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).
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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.
Dow Jones Industrials
