed a month-over-month 0.4% rise in the producer price index for Apr, which tracks prices at the wholesale level & annually, prices rose 2.2%.  Both were higher than previous reports.  Americans are paying more for everyday staples, especially food, compared to a year ago, including a 4.8% jump for canned vegetables, hot dogs are up 7.1%, butter 3.5% & sugar 4.3%, as reported in Apr's CPI.

Higher inflation in 2024 likely: NABE

Treasury yields ticked higher as investors looked ahead to fresh economic data & comments from Federal Reserve officials slated for the week.  The yield on the 10-year Treasury was 2 basis points higher at 4.837% & the 2-year Treasury yield was last up 1 basis point to 4.837%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Existing as well as new home sales data is due this week, as are durable goods orders figures.  Minutes from the Fed's latest meeting will also be published, which investors will be parsing through for fresh insights into the central bank's thinking about the economy & monetary policy.  The Fed left interest rates unchanged at its last meeting & indicated that interest rates would not be cut until policymakers were more confident about inflation easing to its 2% target.  Key inflation data has been released since then, with the consumer price index for Apr coming in just below estimates at 0.3% on a monthly basis last week.  The annual CPI reading was in line with expectations of 3.4%.  The producer price index for Apr was slightly higher than previously expected.

Treasury yields hold steady as investors await data, Fed comments

Gov debt that has swelled nearly 50% since the early days of the Covid pandemic is generating elevated levels of worry.  The federal IOU is now at $34.5T, about $11T higher than where it stood in Mar 2020.  As a portion of the total US economy, it is now more than 120%.  Concern over such eye-popping numbers had been largely confined to partisan rancor on Capitol Hill as well as from watchdogs like the Committee for a Responsible Federal Budget.  However, in recent days the chatter has spilled over into gov & finance heavyweights, & even has one prominent financial firm wondering if costs associated with the debt pose a significant risk to the stock market rally.  “We’re running big structural deficits, and we’re going to have to deal with this sooner or later, and sooner is a lot more attractive than later,” Fed Chair Jerome Powell said in remarks Tues to an audience of bankers in Amsterdam.  While he has assiduously avoided commenting on such matters, Powell encouraged the audience to read the recent Congressional Budget Office (CBO) reports on the nation's fiscal condition.  “Everyone should be reading the things that they’re publishing about the U.S. budget deficit and should be very concerned that this is something that elected people need to get their arms around sooner rather than later,” he added.  Indeed, the CBO numbers are ominous, as they outline the likely path of debt & deficits.  The watchdog agency estimates that debt held by the public, which currently totals $27.4T & excludes intragovernmental obligations, will rise from the current 99% of GDP to 116% over the next decade.  That would be “an amount greater than at any point in the nation’s history,” the CBO said in its most recent update.  The agency forecasts a $1.6T shortfall in fiscal 2024 — it is already at $855B thru the first 7 months — that will balloon to $2.6T by 2034.  As a share of GDP, the deficit will grow from 5.6% in the current year to 6.1% in 10 years.  “Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the corona­virus pandemic,” the report stated.

Soaring debt and deficits causing worry about threats to the economy and markets

Dow began trading in the red, but bulls returned & were able to lift it in the black,  Stocks have gained as investors become more optimistic that the Federal Reserve will soon cut interest rates, despite words of caution from policymakers.   The rally looks to be very tired & needs a rest.  The key question is whether that outlook is sustainable!!  Investing gold remains strong.

Dow Jones Industrials 

Markets pause while gold sets a new record

Dow finished up 134 (barely above 40K), advancers modestly ahead of decliners & NAZ was off 12.  The MLP index gained 2+ to 281 & the REIT index was just below yesterday's level of 379.  Junk bond funds fluctuated & Treasuries continued to see selling which brought higher yields.  Oil slid back almost 1 to 80 & gold roared ahead 36 to 2422 for a new record (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Food & Drug Administration approved Amgen (AMGN)’s therapy for patients with the most deadly form of lung cancer.  The agency cleared the drug, which will be marketed under the name Imdelltra, as a 2nd or later line of treatment for people with advanced small-cell lung cancer.  That means patients can take the drug if their cancer progresses while on or after trying one other form of treatment, which is typically a type of chemotherapy.  This drug is also known by its generic name tarlatamab.  In clinical trials, AMGN's drug has been shown to reduce tumor growth & help people with small-cell lung cancer live significantly longer.  Of the more than 2.2M patients who are diagnosed with lung cancer worldwide each year, small-cell lung cancer comprises 15%, or 330K, of those cases.  Around 80-85% of people with small-cell lung cancer are diagnosed with an advanced stage of the disease, according to a study published in the Journal of Cancer.  There are around 35K patients with small-cell lung cancer in the US, Dr Jay Bradner, AMGN's chief scientific officer said.  The stock fell 2.25.

FDA approves Amgen’s treatment for most deadly form of lung cancer 

The number of Americans filing new claims for jobless benefits fell last week, unwinding nearly ½ of the jump at the start of the month, indicating that labor market conditions remain fairly tight even as job growth is cooling.  There are signs the economy slowed further early in the 2nd qtr as the delayed effects of the Federal Reserve's hefty interest rate hikes start to have a bigger impact.  Single-family homebuilding dropped again in Apr & permits for future construction hit an 8-month low.  Output at factories unexpectedly fell, other reports showed.  Apr's economic data, including nonfarm payrolls & retail sales, have so far come in below expectations.  Initial claims for state unemployment benefits dropped 10K to a seasonally adjusted 222K for last week, the Labor Dept said.  The forecast called for 220K claims.  Claims raced to an 8 month high in the prior week.  Unadjusted claims decreased 13K to 197K.  Claims in New York tumbled 9K, almost reversing a prior surge which the state attributed to layoffs in transportation & warehousing, accommodation & food services as well as educational services industries.  There were significant drops in filings in Illinois & Indiana, more than offseting a notable rise in Florida.  The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 13K to a seasonally adjusted 1.8M during the latest week.  Continuing claims remain low by historical standards.

US labor market fairly tight, broader economy losing steam

Americans are racking up more credit card debt as they continue to battle high inflation & interest rates.  New data published by TransUnion shows the average debt per borrower hit $6218 at the end of the first qtr, an 8.5% increase from 1 year ago.  Consumers owe a collective $1.02T in credit card debt.  "As consumers manage expenses amidst stubbornly high inflation, demand for credit continues to be strong despite the currently relatively high interest rates," said Paul Siegfried, senior VP & credit card business leader at TransUnion.  Most households have seen their monthly expenses rise as the result of the ongoing inflation crisis.  Although the consumer price index has fallen from a peak of 9.1%, it remains notably higher than pre-pandemic levels.  When compared with Jan 2021, before prices began to spike, inflation is up more than 18%.  The findings come shortly after the New York Federal Reserve released new data revealing that a growing number of Americans are falling behind on their monthly credit card payments.  The flow of credit card debt moving into delinquency hit 8.9% in the first qtr at an annualized rate, above pre-pandemic levels.  In fact, the percentage of credit card balances in serious delinquency, in which payments are at least 90 days late, climbed to its highest level since 2012.

Americans grappling with high inflation are racking up credit card debt

Gold gold pushed back above the $2400 level for the first time in a month, rising to a record as the $ surrendered early gains.  Gold for Jun was last seen trading up $32 to $2417 per ounce, topping the prior record close of $2413 set on Apr 19.  Still-healthy labor & growth as well as lingering inflationary trends underpin the ongoing urge for caution, citing vulnerability for gold at record levels.  If price pressures become entrenched & labor markets remain strong, the Fed rate cut narrative that has set the backdrop for gold's gains becomes less clear.  The ICE dollar index was unchanged at 104.46, after earlier touching 104.8 & Treasury yields moved higher.  The 2 year note was last seen paying 4.831%, up 2.5 basis points, while the yield on the 10-year note was up 4.5 basis points to 4.426%.

Gold Trading at a Record High as the Dollar Moves Lower

West Texas Intermediate (WTI) crude oil rose back above $80 for the first time this month ahead of the Jun 1 OPEC+ meeting that will decide on whether the group will extend 2.2M barrels per day of voluntary cuts into the 3rd qtr.  WTI crude oil for Jun was last seen up 85¢ to $80.08 per barrel, while Jul Brent crude, the global benchmark, was up 67¢ to $83.94.  WTI prices have last breached $80 on Apr 30, with supply & demand remaining mostly balanced as the market awaits the potential stimulus of interest rate cuts, the demand hike that comes with the start of the US summer driving season on the Memorial Day long weekend, & a decision from OPEC+ on whether to continue production cuts slated to end on Jun 30.  OPEC+ is debating whether to hold its Jun 1 ministerial meeting in person or virtually, with a decision not to meet at OPEC's Vienna headquarters likely to be seen as an indication the cartel & its allies will extend production cuts past their scheduled expiry to support prices.

WTI Crude Oil Rises Back Above US$80.00 as an OPEC+ Decision on Production Cuts Looms

The bulls had a mini rally in the last hour to take the Dow just over 40K.  At the same time, nervous investors keep buying gold, taking it to new heights.  Dow was up 492 this week & extended its advance in May to 2200.

Dow Jones Industrials