January 18 - Stocks remain mixed at mid-day, with continued strength in the tech sector leading the push higher while hot U.S. economic data fuels fears of a hawkish Fed and provides downward pressure. Bullishness in chip stocks is causing the tech sector surge, with Taiwan Semiconductor Manufacturing Co today projecting over 20% growth in revenue in 2024 due to skyrocketing demand for advanced chips in AI applications and 2023's darling, Nvidia, on the same track to start 2024 as it pushes higher again this morning. The VIX continues to soften slightly on the day, now pushing below the 14.3 level. The dollar remains in the green, trading above the 103.4 level after closing at a month-plus high yesterday. Treasuries have firmed slightly through the morning, with 10-year yields pushing to 4.13% and 2-year yields back above 4.35%. Crude oil has been able to hold its ground so far this morning, with the nearby WTI contract remaining in the mid-$73's and the nearby Brent contract in the mid $78's. The ags remain mixed, with grains bouncing from their morning lows and the livestock sector firming.
Hawkishness from Fed members continues to dampen traders' expectations for aggressive rate cuts in 2024, with today's comments from Atlanta Fed President Raphael Bostic weighing on sentiment after similar rhetoric from the Fed's Christopher Waller earlier in the week. In this morning's comments, Bostic said he wanted to see more evidence of inflation coming down and that he would prefer to stay higher for longer in order to avoid the potential of cutting rates too early and having to reverse course. He also noted that Fed members will "have to see how the data progress," adding additional significance to today's, and the rest of this week's, stronger than expected U.S. economic data suggesting a potential for lingering inflationary pressures.
In terms of timing, Bostic reiterated his expectations from a December speech of not seeing the first rate cut from the Fed until the third quarter of 2024. Obviously, this is not what the bulls want to hear. Traders now expect rates to remain unchanged at the January meeting and have walked back their once very high expectations of a rate cut at the March meeting to roughly a coin flip. This was a common story throughout 2023, with the trade continually anticipating a dovish pivot from the Fed but being repeatedly disappointed in that anticipation despite repeated caution from Fed members. So far, the start of 2024 is feeling quite similar, keeping considerable focus on expectations for the Fed's path forward.
Today's U.S. manufacturing data was less optimistic than yesterday's, with the Philadelphia Fed Manufacturing Index for January coming in at a reading of -10.6, a 2.2 point jump from the month prior but falling below analyst estimates of a more substantial rise to -7. This is the index's fifth consecutive month in contractionary territory and now the 18th contractionary reading in the last 20 months. While much of the index showed improvement, indicators for future activity continued to remain mostly negative, with the surveyed firms expecting the weakness in the sector to continue for the foreseeable future. The employment portion of the index showed improvement from the month prior, though still remaining slightly in contractionary territory with a -1.8 reading. Most firms indicated stable employment levels, while 12% indicated decreases and 11% indicated increases.
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