(Boursier.com) — Wall Street appears a little more uncertain this Friday, at the end of a very positive week marked in particular by a new peak in the Dow Jones. The markets welcomed the announcements from the Fed the day before yesterday, which is counting on three rate cuts next year, and the much more flexible comments from Jerome Powell. The ECB also opted yesterday for a status quo, without promising a subsequent rate cut. The latest economic statistics in the United States support, for the moment, the thesis of a soft landing and an easing of inflation…
The S&P 500 gains another 0.08% to 4,723 pts, while the Dow Jones stabilizes at 37,250 pts. The Nasdaq rose 0.50% to 14,836 pts…
Operators estimate the rate peak has been reached, while inflation seems to be under control according to the latest figures for consumer prices and production, and a soft economic landing also seems possible across the Atlantic. On the ECB side, despite Christine Lagarde’s still quite firm speech, it is also likely that there will be no more rate increases on the agenda.
On the Nymex, a barrel of WTI crude fell 0.5% to $71.2. An ounce of gold stabilizes at $2,050. The dollar index gained 0.5% against a basket of reference currencies. On the bond markets, the yield on the 2-year T-Bond is 4.42%, compared to 3.91% on the 10-year and 4.02% on the 30-year…
The Fed, as expected, maintained its rates between 5.25% and 5.50% on Wednesday evening for the third time in a row, while its president Jerome Powell indicated that the key rate was “approaching if not already having reached its peak”. “We believe that our key rate is at its peak, or close to its peak for this tightening cycle, and the economy still surprises forecasters,” insisted the Fed boss during the press conference. following the meeting of the Fed’s monetary policy committee, the FOMC. “We are ready to tighten our policy further if necessary,” nevertheless qualified Powell, who also said that the reduction of the Fed’s balance sheet (quantitative tightening) would continue.
Fed officials “don’t think it will be appropriate to raise rates further,” but they also “don’t want to rule out the possibility”… “The question of when it will be appropriate to cut rates begins to settle down,” Powell added, fueling hopes of an end to the tightening cycle. In its press release, the American central bank indicated that its decision for a new status quo had been taken unanimously. Members of the Fed’s board of governors further emphasized that inflation had declined over the past year. they intend to monitor activity to see if further rate increases would be necessary, implying that after months of monetary tightening, it may no longer be necessary to increase rates… 17 of the 19 officials The Fed forecast the policy rate will be below its current level at the end of 2024, with the median projection showing the rate falling three-quarters of a percentage point from the current target of 5.25% to 5.50%. No official expects rates to rise by the end of next year.
The CME Group’s FedWatch tool now shows a probability of almost 15% that the Fed will reduce its rates by a quarter of a point as of January 31, 2024! The probability of a relaxation no later than March 20 reaches almost 73%! The same tool envisages a rate range of 3.5-3.75% (probability of more than 30%) or 3.75-4% (probability of 38%) at the end of next year, which would reflect a rate reduction of at least 1.5 percentage points.
This Friday is marked by Four Witches Day (simultaneous expiry of 4 types of contracts: options on indices and on stocks, as well as futures contracts on indices and stocks).
On the economic front today, the New York Fed’s Empire State manufacturing index collapsed to -14.5 in December, compared to a near-zero consensus and after a reading of +9.1 a month before . The December index therefore reflects a strong unexpected contraction in manufacturing activity in the region considered.
Industrial production for the month of November 2023 increased by 0.2% compared to the previous month, according to the Fed report. The FactSet consensus was at +0.3%, after a decline of 0.9% in October. Manufacturing production increased by 0.3% compared to the previous month, compared to +0.4% of FactSet consensus and -0.8% for the revised reading of the previous month. The production capacity utilization rate for the month of November stood at 78.8%, compared to 79.2% consensus and 78.7% a month earlier.
The preliminary Markit US Composite PMI for December came in at 51, compared to the FactSet consensus of 51.1 and 50.8 for the previous month. The manufacturing index stood at 48.2 and the services index at 51.3, against respective consensuses of 49.3 and 50.6.
John Williams, the head of the New York Fed, indicated today that the American central bank had not started discussing a rate cut. According to him, it would therefore be premature to bet on monetary easing from March. He even adds that the Fed must be ready to raise rates further if necessary. On CNBC, Williams therefore tries to temper the recent enthusiasm of the markets, which had welcomed the Fed’s announcements on Wednesday and the much more flexible speech from Jerome Powell. “We’re not really talking about rate cuts at the moment,” Williams told CNBC. “We’re very focused on the question before us, which, as Chairman Powell said…is: Have we moved monetary policy to a tight enough stance to ensure that inflation comes back at 2%?
“I think it’s just premature to think about it,” Williams added of a March rate cut. He stressed that the Fed would remain data-dependent and that if the downward trend in inflation were to reverse, it would be prepared to tighten policy again.
In Wall Street business news, Costco Wholesale And Lennar published their latest quarterly financial results last night. Darden Restaurants is on the menu for this Friday.
Values
Costco Wholesale (+4%) published last night, for its first fiscal quarter, adjusted earnings per share of $3.58, compared to $3.4 consensus and $3.10 a year earlier. The group’s revenues totaled $57.8 billion, slightly above the market consensus and up 6% compared to the corresponding period last year. The American distribution group also indicated that it would distribute to shareholders an exceptional dividend of $15 per share, the group’s first “special” dividend since the end of 2020. For the quarter ended, Costco posted a net profit of 1.59 billion dollars, compared to a profit of 1.36 billion a year before. The exceptional dividend will be payable on January 12 to shareholders registered at the close of December 28. The aggregate payment amount will be $6.7 billion.
Lennar (-2%), the American real estate developer, published robust results for its fourth fiscal quarter and fiscal year 2023. For the fourth quarter, diluted earnings per share were $4.82 ($4.55 a year earlier), supported by the 19% increase in deliveries. New orders increased by 32% to 17,366 homes. Quarterly adjusted earnings per share were $5.17 versus $4.64 consensus. Quarterly net income was $1.4 billion, or $1.5 billion excluding adjustments. Quarterly revenues represented 11 billion dollars compared to 10.2 billion a year earlier. For the full year, adjusted EPS was $14.25 and profit was $3.9 billion. Annual revenues totaled $34.2 billion (33.4 billion consensus), with a gross margin of 23.3% and a net margin of 16.4%. The weak housing supply in the United States therefore still supports demand, despite the rise in credit rates.
U.S. Steel (+1%), the American steel giant, yesterday provided an estimate of adjusted net profit per share for the fourth quarter of 2023 ranging from 20 to 25 cents, compared to a consensus of 19 cents. Fourth-quarter 2023 adjusted Ebitda is expected to be approximately $250 million.
Darden Restaurants (stable), the American restaurant chain, published financial results for its second fiscal quarter of 2024, ended at the end of November, in line with market expectations. Sales totaled $2.7 billion, up 9.7% year-over-year, with a 2.8% increase on a comparable restaurant basis. The group with the Olive Garden and LongHorn Steakhouse brands posted adjusted diluted earnings per share of $1.84, a sharp increase of 21% year-on-year. The consensus was $1.73 adjusted EPS on $2.74 billion in billings. For fiscal 2024, revenues are expected at $11.5 billion, with like-for-like growth of 2.5-3%, for adjusted EPS from continuing operations ranging from $8.75 to $8.90.
Rivian (+1%), the American designer of electric vehicles, rose 14% last night to $22 on Wall Street, following the announcement of a commercial agreement with the telecom operator AT&T, which will therefore acquire Rivian vehicles for its fleet as part of a pilot program. It is not known how many vehicles AT&T would purchase. “We are excited to purchase Rivian electric vehicles for our fleet. This pilot project is another important step in our ongoing efforts towards sustainability, reducing our carbon footprint and embracing a cleaner future for our operations,” said Hardmon Williams, AT&T senior vice president of connected solutions. Last month, Rivian indicated that it was no longer required to sell its delivery vans exclusively to its shareholder Amazon.