Markets hesitate after rally shows signs of fatigue

Dow went off 17, advancers & decliners were about even & NAZ added 13.  The MLP index was up 1+ to the 281s & the REIT index slid fractionally lower to the 372s.  Junk bond funds were mixed & Treasuries had limited selling, raising yields slightly (more below).  Oil rose pennies in the 81s & gold fell 22 to 2346.

Dow Jones Industrials 

Sales of previously owned homes are sitting at a 30-year low and didn't move much in May as prices hit a new record & mortgage rates remain high.  Existing home sales in May were essentially flat, down 0.7% from Apr to a seasonally adjusted, annualized rate of 4.1M units, according to the National Association of Realtors (NAR).  Sales fell 2.8% from May of last year.  This count of closed sales is based on contracts likely signed in Mar & Apr.  The sluggish sales pace came as rates took a big leap in Apr.  The average rate on the popular 30-year fixed loan started the month just below 7% & then rose to just over 7.5% by mid-Apr, before settling back slightly in May, according to Mortgage News Daily.  That rate is now right around 7%.  “Home sales refuse to recover,” said Lawrence Yun, chief economist at the NAR.  “I thought we would see a recovery this spring. We are not seeing it.”  Sales were unchanged month to month in all regions except the South, where they fell 1.6%.  The biggest change in May is that the inventory of homes for sale jumped, up 6.7% month to month & 18.5% higher than in May last year.  At the current sales pace, there is now a 3.7-month supply.  While inventory is gaining, it is still very low given demographics & demand.  “Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months. Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions,” Yun added.  That demand continues to push prices higher.  The median price of an existing home sold in May was $419K, a record-high price in the Realtors' recording & up 5.8% year over year.  The gain was the strongest since Oct 2022.  Prices gained in all regions.  The Realtors noted that the mortgage payment for a typical home today is more than double what it was 5 years ago.  Not only have rates climbed, but home prices are more than 50% higher than they were 5 years ago.  That comes in part because the median is skewing to the higher end.

Home prices hit record high in May as sales stall

McDonald's (MCD), a Dow stock & Dividend Aristocrat,  outlined what its upcoming $5 meal deal will contain.  Under the meal deal, customers will get their pick of 1 of 2 sandwich options — a McDouble or a McChicken — plus small fries, 4-piece McNuggets & a small soda as accompaniments.  It will debut on participating restaurants' menus in the US on Tues & be available for a "limited time" only.  The company has also been running a "Free Fries Friday" deal nationwide.  It started that promotion, which gives customers who buy a menu item that costs at least $1 thruh the chain's app a complimentary medium package of fries, last fall.  "We’re focused on living up to that legacy and offering delicious, affordable options customers can enjoy any time they walk through our doors, go through our Drive Thru or place an order through our app," MCD's USA Pres Joe Erlinger said.  In late Apr, MCD's CEO Chris Kempczinski noted that quick-service restaurant consumers continued to feel pressure.  "It is clear that broad-based consumer pressures persist around the world," he said at the time.  "Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day to day spending, which is putting pressure on the QSR industry."  He also said MCD's "must be laser-focused on affordability" for customers.  The stock rose 4.34.

McDonald’s launches $5 meal deal with popular picks for a limited time

Treasury bond yields inched higher as investors pondered the latest economic data for signs of a slowing economy.  The 10-year Treasury yield was 2 basis points higher at 4.275% & the 2-year Treasury note yield was a basis point higher at 4.743%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Initial jobless claims data showed an increase from a week ago, while housing starts fell more than expected last month.  The number of Americans filing new claims for unemployment benefits dropped by 5K to 238K last week. The forecast called for 235K claims for that period.  Housing starts, a key metric for real estate investors, were down 5.5% to a seasonally adjusted annual rate of 1.27M units in May, according to a report from the Commerce Dept’s Census Bureau.  Investors also considered a worse-than-expected reading of the Philadelphia Fed Manufacturing Index, contributing to recent signs of a slowing economy.

Treasury inch higher as data hints at slowing economy

Stocks are struggling, looking for direction.  Dow is back to where it was in early Apr.  Thoughts of high interest rates lasting longer than previously expected are keeping investors from buying stocks.

Markets struggle after Nasdaq ends its 6 session winning streak

Dow added 299 (with selling in the last hour of trading), decliners modestly ahead advancers & NAZ pulled back 150.  The MLP index was up 2+ to 280 & the REIT index fell about 1 to the 374s.  Junk bond funds fluctuated & Treasuries continued to see selling which reduced yields.  Oil was fractionally higher to the 83s & gold advanced 25 to 2372 for a 2 week high (more on both below).

Dow Jones Industrials 

Darden Restaurants (DRI) reported mixed quarterly results as Olive Garden's same-store sales fell for the 2nd consecutive qtr.  The company has faced a “consistently weaker consumer environment,” as well as increased discounting & marketing pressure from its rivals, CEO Rick Cardenas said.  For fiscal 2025, DRI is forecasting that its same-store sales will grow just 1-2%.  In the qtr ended May 26 EPS was $2.65 adjusted vs $2.61 expected & revenue was $2.96B vs $2.97B expected.  Same-store sales were flat for the qtr, dragged down by weaker-than-expected sales at Olive Garden & its fine-dining restaurants.  Still, execs emphasized that their chains are outperforming the broader casual-dining segment.  “We’re not going to do things to buy sales, even with the increased discounting our competitors are doing. … Our focus is on profitable sales growth,” Cardenas added.  He noted that consumers are concerned about inflation, & growing more anxious about the job market.  Still, Olive Garden & LongHorn Steakhouse diners are more willing to spend on pricey entrees & alcoholic drinks than they had been over recent qtrs.  Olive Garden’s same-store sales fell 1.5%, despite a 1% rise in its menu prices compared with the year-ago period.  Analysts were expecting it to report flat same-store sales growths.  Last qtr, Olive Garden's same-store sales fell 1.8%, driven by a pullback from low-income consumers.  Looking to fiscal 2025, DRI is forecasting EPS from continuing operations of $9.40 - $9.60, in line with expectations of $9.55.  The company also anticipates net sales of $11.8-11.9B, on the low end of expectations of $11.94B.  DRI is projecting total inflation of 3% & same-store sales growth of 1-2% in fiscal 2025.  CFO Raj Vennam said the company expects that traffic will improve as the year progresses.  DRI expects to raise prices about 2-3%, mirroring overall inflation.  The stock rose 2.33.

Darden beats on earnings, even as Olive Garden, fine-dining sales drag

Mortgage rates are down for the 3rd straight week, remaining in the high-6% territory.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage ticked down to 6.87% this week from 6.95% last week.  The average rate on a 30-year loan was 6.67% a year ago.  The average rate on the 15-year fixed mortgage also decreased to 6.13% from 6.17% last week.  One year ago, the rate on the 15-year fixed note averaged 6.03%.

Mortgage rates decline for third straight week

The number of Americans applying for unemployment benefits slipped last week as the US labor market remained resilient.  The Labor Dept reported that jobless claims fell by 5K to 238K from a 10-month high of 243K the week before.  The 4-week average of claims, which evens out weekly ups & downs, rose by 5K to 232K, highest since Sep.  Nearly 1.83M people were collecting unemployment benefits in the prior week, up by 15K the week before & the 7th straight weekly uptick.  The US economy & job market have proven remarkably resilient in the face of high interest rates.  Employers are adding a strong average of 248K jobs a month this year.  Unemployment is still low at 4%.  But the economy has lately showed signs of slowing, perhaps offering evidence that higher borrowing costs are finally taking a toll.  For instance, the Commerce Dept reported Tues that retail sales barely grew last month.  The Federal Reserve raised its benchmark interest rate 11 times in 2022 & 2023, eventually bringing it to a 23-year high to combat a resurgence in inflation.  Inflation has come down from a mid-2022 peak 9.1% but remains stubbornly above the Fed's 2% target.  Fed policymakers announced last week that they have scaled back their intention to cut the rate 3 times this year.  Now they are anticipating only 1 rate cut.

US jobless claims fall to 238,000 from 10-month high, remain low by Historical Standards

Gold futures climbed, with prices marking their highest settlements in 2 weeks, as US economic data raised prospects for Federal Reserve interest-rate cuts later this year.  While Federal Reserve officials lean towards a single cut, market speculation suggests there could be 2, driven by slowing inflation & cooling economic conditions.  These factors keep traders waiting for more definitive cues that may emerge from upcoming economic reports.  Precious metals like gold tend to attract buyers in a low interest-rate climate.  The Philadelphia Federal Reserve said its gauge of regional business activity inched down to 1.3 in Jun from 4.5 in the prior month, its lowest since Jan.  New US jobless claims, meanwhile, declined to 238K last week from 243% in the prior week, the gov reported, while construction of new US homes fell 5.5% in May, the lowest level in 4 years.  Against that backdrop, Aug gold rose $22 (0.9%) to settle at $2369 an ounce

Gold Futures Settle at Two-Week Highs

West Texas Intermediate (WTI) crude oil closed at a 7-week high on expectations summer demand is on the rise amid tight supply while US inventories fell last week.  WTI crude for Jul closed up 60¢ to $82.17 per barrel, the highest since Apr 29, while Aug Brent crude was last seen up 44¢ to $85.51.  Strong summer demand is expected to deplete oil inventories, with supply restricted after OPEC+ earlier this month extended 2.2M barrels per day of production cuts slated to end on Jun 30 to the end of Sep.  The focus is still on resilient demand coming from an expanding global economy while OPEC+ recently extended supply cuts & hinted more could come if necessary.  The Energy Information Administration said US oil inventories fell by 2.5M barrels last week, while the estimate expected stocks to fall by 2.2M barrels.  Gasoline & distillate inventories also fell.

WTI Crude Oil Closes Higher on Expectations for Solid Demand and a Drop in US Inventories

The winning streak for NAZ came to an end.  Some of that money may have gone into Dow stocks which have been ignored in recent weeks.  The economy appears to be slowing which the Fed would like to see so it can cut interest rates.  But that is a touchy issue because too much slowing will hurt everybody.  While stocks have been strong, safe haven gold remains popular with nervous investors.

Markets rise carefully while gold nears its recent record highs

Dow went up 65, advancers over decliners are about even & NAZ rose 45 to a new record.  The MLP index added 1+ to the 279s & the REIT index was off 1 to the 374s.  Junk bond funds crawled higher & Treasuries are being sold which takes yields higher (more below).  Oil climbed fractionally to the 82s & gold gained a big 30 to 2377 (nearing its recent record).

Dow Jones Industrials 

Treasury bond yields rose as investors weighed fresh economic data indicating further signs of a slowing economy.  The 10-year Treasury yield rose more than 7 basis points to 4.292% & the 2-year was up also around 5 basis points at 4.756%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Initial jobless claims data showed a rise from a week ago, while housing starts & permits fell more than expected last month.  Investors also parsed a worse-than-expected reading of the Philadelphia Fed Manufacturing Index, contributing to recent signs of a slowing economy.  Earlier this month, data revealed that the number of Americans filing new claims for unemployment benefits rose more than expected to 229K for last week.  The forecast had predicted 220K claims for the period.  Minneapolis Federal Reserve Pres Neel Kashkari on Sun said that he was surprised by the US job market's performance even as the Fed raised borrowing costs in 2022 & 2023.  Kashkari added that he expects more cooling.  “I hope it’s modest cooling, and then we can get back down to more of a balanced economy,” he continued.

Treasury yields inch higher as traders evaluate latest batch of economic data

The nonpartisan Congressional Budget Office (CBO) released an update to its 10-year budget outlook that found the federal budget deficit will approach $2T in the current fiscal year.  The CBO's latest estimate projects the budget deficit will reach $1.9T in fiscal 2024, which would be the 3rd largest in US history & $200B larger than last year's deficit.  The projected $1.9T deficit would trail only the $3.1T fiscal 2020 deficit & the $2.7T fiscal 2021 deficit that were incurred during the peak of spending on pandemic-era relief programs.  In Feb, the CBO estimated that the fiscal 2024 deficit would be more than $1.5T, but it revised that figure upward by $408B, or 27%, in the latest update in response to new gov spending since its prior report.  The agency explained that the increase was due to several factors, including $145B in additional student loan debt cancellation by the Biden administration; $70B due to costs associated with resolving bank failures in 2023 & 2024 that will eventually be almost entirely offset; & about $60B in funding for Ukraine, Israel & countries in the Indo-Pacific region.   Annual budget deficits are expected to surge in the years ahead, surpassing the $2 trillion threshold with a projected deficit of nearly $2.2T in 2030.  Deficits would continue to rise in the following years, topping $2.8T in 2033 & 2034 in the CBO's analysis.  The CBO projected that the debt held by the public relative to gross domestic product (GDP), a metric used by economists to gauge the size of the national debt relative to the economy, would rise to 99% of GDP this year.  That means the national debt held by the public would be essentially the same size as the US economy.

Federal budget deficit to reach nearly $2T this year, CBO projects

Federal Reserve Bank of Boston Pres & CEO Susan M. Collins says she "could imagine scenarios" that would be consistent with both one or two rate cuts this year.  Overall, Collins says there is "evidence the economy is coming into better balance," & she is "optimistic" the Fed will be able to bring down inflation & maintain a healthy labor market.  "It's gonna take some time" for inflation to reach the Fed's 2% target, Collins added, but "things are very volatile. You get some welcome news and then there's challenging news. So I think it's really important not to overreact to what has been encouraging."  She points to recent reads on CPI & PPI, arguing they are "consistent with an economy that, in an orderly way, is becoming better aligned," but she cautions that monthly data has been "really volatile" & patience will be necessary.  Collins emphasizes the importance of looking at a "wide range of data" when trying to figure out if inflation is truly on a downward path.  She points to shelter inflation & some services inflation are going to be stickier than other components.  Collins says there "are very plausible scenarios" that would result in the Fed lowering rates later this year.  She also notes that there are risks to the Fed not lowering rates soon enough, saying it's something she is "carefully" watching for signs of.  Collins says there "are very plausible scenarios" that would result in the Fed lowering rates later this year.  She also notes that there are risks to the Fed not lowering rates soon enough, saying it's something she is "carefully" watching for signs of.

Fed's Collins: Can see scenarios for both 1 & 2 rate cuts in 2024

The rally looks to be very tired.  AI related stocks have been largely driving excitement around AI's potential.  However today, the rally is not looking impressive.  The popular averages are only up modestly & the advance-decline is even, so a lot of stocks are not benefiting from the rise.  And negative thinkers are keeping gold close to its record highs.

Markets waver as Nvidia becomes the # 1 stock in market cap

Dow edged up 56, advancers over decliners 4-3 & NAZ inched up 5 to barely extend its winning streak to 6 consecutive days.  The MLP index was about even in the 278s & the REIT index was up about 1  to 375.  Junk bond funds drifted lower & Treasuries were purchased which lowered yields.  Oil gained 1+ to the 81s (6 week high) & gold rebounded 17 to 2346 (more on both below).

Dow Jones Industrials 

Optimism is high on the stock market at the midpoint of the year.  Investors are the most bullish they have been since Nov 2021, according to the global fund manager survey, or FMS, released from Bank of America Securities.  Not only are portfolio managers not anticipating a recession, but they are also betting big on equities — especially the “Magnificent Seven.”  Cash levels are at a 3-year low.  All appears to be well on the markets front.  Halfway thru 2024, the S&P 500& NAZ are each at records.  The broad market index is now a stone's throw away from 5500.  “June FMS sentiment is at the most bullish level since Nov′21,” wrote Bank of America investment strategist Michael Hartnett.  “Our broadest measure of FMS sentiment, based on cash levels, equity allocation, and economic growth expectations inched higher to 6.03 from 5.99 last month.”  Still, that optimism has some investors concerned a reversal is on the way.  In Nov 2021, the last time investors were this bullish, the S&P 500 capped off a strong year, advancing more than 26%.  However, the following year, in 2022, the broader index slumped more than 19%, driven by the Federal Reserve starting to raise interest rates, which sparked a correction in large-cap tech stocks.  Investors are concerned about the potential for greater volatility in the 2nd ½ of 2024.  The fund manager survey shows inflation fears have eased in investors' minds, though it remains the top concern, while concerns over geopolitical risks & the US presidential election have grown.  Inflation is the #1 risk on investors’ minds, according to 32% of investors, down from 41% in May, followed by geopolitics (22%, up from 18%) & the presidential election (16%, up from 9%).

Investors are the most bullish since November 2021, widely followed survey shows

Nvidia (NVDA) long known in the niche gaming community for its graphics chips, is now the most valuable public company in the world.  Shares of the chipmaker climbed 3.2% today, lifting the company’s market cap to $3.33T, surpassing Microsoft (MSFT), a Dow stock.  NVDA shares are up more than 170% so far this year & went a leg higher after the company reported first-qtr earnings in May.  The stock has multiplied by more than 9-fold since the end of 2022, a rise that’s coincided with the emergence of generative artificial intelligence.  NVDA has about 80% of the market for AI chips used in data centers, a business that’s ballooned as others have raced to snap up the processors needed to build AI models & run increasingly large workloads.  For the most recent qtr, revenue in NVDA's data center business rose 427% from a year earlier to $22.6B, accounting for about 86% of the chipmaker's total sales.  The stock rose 4.60.

Nvidia passes Microsoft in market cap to become most valuable public company

The Food & Drug Administration approved Merck's  (MRK) new vaccine designed to protect adults from a bacteria known as pneumococcus that can cause serious illnesses & a lung infection called pneumonia.  MRK's shot, called Capvaxive, specifically protects against 21 strains of that bacteria to prevent a severe form of pneumococcal disease that can spread to other parts of the body and lead to pneumonia.  It's the first pneumococcal conjugate vaccine designed specifically for adults & aims to provide broader protection than the available shots on the market.  Healthy adults can suffer from pneumococcal disease.  But older patients & those with chronic or immunocompromising health conditions are at increased risk for the illness, especially the more serious or so-called “invasive” form.  Invasive pneumococcal disease can lead to meningitis, an infection that causes inflammation in the area surrounding the brain & spinal cord, & an infection in the bloodstream called bacteremia.  “If you have chronic lung disease, even asthma, you have a higher risk of getting sick with pneumococcal disease, & then being in the hospital, losing out on work,” Heather Platt, MRK's product development team lead for the newly cleared vaccine, said.  “Those are things that have a real impact on adults and children, their quality of life.”  Around 150K US adults are hospitalized with pneumococcal pneumonia each year, Platt said.  Death from the more serious form of the disease is highest among adults 50 & above.  The stock was up 54¢.

FDA approves Merck pneumococcal disease vaccine designed for adults

Gold prices edged higher after softer-than-expected US retail sales data cemented hopes that the Federal Reserve will reduce interest rates this year, sending the $ & Treasury yields lower.  Spot gold was up 0.4% at $2329 per ounce & US gold futures settled 0.8% higher at $2346.  Weaker-than-expected retail sales data brought the $ lower, & at the same time, yields backed off, so that’s providing some upside to gold prices.  US retail sales rose 0.1% last month, the Commerce Dept's Census Bureau said.  The forecast was for retail sales gaining 0.3% in May.  Fed Bank of New York Pres John Williams said interest rates will come down gradually over time, but he declined to say when the central bank can begin easing monetary policy.

Gold Gains as Soft U.S, Data Lifts Fed Rate Cut Bets

West Texas Intermediate (WTI) crude oil closed at a 6-week high on expectations for high summer demand while OPEC+ continues to limit supply.  WTI crude for Jul closed up $1.24 to settle at $81.57, the highest since Apr 30, while Aug Brent crude, the global benchmark, was last seen up 77¢ to $85.02.  Strong summer demand is expected to deplete oil inventories, with supply restricted after OPEC+ earlier this month extended 2.2M barrels per day of supply cuts slated to end on Jun 30 to the end of Sep.  Forecasters are looking for US inventories, which have trended mostly higher over the past 6 weeks, to show a drop when the Energy Information Administration issues its weekly survey on Thurs, a day later than usual due to the Juneteenth holiday.  The forecast is for US crude inventories will be down 5.5M barrels for the latest week.  This compares with an increase of 3.7M barrels for the prior week.  However weaker demand in China may limit any price gains.  A report yesterday was for output from China's refineries to fall 1.8% in May from the prior year, as the country's growth slows amid a debt crisis in its real-estate sector.

WTI Oil Closes at a Six-Week High on Expectations High Summer Demand Will Cut Into Inventories

NVDA's rise to become to the most valuable stock in the world brought excitement to the stock market in was otherwise a lackluster day of trading.  NVDA has had a spectacular run.  About 6 years the stock was a couple $s & today it's 135.  Stocks of its competition in the AI space have also had dramatic advances.  Meanwhile many investors are waiting for rate cuts by the Fed.

Markets edge higher as retail sales hardly Increase

Dow was off 41, advancers over decliners 4-3 & NAZ lost 31.  The MLP index added 2+ to go over 280 & the REIT index crawled up 1 to the 375s.  Junk bond funds drifted lower & Treasuries had modest buying, taking yields a little lower (more below).  Oil rose another 1+ to the 81s & gold recovered 9 to 2338.

Dow Jones Industrials 

Following the Federal Reserve's latest meeting & rate decision, the central bank's New York pres & CEO discussed when a cut may be coming and what the Nov election means for the US economy.  "Our decisions are going to be data dependent. It could be really decided by what we're seeing in the economy, what we're seeing in the inflation data," Federal Reserve Bank of New York's John Williams said.  "So the answer is it depends. But I think that things are moving in the right direction."  Last week, the Fed held rates steady for the 7th consecutive time & suggested there will only be 1 cut made this year.  In their post-meeting statement, policymakers left the door open to rate cuts but stressed they need "greater confidence" inflation is coming down before lowering borrowing costs.  "I've been in the Fed nearly 30 years, and throughout that time, what I've seen my colleagues do is really focus on our job, do the best analysis we can and make the best decisions we can for the American economy," Williams said.  "We just have to stay on that, ignore the politics and all that. Focus on getting our job done. That's what we need to do in order to be successful."  New quarterly economic projections laid out after the meeting show that a majority of Fed officials who participated expect rates to fall to just 5.1% by the end of 2024, suggesting there will only be 1 qtr-point rate cut this year, a sharp reversal from the 3 they had predicted in Mar.  Noting that inflation data & rates have had their "ups and downs," Williams also commented on how the economic environment has impacted housing affordability.  "Incomes are growing. That's part of the affordability picture for people being able to buy or rent homes," the pres & CEO said.  "The job, No. 1, is make sure that we get inflation back to 2%. High inflation, it's obviously painful for everybody… And I think that will help deal with the affordability and housing and the mortgage rate issues there."

Fed official promises to 'ignore the politics' in rate decisions as November election looms

Americans pumped the brakes on spending in May as they continued to face high interest rates & steeper prices for everyday goods.  Retail sales, a measure of how much consumers spent on a number of everyday goods including cars, food & gasoline, rose just 0.1% in May, the Commerce Dept said.  That is notably lower than the 0.3% increase forecast, although it is higher than the revised 0.2% drop recorded in Apr.  Excluding the more volatile measurements of gasoline & autos, sales also climbed just 0.1% last month.  The May advance is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck.  Consumers spent money last month at car dealerships, electronics stores, health & personal care stores, clothing stores & when online shopping.  The biggest increase took place at sporting goods, hobby, musical instrument & book stores, with spending rising by 2.8%.  However, they pulled back their spending at furniture & home stores, building material & garden stores, grocery stores, gas stations & bars & restaurants.  A solid job market & big wage increases have helped to buoy consumer spending in recent months, despite high inflation.  However, many economists have been predicting that consumers will grow more cautious as student loan payments resume & high interest rates continue to work their way thru the economy.  On top of that, more Americans are relying on their credit cards to cover necessities.  Credit card debt surged to a new record at the beginning of 2024, while delinquencies are also on the rise.

Retail sales barely rise in May as consumers pump the brakes on spending

Treasury bond yields fell after a cool reading for May retail sales raised concerns about the strength of the economy.  The 10-year Treasury yield was nearly 3 basis points lower at 4.254% & the 2-year Treasury note yield was down 4 basis points at 4.718%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Retail sales were up just 0.1% in May, below the 0.2% expected.  There was also a downward revision to the Apr data, which now shows a 0.2% decline.  Signs of a weakening consumer could spur the Federal Reserve to cut rates later this year, potentially multiple times.  Last week, the Fed held its benchmark policy rate steady at 5.25% - 5.50% & indicated that just 1 rate cut would take place this year.  Minneapolis Federal Reserve Pres Neel Kashkari said that it is a “reasonable prediction” that the central bank will cut interest rates once this year, waiting until Dec to do it.  “We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari said.  This is a short week in the US, with markets closed tomorrow for the Juneteenth holiday.

Treasury yields retreat as weak retail sales raise concerns about consumer

US stocks held near record highs, largely hitting pause in muted early trading amid the release of May's retail sales numbers.  Tech-heavy NAZ also wavered as the tech-heavy index looks to build on a 6th straight record close.  Investors need to weigh indications of sluggish economic growth which can give the Fed courage to cut rates.  But that is hard on them when they want to see strong economic growth for higher earnings & divs.  With the current forecast for only 1 rate cut from the Fed this year, investors will have to learn patience.  That may be tough for some.

Markets rise led by Nasdaq which reached another record

Dow was up 188, advancers over decliners about 3-2 NAZ gained 168 to another record.  The MLP index was up 3+ to the 279s & the REIT index slid 1+ to the 374s.  Junk bond funds fluctuated & Treasuries saw more selling which brought higher yields.  Oil rose about 2 & went back over 80 & gold dropped 15 to 2333 (more on both below).

Dow Jones Industrials 

The cost of buying a new house just hit a fresh record, even as mortgage rates dipped to the lowest level in 3 months, according to a new report.  Findings from Redfin show the median US home sale price soared to $394K during the 4 weeks ended Jun 9, a 4.4% increase from a year earlier.  The monthly mortgage payment at that price, when accounting for the 6.99% median interest rate for a 30-year mortgage, is now $2829, roughly $30 shy of Apr's record.  Housing costs are unlikely to spiral any higher thanks to a recent drop in mortgage rates, which fell after the gov reported that inflation cooled in May.  However, they may not go much lower, either.  "The latest inflation report is good for homebuyers because it has already sent mortgage rates down, though this week’s Fed meeting will temper mortgage-rate declines," said Chen Zhao, economic research lead at Redfin.  "But on the other side of the coin, if lower mortgage rates bring back more demand than supply, that could erase the possibility that home-price growth softens, and push prices up even further."  There are a number of driving forces behind the affordability crisis.  Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates & expensive construction materials.  Higher mortgage rates over the past 3 years have also created a "golden handcuff" effect in the housing market.  Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further & leaving few options for eager would-be buyers.  Economists predict that mortgage rates will remain elevated for most of 2024 & that they will only begin to fall once the Federal Reserve starts cutting rates.  Even then, rates are unlikely to return to the lows seen during the pandemic, with investors predicting just 1 or 2 rate reductions this year.  Mortgage buyer Freddie Mac saidy that the average rate on a 30-year loan this week dipped slightly to 6.95%.  While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.  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.

US home prices just smashed another record high as affordability crisis deepens

The US gov sued Adobe (ADBE), accusing the maker of Photoshop & Acrobat of harming consumers by enrolling them in its most lucrative subscription plans without clearly disclosing important terms.  In a complaint filed in the San Jose, California, federal court, the gov said ADBE failed to adequately disclose hefty early termination fees, sometimes reaching hundreds of $s, when customers sign up for “annual, paid monthly” subscription plans.  The gov said ADBE hides important terms in fine print & behind textboxes & hyperlinks, clearly discloses the fees only when subscribers try to cancel, & makes canceling an onerous & complicated process.  The lawsuit seeks civil fines, an injunction & other remedies.  ADBE stock dropped 6.57.

U.S. sues Adobe over subscription plan disclosures

Skyrocketing demand for a class of weight loss & diabetes treatments has lifted Eli Lilly (LLY) to new heights over the last year.  But the drugmaker has much more work it wants to do with that hard-won success, outgoing CFO Anat Ashkenazi said.  Ashkenazi, who will step in as the new CFO of Alphabet (GOOG) on Jul 31, has been key to managing the windfall in revenue & wave of investor optimism from LLY's diabetes injection Mounjaro & recently launched obesity drug Zepbound.  Ashkenazi took over as CFO at LLY in 2021 after roughly 2 decades with the pharmaceutical giant.  “You have to be a really good student of the business and understand it inside and out and understand the industry,” she said before her departure announcement.  “Only when we understand the full system, can we navigate it well so that we bring value to it…That’s my role as CFO.”  Her tenure hasn’t come without challenges: LLY & rival Novo Nordisk (NOVO) have both struggled to manufacture enough supply of their treatments to meet unprecedented demand, causing nationwide shortages of those drugs.  Their weekly injections are part of a class of drugs called GLP-1 agonists, which mimic certain hormones produced in the gut to suppress a person's appetite & regulate their blood sugar.  Some analysts expect the market for those drugs to be worth $100B by the end of the decade.  LLY's boom in revenue has allowed the company to invest heavily to scale up manufacturing, which will eventually get more medicine into patients’ hands, Ashkenazi said.  “As we start selling product and we get the revenue in and cash flow associated with that sale,” the company wants to “funnel that cash flow back to the business to invest in those manufacturing facilities,” she added.  LLY does not expect to match the pace of demand this year & maybe not even in 2025, Ashkenazi said, but the pharmaceutical giant has made encouraging progress so far.  LLY stock jumped 7.54 to a new record.

How Eli Lilly is managing soaring demand for GLP-1s, according to outgoing CFO

Gold inched down as traders look forward to US data that will help clarify the economic outlook & the potential for rate cuts by the Federal Reserve.  Spot bullion dipped by about 0.5% following hawkish comments from Federal Reserve Bank of Minneapolis Pres Neel Kashkari, who said yesterday the central bank can take its time & watch incoming data before starting to cut interest rates.  Fed policymakers signaled they now only expect to cut rates once this year, compared with 3 reductions forecast in Mar.  Data on retail sales, housing & more due later this week will help sharpen the national picture & the chances for cuts.  Higher rates are generally negative for the non-interest bearing precious metal.  Meanwhile, central banks in Norway, Switzerland & the UK are due to set rates later this week, as are institutions in Indonesia & Australia.  China's central bank today left a key interest rate unchanged, as the Fed did last week, displaying caution on monetary easing.  The Bloomberg Dollar Spot Index added 0.1%, weakening the appeal of commodities, including gold, priced in the currency.  Spot gold fell to $2321 an ounce.

Gold Edges Lower as Market Prepares for More US Economic Data

Oil futures ended solidly higher, extending on last week's gains after shaking off an initial dip following data that showed a fall in China's crude demand in May.  Chinese oil-refinery output fell 1.8% year over year in May.  Data showed China's oil-refining activities slipping to the lowest rate this year as some plants extend their maintenance due to weak margins.  But crude appeared to find its footing, building on a rebound seen after both Brent & WTI touched their lowest levels since Feb in the wake of a Jun 2 decision by the Organization of the Petroleum Exporting Countries & its allies to begin unwinding some voluntary production cuts beginning in Oct.  WTI crude oil for Jul closed up 2.15 to settle at $80.52 per barrel.

Oil prices end with strong gains to build on last week’s rebound

Stocks started trading a little lower, then buyers kept coming & coming, with Dow finishing near its high for the day.  And NAZ made 1 more record which is about double where it was when 2020 started..  Not bad.  Stockholders s.eem to be adjusting to high interest rates & accepting that they will remain for some time.  Meanwhile economic data is really short of great.  That's good, but not great.

Markets attempt to edge higher while Treasury yields rebound

Dow went up 50, decliners but over advancers 3-2 & NAZ added 30.  The MLP index remained in the 276s & the REIT index was of 2+ to the 373s.  Junk bond funds hardly budged & Treasuries were sold, raising yields (more below).  Oil was up 1+ to the 79s (more below) & gold slid back 11 to 2337.

Dow Jones Industrials 

Treasury bond yields ticked higher, following comments by Minneapolis Federal Reserve Pres Neel Kashkari indicating the central bank may not cut rates until Dec.  The 10-year Treasury yield was trading more than 7 basis points higher at 4.289% & the 2-year Treasury note yield was also up around 6 basis points at 4.744%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  The rise comes after Kashkari yesterday said that it was a “reasonable prediction” that the Fed would not cut interest rates until Dec, adding that more evidence was needed “to convince us that inflation is well on our way back down to 2%.”  “It’s really going to depend on the data,” Kashkari added.  “We’re in a very good position right now to take our time, [to] get more inflation data, get more data on the economy, on the labor market, before we have to make any decisions. … But, if you just said there’s going to be one cut, which is what the median indicated, that would likely be toward the end of the year.”  Last week, the producer price index, a measure of inflation at the wholesale level, came in lower than expected for May, boosting hopes of a Fed rate cut & sending Treasury yields lower.  The central bank opted to hold rates steady at 5.25% -5.50% last week & indicated that just 1 rate cut would take place this year.  Key data due out this week includes May retail sales figures, expected tomorrow.  Home sales & housing starts data are due later in the week.  It's a short week in the US, with markets closed on Wed for the Juneteenth holiday.

Treasury yields rise as traders assess timeline of interest rate cuts

Crude oil futures rose following their best week since Apr as traders sifted through mixed economic data out of China.  US crude oil & global benchmark Brent closed out last week nearly 4% higher, as analysts expect the market to tighten in the 3rd qtr as summer fuel demand draws down inventories.  Oil stockpiles should fall by 850K barrels per day in the 3rd qtr, said Helima Croft, head of global commodity strategy at RBC Capital Markets.  West Texas Intermediate, the Jul contract was $78.83 per barrel, up 38¢ (0.5%) & YTD US oil has gained 10%.  Brent Aug contract was $83.02 per barrel, up 38¢ (0.5%) & YTD benchmark was ahead 7.7%.  “After three weeks of losses the oil complex finally made amends and gained some traction,” said Tamas Varga, analyst at oil broker PVM.  “The move higher was not unreservedly convincing, nonetheless developments over the past five trading sessions did not indicate any souring of investors’ sentiment either.”

Oil prices rise after booking best week since April

China's retail sales beat expectations in May, climbing 3.7% compared with a year ago, beating expectations of a 3% rise.  However, other economic metrics, such as industrial output & fixed asset investment, missed forecasts.  Industrial output grew by 5.6% year-on-year, compared to the 6% increase expected, while fixed asset investment rose 4% compared to last May, just shy of the 4.2% forecast.  The country’s National Bureau of Statistics (NBS) elaborated that the total retail sales of consumer goods reached 3.9T yuan ($540B), with sales in urban areas up 3.7% year on year & sales in rural areas climbing by 4.1%.  On the other hand, the miss in fixed asset investment was dragged by a steeper drop in real estate investment.  NBS said that excluding real estate, total fixed asset investment was 8.6% higher compared to last May.  Separately, the urban unemployment rate held steady at 5% in May, unchanged from Apr & 0.2 percentage points lower than that of May last year.  China's exports have held up, growing by 7.6% year-on-year in May in $ terms, beating the forecast for a 6% increase.  But imports missed expectations, rising by 1.8% during that time.  Loan data pointed to continued lackluster demand.  Outstanding yuan loans rose by 9.3% in May from a year ago, the slowest increase on record since 1978, according to Wind Information.  M1 money supply, which includes cash in circulation & demand deposits, fell by 4.2% year-on-year in May, the most on record since 1986, according to Wind Information.

China May retail sales beat expectations, but industrial output and fixed asset investment missed

Dow began in the red, followed by some buying.  Stocks are holding near record-high levels ahead of a holiday-shortened trading week as investors wonder if the bull rally has more room to run.  Meanwhile gold is not far from recent records & Treasury yields are very high with little information on future rate cuts.

Markets pull back as consumer sentiment cools

Dow lost 57 (but above earlier losses), decliners over advancers 3-1 & NAZ was up 21.  The MLP index dropped 2+ to the 275s & the REIT index was off 1+ to 375.  Junk bond funds fluctuated & Treasuries had modest buying,lowering yields slightly.  Oil was off pennies in the 78s & gold advanced 31 to 2349 (more on both below).

Dow Jones Industrials 

Microsoft (MSFT), a Dow stock, will no longer ship Recall, an artificial intelligence tool that tracks user activity, when the company releases the Copilot+ PC next week, it announced yesterday following concerns about privacy & security.  The company wrote that Recall will shift from being a “broadly available” tool to a preview feature available only thru the Windows Insiders Program (WIP) when the new computer is released on Tues.  MSFT plans to make the AI feature available on all Copilot+ PCs soon after they receive feedback thru WIP.  “This decision is rooted in our commitment to providing a trusted, secure and robust experience for all customers,” Windows Corp VP Pavan Davuluri wrote in the blog post.  MSFT first introduced the Copilot+ PC on May 20 as a computer designed to run advanced AI programs, including Recall.  Recall is an AI tool that regularly takes screenshots to create a record of activity, allowing users to search for their previous actions.  Recall became a source of controversy soon after it was announced.  Industry experts have expressed concern over the potential for hackers to develop tools that can retrieve user information, including usernames & passwords.  In response to the backlash, MSFT initially announced that the Recall feature would be turned off by default, requiring users to opt in.  The company also implemented additional security protections, including an encrypted search database and a requirement that Recall users enroll in Windows Hello, which has users prove their identity through a PIN, fingerprint or facial recognition.  Its decision to delay Recall follows heightened concerns around security as the AI field evolves rapidly.  Last month, a US gov review board criticized the company's handling of China's breach of US gov officials' email accounts.  The stock rose 99¢.

Microsoft to delay launch of AI Recall tool due to security concerns

Consumer sentiment tumbled in Jun, despite largely resilient growth in the US economy, as higher prices remained a pain point for Americans.  The latest University of Michigan consumer sentiment survey showed sentiment hit its lowest level in 7 months during Jun.  The index reading for the month came in at 65.6, down from 69.1 in May & lower than expected.  "Assessments of personal finances dipped due to modestly rising concerns over high prices as well as weakening incomes," Survey of Consumers director Joanne Hsu said.  "Overall, consumers perceive few changes in the economy from May."  The current conditions index fell from to 62.5 from 69.6 the month prior, contributing to the decline in June's headline index.  Capital Economics North America economist Olivia Cross said this reading shows "households are now struggling more under the weight of higher interest rates and still-elevated consumer prices."  Year-ahead inflation expectations were flat at 3.3% from the month prior.  However, most respondents likely didn't have time to factor in recent positive inflation readings from May.  The interview window for the survey spanned from May 22 - Jun 12.  This means the last day consumers could submit survey responses was the same day that May's Consumer Price Index (CPI) was released.  Headline CPI rose 3.3% over the prior year in May, the lowest monthly headline reading since Jul 2022.

Consumer sentiment hits lowest level in 7 months

US home sales in May fell to among the lowest levels in the past decade, real estate brokerage Redfin (RDFN) reported, as both demand & supply remained sluggish in a high-mortgage rate environment.  Housing affordability in the US is at an all-time low.  Median home prices have scaled record highs & the 30-year fixed-mortgage rate is hovering at around 7%.  This has depressed both demand & supply.  The number of homes for sale remains roughly 25% below pre-pandemic levels.  Home sellers are holding onto lower fixed mortage rates secured on properties during an era of cheap debt in the face of higher rates currently.  In May, 408K homes were sold.  Only Oct 2023 (399K) & May 2020 (369K) in the past decade have recorded fewer home sales than last month, as per Redfin data.  Home sales fell 1.7% month-over-month in May on a seasonally adjusted basis & dropped 2.9% from a year earlier, while median home sale price rose to a record high of $439K, up 1.6% month-over-month & 5.1% year-over-year, as per Redfin.  Seasonally adjusted new listings rose 0.3% month-over-month in May & 8.8% from a year earlier.  Still, they were roughly 20% below pre-pandemic (May 2019) levels.  "Sales are sluggish because high homebuying costs are making both house hunters and prospective sellers skittish. And with so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs," said Redfin Senior Economist Elijah de la Campa.

US home sales crumble to among lowest levels of decade

Improved inflation data in the US raised hopes of a rate cut later this year & a stock selloff across Europe also lent support.  Spot gold was up about 1.3% at $2332 per ounce & US gold futures settled 1.3% lower at $2349 & bullion gained 1.8% for the week.  In wider financial markets, European stock indices dropped as French assets took a beating due to the country's political turmoil.  Cautious mood prevailed in the US stock markets, with investors pausing after strong gains in the S&P 500 & the NAZ indices.  Traders raised their bets to price in about 52 basis points (bps) of cuts (or 2 qtr-point cuts) by Dec-end after softer inflation data this week.  That was an increase from 37 bps last Fri, when a stronger-than-expected jobs report doused early rate cut hopes.

Gold set for first weekly gain in four on US rate-cut hopes

West Texas Intermediate (WTI) crude oil closed lower on a cloudy outlook for demand.  WTI crude oil for Jul closed down 17¢ to settle at $78.45 per barrel, while Aug Brent crude, the global benchmark, was last seen down 3 pennies to $82.72.  Prices have risen nearly 8% since touching a 4r-month low of $73.25 on Jun 4, on expectations for higher summer demand amid the US driving season & OPEC+'s decision earlier this month to extend 2.2M barrels of voluntary supply cuts thru the end of Sep.  Still, the health of oil demand is in question as US inventories climb, with the EIA reporting stocks rose for 4 of its last 5 weekly reports.  Competing demand forecasts are also clouding the picture, with diverging estimates released this week from OPEC, which stuck to forecast for demand to rise by 2.2M barrels per day this year, & the Intl Energy Agency, which cut its 2024 growth forecast by 0.1M bpd to 0.96M bpd as it sees demand slowing.

WTI Crude Closes Lower Amid Cloudy Demand Signal

European turmoil rattled nerves bringing new elections & continuing high interest rates which will be around for some time worried already nervous investors this week.  Improved inflation data was offset by lower consumer confidence in the US.  Guidance by the FED for only 1 rate cut this year did not help matters.  When all was said & done, Dow finished down 210 for the week.