US FINANCIAL MARKET

Stock Bears Retreat as Soft Landing Gains Credence: Markets Wrap – Bloomberg, 1/5/2024

• Stocks hinted at a rebound after a dour start to the year as investors digest data indicating that the Federal Reserve can pull off a soft landing for the world’s largest economy.
• The S&P 500 rose 0.5%, and the Nasdaq 100 rose similarly, snapping a five-day losing streak for the tech-heavy benchmark.
• The Dow Jones Industrial Average rose 0.3%.
• Stocks extended gains after data showed the US service sector slowed in December but remained above a critical level that indicates expansion.
• Treasury yields turned lower, with the rate on the 10-year falling to 3.97%.
• Yields had been rising after earlier data showed nonfarm payrolls rose by 216,000, a larger-than-expected gain, and the unemployment rate held steady at 3.7% in December.
• While the jobs report may have initially cooled wagers on faster and deeper rate cuts from the Fed, the report also signaled a secure backdrop for the financial system.
• In corporate news, Tesla is recalling more than 1.6 million cars in China over issues with the driver-assistance system.
• The Bloomberg Dollar Spot Index fell 0.3%.
• West Texas Intermediate crude rose 2.5% to $73.97 a barrel.
• Spot gold rose 0.7% to $2,058.96 an ounce.

Constellation Stock Rises; Modelo Maker’s Beer Sales Offset Wine Weakness – Wall Street Journal, 1/5/2024

• Constellation Brands posted a higher third-quarter profit, as solid beer sales for the Modelo maker offset a continued decline in its wine and spirits business.
• Revenue rose 1.4% to $2.47 billion. Wall Street had forecast sales of $2.54 billion, according to FactSet.
• Overall, sales rose slightly, with a 4% increase in its beer division offsetting an 8% slump in wine and spirits.
• The company now expects a much sharper sales drop in its wine and spirits division than previously expected.
• The company said its Modelo Especial beer sales rose 12% in the quarter.
• Adjusted earnings came in at $3.19 a share, ahead of analyst estimates of $3.01.
• The company forecast net sales would fall between 7% and 9% for its current fiscal year versus prior guidance for roughly flat sales.
• The company cut its earnings outlook for its fiscal year to $9.15 to $9.35 a share.

Netflix Considers Ways to Make Money From Videogames in Possible Pivot – Wall Street Journal, 1/5/2024

• Netflix has said it plans to be in gaming for years. Now, the company is trying to figure out how to make money from it, a potential shift in strategy for the streamer.
• Executives at the streaming giant have had discussions in recent months about generating revenue from its games, according to people familiar with the talks.
• Netflix games are currently free for all subscribers, part of a strategy to keep users returning to the streaming service when their favorite shows are between seasons and attract new fans.
• Some ideas discussed include in-app purchases, charging for more sophisticated games it is developing, or giving subscribers to its newer ad-supported tier access to games with ads, the people said.

OpenAI Turmoil Pushes Customers to Diversify – Wall Street Journal, 1/5/2024

• OpenAI’s management chaos in November could have long-lasting effects on its business, as some of the company’s customers say it was a wake-up call about the risks of being too reliant on one company’s tech.
• Executives at companies that use OpenAI’s software say they are increasingly looking to use others’ technology to protect themselves from the risks of problems.
• OpenAI’s competitors are using the opportunity to sign up wary customers.
• After the November board coup that saw OpenAI Chief Executive Sam Altman removed and then reinstated, senior leaders at Walmart met to remind some internal tech team members that they shouldn’t go directly to OpenAI to build AI tools.
• Instead, they needed to stick with Walmart’s internally developed platform, which can swap in various AI models—including OpenAI’s—to ensure Walmart’s AI software won’t go down, according to a person familiar.

Nation’s Biggest Hospital Landlord Suffers New Losses – Wall Street Journal, 1/5/2024

• Medical Properties Trust, the country’s largest hospital landlord, said it would record about $350 million of write-downs related to its largest tenant, which had fallen behind on its rent, and hired a well-known restructuring adviser.
• MPT, which had long supported Dallas-based Steward Health Care System, said more write-downs are possible.
• MPT said Steward was $50 million behind rent at year’s end.
• MPT said it had agreed to fund a new $60 million loan to Steward and to defer portions of rent owed for 2024.
• MPT also said it had hired Alvarez & Marsal as a financial adviser.

Florida Is First State Allowed to Import Prescription Drugs From Canada – Wall Street Journal, 1/5/2024

• The Food and Drug Administration has decided to allow the first state to import drugs from Canada, a move that would change the way Americans obtain prescription medicines and could reduce their cost.
• The agency said Friday that it would allow Florida to import prescription drugs from Canada.
• Several other states have filed similar requests with the agency.
• The plans will likely face obstacles to taking immediate effect, including lawsuits from drugmakers and opposition from Canadian authorities.
• The FDA has also raised safety concerns about importing drugs if it can’t vouch for their quality.

Three Student-Loan Processors Punished for Late Billing Notices – Wall Street Journal, 1/5/2024

• The Biden administration is punishing three student loan processors for failing to send out timely billing notices to more than 750,000 borrowers, part of an effort by the government to address problems facing Americans as they resume loan payments for the first time in more than three years.
• The Education Department said on Friday that it is withholding payments of $2 million from Advantage, $161,000 from EdFinancial, and $13,000 from Nelnet for breaching the companies’ contractual obligations to send prompt statements to borrowers for October when loan payments resumed.
• “Today’s actions make clear that the Biden-Harris Administration won’t give student-loan servicers a free pass for poor performance and missteps that jeopardize borrowers,” Education Secretary Miguel Cardona said in a statement.
• The Education Department directed the loan servicers to place affected borrowers into administrative forbearance until the issues are resolved, which means they will not owe payments on their loans or accrue interest.
• The department said the late notices affected 758,000 borrowers across the three companies.

US ECONOMY & POLITICS

US Payrolls Pick Up, Wages Gain as Labor Market Stays Solid – Bloomberg, 1/5/2024

• US job growth peaked in December, and wage gains exceeded expectations, diminishing prospects for an imminent Federal Reserve interest-rate cut.
• Nonfarm payrolls increased 216,000 after downward revisions to the prior two months, a Bureau of Labor Statistics report showed Friday.
• The unemployment rate held at 3.7% as the workforce shrank.
• Average hourly earnings rose 0.4% from a month earlier.

• The payroll advance was led by health care, government, construction, leisure, and hospitality.
• A measure of the breadth of job gains picked up.
• The participation rate — the share of the population working or looking for work — fell by 0.3 percentage points to 62.5%, the most significant monthly drop in nearly three years.
• The decrease was concentrated among younger and older cohorts.
• Friday’s report showed average hourly earnings increased 4.1% from December 2022.
• Earnings for nonsupervisory employees, who comprise most workers, rose 0.3% from November and 4.3% from a year earlier.
• The employment-population ratio for those ages 25-54 — or the share of the population that has a job — fell 0.3 points, the most in over a year, to 80.4.
• Hours worked slipped to 34.3 from 34.4.
• Unemployment for Black Americans fell to the lowest level since April, while for Hispanics, it increased to an almost one-year high.
• The underemployment rate, a broader measure including those who prefer full-time work, increased to 7.1% from 7%.

US Services Growth Slows With Employment Shrinking Most Since 2020 – Bloomberg, 1/5/2024

• The US service sector came close to stagnating at the end of 2023 as a gauge of employment showed the most significant contraction over three years.
• The Institute for Supply Management’s overall gauge of services decreased 2.1 points, the most since March, to 50.6 in December.
• The employment gauge among service providers plunged 7.4 points to 43.3, the lowest level since July 2020 and a sign of dissipating momentum in the US labor market.
• Nine industries reported expansion in December, including accommodation and food services, health care, transportation, and warehousing.
• Nine sectors also reported decreasing activity, led by real estate, entertainment, and recreation.
• The ISM’s measure of sentiment about inventory levels also fell nearly 7 points after surging in November to the highest level since the onset of the pandemic.
• A metric of prices paid for materials fell to a five-month low of 57.4, indicating that costs are still rising but at a slower pace.

Economist Alberto Musalem Named Next President of St. Louis Fed – Wall Street Journal, 1/5/2024

• Alberto Musalem, an economist previously a senior adviser at the New York Fed, will become the next president and chief executive of the Federal Reserve Bank of St. Louis, the bank said Thursday.
• Musalem, 55, has most recently served as chief executive of Evince Asset Management, a quantitative investment technology company he co-founded in 2018.
• He served as an executive vice president and senior adviser at the New York Fed from 2014 to 2017, leading divisions on policy analysis and international affairs.
• He spent 13 years as global head of research at Tudor Investment and worked for five years as an economist at the International Monetary Fund.
• The St. Louis Fed president will vote on the Fed’s interest-rate-setting committee next year.
• Musalem’s appointment could add market nous to the committee, which has been light in recent years on economic practitioners steeped in financial markets and international affairs.
• William Dudley, who was New York Fed president from 2009 until 2018, said the St. Louis Fed’s appointment “is a consequential choice because it adds someone with expertise in monetary policy and financial markets—a relatively rare combination within the Federal Reserve.”

Speaker Johnson Weighs Talks With Biden on Border as Senate Stalls – Bloomberg, 1/5/2024

• House Speaker Mike Johnson is considering seeking direct talks with President Joe Biden on Ukraine aid and border policy as negotiations on a bipartisan compromise drag in the Senate, a person familiar with the matter said.
• A bipartisan group of senators has been working for weeks on possible changes to US immigration policy that Republicans have demanded as a condition for approving Biden’s $61 billion emergency Ukraine aid request.
• That group has not yet reached a deal, top Senate Democratic negotiator Chris Murphy, a Connecticut senator, said this week.
• At this point, Johnson is still hoping the Senate comes up with an acceptable solution, the person familiar said.

EUROPE & WORLD

Apple iPhone supplier Foxconn expects first-quarter revenue decline – CNBC, 1/5/2024

• Apple supplier and lead iPhone assembler Foxconn reported a revenue drop for the final quarter of 2023 on Friday and said it expects a year-over-year decline in sales for its first quarter of 2024.
• Foxconn’s revenue for the last three months totaled NT $1.85 trillion ($59.7 billion), a 5.4% dip from the year-ago period.
• Foxconn attributed the decrease to weak or flat sales in its computing, smart consumer electronics, and cloud and networking products.
• The company’s December revenue also fell 27% year over year.

North Korea Fires Artillery Barrage Toward Border Islands in the South – Wall Street Journal, 1/5/2024

• North Korea fired roughly 200 artillery shells near the western border islands of South Korea on Friday, reviving memories of prior violent clashes in the area as inter-Korean tensions escalate once again.
• The barrage of shells, launched from roughly 9 a.m. to 11 a.m. local time, landed in North Korean waters shy of the Northern Limit Line, a disputed inter-Korean maritime border, Seoul’s military said.
• No residents were injured at the Yeonpyeong and Baengnyeong islands, just miles from North Korea’s coastline.
• In response, Seoul’s military conducted live-fire drills from both islands on Friday afternoon.
• Residents there were ordered to evacuate to shelters until the drills had concluded.
• North Korea’s military claimed the drills—involving 192 shells and 47 canons—didn’t threaten South Korea, even indirectly, according to a Friday evening state media report.
• The firing of shells represented a natural countermeasure to joint Washington-Seoul firing exercises held this week near the border. Any enemy military provocation, the North said, would be met with a “tough counteraction on an unprecedented level.”

US Steps Up Diplomatic Push to Avert Broader Middle East War – Wall Street Journal, 1/5/2024

• America’s top diplomats are converging on the Middle East as they make a full-court press to prevent the war in the Gaza Strip from sparking a broader, more destabilizing regional conflict.
• President Biden has sent Secretary of State Antony Blinken and one of his most trusted White House advisers to the Middle East amid a surge in regional attacks that have increased the risks of any missteps triggering a larger, unpredictable conflagration.
• With Blinken set to arrive in the region later Friday for his fourth visit since the Hamas-led attack on Israel in October, the diplomatic mission is gaining urgency.
• “He will discuss specific steps parties can take, including how they can use their influence with others in the region to avoid escalation,” State Department spokesman Matthew Miller said in Washington before Blinken’s departure late Thursday.
• Blinken’s regional tour will include Jordan, Qatar, the United Arab Emirates, Saudi Arabia, Israel, the West Bank, and Egypt, in addition to Turkey and Greece.

Tesla Recalls 1.6 Million Cars in China to Make Autopilot Fixes – Wall Street Journal, 1/5/2024’

• Tesla is conducting its largest-ever recall in China, which regulators said was to fix issues with its driver-assistance features that could increase the risk of crashes. This move follows similar fixes in the US.
• The software fix, delivered remotely, comes as the electric vehicle maker faces fierce competition in the world’s largest auto market, where it trails homegrown rival BYD.
• Last month, Tesla recalled more than two million vehicles in the US over government contentions that drivers can misuse its Autopilot steering feature.
• China’s State Administration for Market Regulation said Friday the carmaker will issue software fixes to more than 1.6 million Model Y, Model 3, Model S, and Model X cars made between August 2014 and last month, including both imported vehicles and ones made at its Shanghai gigafactory.

Factmonster – TODAY in HISTORY

• A German newspaper reported German physicist Wilhelm Roentgen’s discovery of X-rays. – 1896
• Henry Ford introduced the $5-a-day minimum wage. – 1914
• Nellie Tayloe Ross became the first woman governor of a state (Wyoming). – 1925
• President Nixon ordered the development of the space shuttle. – 1972
• INS Commissioner Doris Meissner ruled that 6-year-old Elian Gonzalez must be returned to Cuba. – 2000

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted. 

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Financial Group or LPL Financial.

Prior to making any investment decision, please consult your financial advisor regarding your specific situation.