Federal Reserve Chairman Jerome Powell isn’t providing much good news for stock investors these days.
He said he’s pleased inflation is coming down quickly and the economy is strong, in an interview with 60 Minuteson Sunday. But the takeaway for him is that the Fed can afford to be patient and careful when deciding when to start lowering interest rates.
That’s the same message he gave at last week’s interest-rate decision, and he reiterated that the Fed only sees three quarter-point rate cuts this year, whereas the market predicts as many as six. A blowout jobs number Friday underlines the point that the economy doesn’t seem to need any help from the Fed to keep humming.
And yet stocks are doing just fine. It isn’t just
Facebook
-parent Meta and
Amazon,
though those are certainly standouts. The S&P 500 finished Friday at an all-time high, its seventh record close of the year so far.
It could be that earnings are still impressive, giving investors confidence. More is coming this week, with big names such as
McDonald’s,
Eli Lilly,
CVS, and
Caterpillar
due to report. Perhaps sentiment is also being lifted by the economic data.
To be sure, there are things to be worried about if you’re looking for them. A big drop in the number of hours worked in Friday’s jobs numbers may indicate that companies are trying to keep people in their jobs even as they brace for a slowdown, for example. And it’s still the case that the Fed’s biggest hiking cycle in a generation has yet to be felt.
But for now, good news appears to be good news again. Maybe the stock market’s gains over the past few months weren’t entirely predicated on Fed rates going down almost as quickly as they went up.
—Brian Swint
*** Join Barron’s senior managing editor Lauren R. Rublin today at noon when she talks with deputy editor Ben Levisohn and Sonal Desai, CIO of Franklin Templeton Fixed Income and a member of the Barron’s Roundtable, about the outlook for financial markets, the message in the economic data, and the aftermath of January’s Federal Reserve meeting. Sign up here.
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Central Bank Chairman Seeks Patience
Federal Reserve Chairman Jerome Powell said the American public should have patience while the central bank figures out the best time to start cutting interest rates. While March might be too soon for a move, he told CBS’s 60 Minutes that officials support at least one cut this year.
- Powell, interviewed before Friday’s stronger-than-expected report on January jobs, said the Fed is making progress, but the job still isn’t done. The economy is growing at a solid pace, he said, unemployment of 3.7% shows a strong labor market, and inflation is coming down.
- Officials are growing more confident that inflation is heading toward the 2% target, but it’s unlikely the Fed policymakers will reach a level of confidence to cut rates by the March meeting seven weeks from now, he said.
- Powell said the possibility of a recession isn’t elevated right now—pointing to year-end 2023 economic growth of 3.1%, which he called a healthy growth rate. Higher growth for the fourth quarter alone indicates that growth is “fine.”
- Asked about a drop in commercial real estate values and what that means for the banking sector, Powell acknowledged a problem—particularly with small and regional banks with high concentrations of real estate loans. He added he doesn’t see another real estate-led crisis as in the past, such as the 2008-09 financial crisis.
What’s Next: Fed officials do see a rate cut this year, he said. Fresh economic projections for where interest rates could end the year are due out after the March meeting. Fed officials already forecast rates ending the year at 4.6%.
—Liz Moyer
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House, Senate Bills Offer Different Priorities for U.S. Security
The Senate released its long-awaited national security and border package late Sunday, and it could come up for a vote on Wednesday. In the House, Speaker Mike Johnson proposed a stand-alone bill to give Israel $17.6 billion for military supplies and missile defense systems in its war against Hamas.
- The Senate’s bill includes $118.2 billion in aid for Ukraine, Israel, and Taiwan, as well as for U.S. border policy updates and wartime humanitarian aid. The White House has said it opposes the House Republicans’ proposal to provide aid only to Israel, calling the plan a cynical political maneuver.
- The Senate plan includes about $60 billion for Ukraine aid. President Joe Biden, Senate Majority Leader Chuck Schumer, and Minority Leader Mitch McConnell all want to quickly send more military aid to Ukraine, but the U.S. has paused ammunition and missile shipments amid the congressional stalemate.
- The Senate bill also includes funds to strengthen immigration enforcement, including hiring thousands of officers to evaluate asylum claims, and hundreds of border patrol agents. It also provides $1.4 billion for shelters and services for migrants.
- Proposed border policies would give migrants seeking asylum interviews within days of arrival and decisions within months, instead of years. Those who don’t qualify for asylum will be quickly returned to their home countries, Arizona Sen. Kyrsten Sinema told CBS’ Face the Nation.
What’s Next: The White House quickly threw its support behind the Senate bill, with Biden on Sunday urging Congress to swiftly pass it. But it faces tough hurdles with Republicans in both chambers. Speaker Johnson said he would prioritize his Israel funding bill in the House.
—Janet H. Cho
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Boeing’s 737 MAX Has a New Problem
More woes for Boeing. The airline maker has discovered new problems with its 737 MAX fuselages and will have to delay delivery of 50 planes to work on them. It’s the latest setback for Boeing almost a month after a door plug blew off a 737 MAX 9 plane.
- The issue of two holes that were improperly drilled was flagged by a supplier last week, Boeing Commercial Airplanes President Stan Deal said in a memo posted on the company’s website.
- Spirit AeroSystems, which made the fuselage for the Boeing plane in the door plug incident, also made the parts for the models with the new issue, The Wall Street Journal reported.
- Separately, Tim Clark, the head of Emirates Airline, said Boeing’s quality standards have slowly declined for years. In an interview with the Financial Times, Clark said it was imperative for Boeing to establish a “safety culture that is second to none.” This is the “last-chance saloon,” he said.
What’s Next: Despite Boeing’s problems, it’s one of just two major manufacturers of commercial airplanes. The sharp drop in Boeing shares this year doesn’t make them a buy just yet. Suppliers including Spirit and RTX may also have a bumpy ride ahead. For investors the best bets may be companies that service older planes, such as TransDigm Group and FTAI Aviation.
—Brian Swint and Al Root
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Earnings Season Improving at the Halfway Mark
Halfway through earnings season, another 104 S&P 500 companies report results this week. While the financial industry reported sluggish results to start the season, companies in the S&P 500 are now reporting annualized growth in earnings of 1.6% for the fourth quarter, according to FactSet.
- Nearly three quarters of S&P companies have reported a positive earnings surprise this season, but that is slightly below the 77% average for the past five years, FactSet said. The overall growth rate would represent a second-consecutive quarter of earnings growth.
-
Ford Motor
will report earnings on Tuesday. Ford sold 152,617 cars and trucks in January, down 21% from December. That includes 4,700 battery electric vehicles, down 54% from December. -
On Wednesday, entertainment company
Walt Disney,
which is fighting activist investor Nelson Peltz’s push for stronger results and board seats, will give updates on its amusement parks and multimedia empire. Disney expects its streaming business, including Disney+, Hulu, and ESPN+, to become profitable in its September quarter. -
On Thursday, low-cost carrier
Spirit Airlines
will offer updates on its competition, travel trends, and efforts to bolster its finances as a potential stand-alone carrier. A federal judge last month blocked its proposed merger with
JetBlue Airways,
which the airlines have appealed.
What’s Next: Ford’s new 2025 Explorer SUV, with a 2.3-liter or 3-liter turbocharged engine, available BlueCruise autonomous driving, and an enhanced digital experience with Google voice assistant and YouTube videos or streaming while parked, will go on sale this spring. Prices start at $41,000.
—Janet H. Cho
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Michael Jordan Nets Record-Setting Auction for Game-Worn Shoes
Six Air Jordan sneakers that pro basketball superstar Michael Jordan wore in his NBA championship games sold for $8 million at auction by Sotheby’s New York. The footwear, dubbed the Dynasty Collection, had toured the world, with Sotheby’s estimating they would fetch up to $10 million.
- The final price tag set a new global record for game-worn sneakers and was the second-highest price paid for Jordan memorabilia, just behind the record $10.1 million paid for his 1998 NBA Finals Game 1 jersey from the famed “Last Dance” season, sold in September 2022.
-
Jordan, the Chicago Bulls shooting guard who helped jump-start sneaker fashion when he created Air Jordans with
Nike
in the mid-1980s, was also a five-time league MVP and two-time Olympic gold medalist. The NBA named its MVP trophy after Jordan in 2022. - The signed pair of Air Jordan 13s that Jordan wore in Game 2 of the 1998 NBA Finals sold for $2.2 million in April 2023. The signed official scorekeeper’s sheet from the 1990 game when Jordan scored his highest-ever 69 points sold for $50,800.
What’s Next: German sportswear retailer
Adidas,
which ended its partnership with Ye, the rapper previously known as Kanye West, in 2022, plans to sell about $289 million worth of its remaining Yeezy sneakers after previously deciding to write them off. CEO Bjørn Gulden expects to sell them for at least cost.
—Janet H. Cho and Penta
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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