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Tag: Inflation

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Market Outlook

 Fed Officials Dial Back Rate Forecasts, Signal Just One ’24 Cut

Officials acknowledge ‘modest further progress’ on prices

Fed boosts estimate of long-run neutral rate further

Federal Reserve officials penciled in just one interest-rate cut this year and forecast more cuts for 2025, reinforcing policymakers’ calls to keep borrowing costs high for longer to suppress inflation.

They now see four cuts in 2025, more than the three previously outlined.

The Federal Open Market Committee adjusted language in its post-meeting statement released Wednesday, noting there has been “modest further progress toward the committee’s 2% inflation objective” in recent months. Previously, the statement pointed to a “lack” of further progress.

The S&P is still up 0.96% and the 10 year is at 4.29% – no major reaction.

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Market Outlook

 Payrolls Report For May 2024

US Payrolls Rose by 272,000 in May, smashing Estimates of 180,000

The wage gain is also strong, at 0.4%, double the pace of the average hourly earnings advance of the previous month.

The unemployment rate is up, though, that’s as the labor force participation rate fell — unfortunate news for the Fed.

  • May nonfarm payrolls: +272K vs. 182K expected and 165K prior (revised from +175K).
  • Unemployment rate: 4.0% vs. 3.9% expected and 3.9% prior.
  • Average hourly earnings rose 0.4% in May, accelerating from 0.2% in April and topping the 0.3% consensus. Y/Y, average hourly earnings increased 4.1%, compared with the +3.9% consensus and +4.0% in the prior month (revised from +3.9%).
  • Futures are down 0.4% and the 10 Year treasury yield has increased 13 points to 4.43%
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Market Outlook

Economic Update: April Core PCE Price Index and Personal Income

April Core PCE Price Index: In line with estimates.

  •  +0.2% M/M vs. +0.2% consensus and +0.3% in March. +2.8% Y/Y vs. +2.8% consensus and +2.8% prior.
  • PCE Price Index: +0.3% M/M vs. +0.3% expected and +0.3% prior. +2.7% Y/Y vs. +2.7% consensus and +2.7% in March.
  • Personal outlays: +0.2% M/M vs. +0.3% consensus and +0.8% prior.
  • Personal income: +0.3% M/M vs. +0.3% consensus and +0.5%.

Futures are up slightly by 0.3% and Treasury yields are lower at 4.53%

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Market Outlook

Jobs Report: June 2024

A good jobs report.

206,000 net new jobs V 190,000 expected.

4.1% unemployment rate, a bit higher than expected, the Feds expected this rate by Dec 2024.

Revisions are the bigger story with 57,000 and 54,000 lower revisions for April and May 2024. So, the 206,000 jobs for June may be revised as well following the trend.

Wage rate – Average hourly earnings climbed by 0.3% in June from the previous month, taking the annual increase to 3.9%.

Futures are flat, and the 10-year has dropped to 4.29%.

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Market Outlook

March Core PCE Price Index Matches Expectations, While Personal Income and Outlays Show Steady Growth

March Core PCE Price Index:

+0.3% M/M vs. +0.3% consensus and +0.3% prior.

+2.8% Y/Y vs. +2.7% consensus and +2.8% prior.

PCE Price Index: +0.3% M/M vs. +0.3% expected and +0.3% prior.

+2.7% Y/Y vs. +2.6% expected and +2.5% prior.

Personal income: +0.5% M/M vs. +0.5% expected and +0.3% prior.

Personal outlays: +0.8% M/M vs. +0.6% consensus and +0.8% prior.

The 10-year is down slightly to 4.67%

Categories
Market Outlook

CPI inflation stays hot in March

CPI inflation stays hot in March

  • March Consumer Price Index: +0.4% vs. +0.3% expected and +0.4% prior.
  • +3.5% Y/Y vs. +3.5% expected and +3.2% prior.
  • Core CPI: +0.4% vs. +0.3% expected and +0.4% prior.
  • +3.8% Y/Y vs. +3.7% expected and +3.8% prior.
  • That translates to a 3.8% increase over the past 12 months, topping the 3.7% increase expected and keeping the same pace as in February, the U.S. Department of Labor said.
  • Shelter and gas combined contributed over half of the overall monthly increase.
  • Treasury 10-year yields rose 10 basis points to around 4.45%, 

The S&P 500 Futures are down 1.45%

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Market Outlook

Fed’s Preferred Inflation Gauge Eases in February, Matching Expectations

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Fed’s preferred inflation gauge subsides, in line with consensus, in February

Core PCE Price Index, which excludes food and energy, rose 0.3% M/M in February vs. +0.3% consensus and 0.5% prior (revised from +0.4%).

On a year-over-year basis, core PCE increased 2.8% Y/Y, compared with the +2.8% consensus and +2.9% prior (revised from 2.8%).

Including food and energy prices, the PCE Price Index grew 0.3% M/M, less than the +0.4% expected and slowing from +0.4% in January (revised from +0.3%).

Prices for goods rose by 0.5%, bolstered by energy prices, and prices for services rose 0.3%. Food prices edged up 0.1%, while energy prices jumped 2.3% during the month.

2.5% Y/Y vs. +2.5% expected and +2.4% prior.

Personal income increased less than expected, up 0.3% M/M vs. +0.4% expected and +1.0% prior, the U.S. Commerce Department said on Friday.

Personal outlays climbed 0.8% M/M, exceeding the +0.5% expected and accelerating from +0.2% in January.

Real disposable income, which is adjusted for inflation, declined 0.1% M/M in February, while real personal consumption expenditures increased 0.4%.

Categories
Market Outlook

The Anomaly of Interest Rate Movements: Are Markets Disregarding the Fed?

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The anomaly of interest rate movements

  • Are markets not believing the Fed?
  • The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
  • Intuitively the yields should have gone up – is there something else at play.
  • I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.

Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.

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Market Outlook

Fed Rate Cut Unlikely in March: Powell Stresses Patience Amid Inflation Concerns

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Fed rate cut not likely in March

Inflation has eased from its highs without a significant increase in unemployment— “that is very good news,” Federal Reserve Chair Jerome Powell said Wednesday after the central bank kept its policy rate unchanged for the fourth straight meeting. But he followed that up with inflation still remains above the Fed’s 2% goal. “We need more evidence to confirm what we think we’re seeing,” Powell said.

It will likely be appropriate to dial back the Fed’s policy rate at some point this year, he said.

Powell repeats that the Fed will move “carefully” in considering when to cut rates. He doesn’t think that the FOMC is likely to cut at the March meeting.

While he sees some risk that inflation reaccelerates, “the greater risk is that inflation will stabilize at a rate over 2%.”

He declined to say the economy has achieved a soft landing. “We’re not declaring victory at this point. We have a ways to go.”

“There was no proposal to cut rates,” Powell said. Some members did discuss their rate path. Also, he said there was a broad range of views.

“If we saw an unexpected weakening in the labor market, that would weigh on cutting sooner.”

Powell Gets Good News On Fed’s Favorite Pay Gauge

https://www.nextplatform.com/2024/01/31/how-the-antares-mi300-gpu-ramp-will-save-amds-datacenter-business/?mc_cid=71d0ed9333 HYPERLINK 

https://www.barrons.com/livecoverage/microsoft-alphabet-google-amd-earnings-stock-price-today/card/amd-raises-outlook-for-ai-chips-it-wasn-t-enough–8sSkmy5Es1hNrE2yooqL?mod=djem_b_barronstech013124

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Stocks

Palantir and TSMC: Strong Long-Term Investment Opportunities in Data Analytics and Semiconductor Industry

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*Palantir: (PLTR) Buy, $16.50  One year target $20.* 

*Invest 5 Years, 18-20% annual return.*

EPS Growth P/E PEG Sales Sales Growth P/S PS/G

0.30 29% 55 1.9 2.2 24% 16 67%

Palantir is a solid performer in the Data Analytics and AI space.

Their government business segment is a massive cash cow and a moat, because of long duration and sticky contracts and switching costs. 

The commercial segment is growing much faster at 50%, and will be its growth engine, with the help of its Artificial Intelligence Platform (AIP), which  tripled the number of users in the past quarter, with over 300 organizations using the new product in the last 5 months.

The stock is expensive especially after doubling last year but can be bought in installments and declines. I own some with an average cost of $15.

CPI Report: Inflation was slightly higher than expected.

Taiwan Semiconductor  Manufacturing(TSM) Buy, $100  One year target $120. 

Invest 5 Years, 15 % annual return. P/E 20, 3-5 year EPS growth 18-20%.

The Semiconductor foundry (manufacturing) leader by far with about 50% market share has large and deep moats in new processes, scale and costs. The semiconductor industry would collapse without it – it would take years for Global Foundries, Intel, Samsung, et al to even come close to catching up. Consider that TSM is spending up to $40Bn to set up a new foundry in Arizona,  and it’s having trouble finding enough qualified people for its plant. 

Revenue growth of 12-14% and earnings growth of 18-20% for the next three years augur well for the company. Normally TSM would be priced at over 40X earnings and closer to 10x sales, about twice the current price. Unfortunately, it being located in Taiwan and with China’s open design on it – multiples will always stay lower because of these geopolitical tensions. Still, the stock has rewarded investors well in the past with steady appreciation in the mid teens. It’s a must have for the portfolio specially for long term steady growth.

Palantir: (PLTR) Buy, $16.50  One year target $280. 

Invest 5 Years, 16-20% annual return. P/E 34, 3-5 year EPS growth 14-16%.

CPI Report: Inflation was slightly higher than expected.

December Consumer Price Index: +0.3% M/M vs. +0.2% expected and +0.1% prior.

+3.4% Year on Year  vs. 3.2% expected and +3.1% prior month

Core CPI, which excludes food and energy: +0.3% M/M vs. +0.2% expected and +0.3% prior. +3.9% Year on Year vs. 3.8% expected and +4.0% prior.

Stock Futures are flat as is the 10 year Treasury yield at 4.02%