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The Fed’s stock market influence, like inflation pressure, continues to fade

The Federal Reserve’s massive influence on stock and bond markets is changing.

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14 mins ago

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The Federal Reserve has pulled off one of the biggest monetary policy surprises in decades, thanks in part to the lessons it learned from an earlier communications error, and it looks set to deliver on perhaps its most difficult challenge. 

But while some would think this refers to the central bank's chances of executing a so-called soft landing for the world's biggest economy, where inflation is tamed without triggering a recession, the Fed's greater accomplishment is actually even more difficult.

It's slowly convinced markets to align with its interest-rate-cut forecasts while quietly touting the strength of the underlying economy. That's enabled investors to focus on growth and profits over policy, and it has helped power stocks to their best back-to-back quarterly performance in over a decade. 

Friday's PCE inflation report is a great example of the Fed's messaging. It has preached patience as the central bank brings price gains back to its 2% target while reminding investors that its aggressive 2022 rate hikes haven't pounded the economy into submission. 

The Fed has had a massive influence on markets since the Covid pandemic. That might be changing. 

Liu Jie/Xinhua via Getty Images

The Fed's preferred inflation gauge cooled modestly last month, with the closely tracked core reading easing to 2.8%, even as consumer spending popped by nearly twice the level of Wall Street forecasts. 

A patient Fed and surging markets

The PCE reading followed an upwardly revised tally for fourth-quarter GDP, which showed an improved growth rate of 3.4% and inflation pressures that held very close to the Fed's 2% over the final six months of last year.

Jeffery Roach, chief economist for LPL Financial in Charlotte, says the broader spending trend is still weakening. He notes the decline in personal income, but adds that "where we sit today, markets need to have the same patience the Fed is exhibiting."

Related: What's next for the S&P 500 after its best run since 2011

Still, if consumers are spending, inflation is slowing and the economy is growing, Fed rate forecasts might not matter so much and the market's obsession with its messaging to derive its next move will quickly begin to fade.

We've seen evidence of that already, with the S&P 500 rising to a record 5,254.35 points on Thursday to close out a quarterly gain of 10.16%, the best in five years.

The benchmark's advance came amid another call for patience on rates from Federal Reserve Gov. Christopher Waller earlier this week and Fed Chairman Jerome Powell's similarly cautious remarks earlier this month.

Fed's past errors haunt policy

"We’re in a situation where if we ease too much or too soon, we could see inflation come back, and if we ease too late, we could do unnecessary harm to employment and people’s working lives," Powell told reporters in Washington following the Fed's last policy meeting. 

"We want to be careful," he added. "And fortunately, with the economy growing, with the labor market strong, and with inflation coming down, we can approach that question carefully and let the data speak on that." 

The Fed's tone likely reflects the criticism it faced in declaring post-covid inflation pressures "transitory" in early 2021. 

Related: Fed hints at bank stock risk from repo market meltdown redux

With the Fed having made that prognosis and repeating it through much of that summer, inflation ultimately accelerated faster than anyone expected and peaked at an annualized rate of 9.1% in summer 2022.

The S&P 500's gains this year have also defined a notable rise in Treasury bond yields, which have adjusted to the Fed's efforts to align markets to its forecast of three rate cuts this year as well as a heftier slate of issuance to fund the government's fiscal ambitions.

Benchmark 10-year Treasury note yields have risen more than 34 basis points (0.34 percentage points) this year, ending the quarter at 4.204%, while 2-year notes gained 37.8 basis points over the same period to 4.628%.

"Another way of looking at the 10-year Treasury yield surge is to consider it a sign of increasing investor confidence," said Trading.biz analyst Rahul Nambiampurath, as investors exit fixed-income investments into riskier assets with higher returns.

It's the economy, stupid

That likely means investors are starting to believe in a U.S. growth story that has lost some of its late-2023 steam but is still on pace to continue adding jobs and power consumer spending as it avoids recession and adds further distance between itself and the rest of the world's major economies. 

Ian Shepherdson of Pantheon Macroeconomics notes that spending on services, the most important growth component, has accelerated to 4.5% over the past three months, the fastest since the post-COVID rebound in 2021.

Any gains in March, he suggests, will bring upward revisions to first-quarter GDP forecasts, which the Atlanta Fed currently pegs at around 2.1%.

Related: The Fed rate decision won't surprise markets. What happens next might

Corporate profits, powered partly by consumers who aren't worried about their jobs and are happy to dip into post-pandemic savings, also carry some solid momentum into the start of the year.

Bill Adams, chief economist for Comerica Bank in Dallas, notes that stripping out losses at the Fed (tied to its $7.7 trillion balance sheet), which are included in the Bureau of Economic Analysis's data, corporate profits rose at an annualized rate of 5.9% over the final three months of last year. 

Rate cuts 'welcome but not needed'

Looking into 2024, Wall Street forecasters see collective S&P 500 profits rising just under 10%, around double the 2023 figure, to an overall average of $243 a share.

"The stock market performed extremely well during the first quarter of 2024, and as long as earnings remain strong, the market can continue to move higher," said Jeremy Straub, chief executive and chief investment officer at Coastal Wealth in Fort Lauderdale, Fla. 

More Economy:

"While rate cuts from the Fed would be welcome news for stocks, they are not a requirement for a strong market, which has been able to rally for the past 18 months even with high interest rates," he added. "We believe stock investors are adjusting to this new normal of higher interest rates."

So, with bonds likely focused on supply metrics and closely tracking the levels of foreign demand in benchmark auctions and stocks keying on earnings and profit margins, we may be seeing the Fed's influence fade quietly into the background.

Related: Veteran fund manager picks favorite stocks for 2024

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Movie theater chain seeks sale after recovering from bankruptcy

Popular dine-in movie theater chain is reportedly seeking another sale after emerging from bankruptcy three years ago.

Published

7 hours ago

on

March 30, 2024

By

The Covid-19 pandemic of 2020 devastated hundreds of businesses in the U.S., forcing several establishments to file for bankruptcy, such as retailers, restaurants, real estate firms and energy companies.

Most people remember the names of many of the restaurants that fell into bankruptcy, including Chuck E. Cheese, Souplantation, Sweet Tomatoes, HomeTown Buffet and Old Country Buffet. Several retail chains, such as JC Penney, Bed Bath & Beyond and a list of movie theater operators also filed Chapter 11.

Related: KFC rolls out new menu item to challenge McDonald’s, Burger King

Pandemic caused movie theater bankruptcies

Movie theater operator CMX Cinemas filed for Chapter 11 bankruptcy in April 2020 after the Covid-19 pandemic devastated the industry.

Regal Cinemas owner Cineworld also struggled during the pandemic and afterward, as it closed over 50 Regal theaters and filed bankruptcy in September 2022. Cineworld, the second largest theater operator behind AMC, emerged from bankruptcy July 31, 2023.

The movie theater industry has struggled to lure people back into their brick-and-mortar properties after the Covid-19 pandemic, as movie fans have been reluctant to return to indoor theaters after the healthcare disaster. The smaller crowds in movie venues since the pandemic began has led to more theater operators filing bankruptcy.

Iconic movie theater chain Metropolitan Theatres Corp. filed for Chapter 11 bankruptcy protection to reorganize its business affairs, which will include restructuring and possibly rejecting theater leases, company president David Corwin wrote in a bankruptcy declaration.

The Los Angeles-based movie theater chain on Feb. 29 filed its Subchapter V bankruptcy petition in the U.S. Bankruptcy Court for the Central District of California in Los Angeles.

Some movie theater chains that filed for Chapter 11 protection because of the effects of the Covid-19 pandemic , however, emerged from reorganization and are thriving in the business.

A pedestrian walks past Alamo Drafthouse in Austin, Texas, on March 3, 2021. Photographer: Thomas Ryan Allison/Bloomberg via Getty Images

Bloomberg/Getty Images

Alamo Drafthouse chain seeking a sale

Dine-in movie theater chain Alamo Drafthouse Cinema has bucked the trend of distressed multiplexes across the nation, as its recent success may have made it attractive for an acquisition. The Austin, Texas, company is seeking a buyer for its 41-theater chain, with 17 franchise-owned sites, located in 13 states, Deadline reported. 

Word of the company inquiring about a possible sale came from several unnamed Deadline sources, who also said no asking price has been revealed and there have been no bidders yet.

Alamo Drafthouse, founded in 1997, reportedly generated $134 million at the box office in 2023, which was more than a 25% increase over 2022.

The dine-in movie theater chain in March 2021 filed for Chapter 11 bankruptcy suffering from the effects of the Covid-19 pandemic and emerged from bankruptcy in June 2021 after a sale to an investment group that included Altamont Capital Partners, Fortress Investment Group and founder Tim League.

The theater chain presents the latest motion picture releases, foreign language films or cinematic classics. The theaters' seats have tables in front of them for guests' food and drinks that are delivered to their seats. Some theaters also have recliner chairs. 

Each location's menu serves burgers, pizzas, salads, snacks and desserts, and the bar features selections from local craft breweries, as well as innovative cocktails, according to the theater chain's website.

Related: Veteran fund manager picks favorite stocks for 2024

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Movie theater chain rises after bankruptcy, reportedly seeks sale

Popular dine-in movie theater chain is reportedly seeking another sale after emerging from bankruptcy three years ago.

Published

10 hours ago

on

March 29, 2024

By

The Covid-19 pandemic of 2020 devastated hundreds of businesses in the U.S., forcing several establishments to file for bankruptcy, such as retailers, restaurants, real estate firms and energy companies.

Most people remember the names of many of the restaurants that fell into bankruptcy, including Chuck E. Cheese, Souplantation, Sweet Tomatoes, HomeTown Buffet and Old Country Buffet. Several retail chains, such as JC Penney, Bed Bath & Beyond and a list of movie theater operators also filed Chapter 11.

Related: KFC rolls out new menu item to challenge McDonald’s, Burger King

Pandemic caused movie theater bankruptcies

Movie theater operator CMX Cinemas filed for Chapter 11 bankruptcy in April 2020 after the Covid-19 pandemic devastated the industry.

Regal Cinemas owner Cineworld also struggled during the pandemic and afterward, as it closed over 50 Regal theaters and filed bankruptcy in September 2022. Cineworld, the second largest theater operator behind AMC, emerged from bankruptcy July 31, 2023.

The movie theater industry has struggled to lure people back into their brick-and-mortar properties after the Covid-19 pandemic, as movie fans have been reluctant to return to indoor theaters after the healthcare disaster. The smaller crowds in movie venues since the pandemic began has led to more theater operators filing bankruptcy.

Iconic movie theater chain Metropolitan Theatres Corp. filed for Chapter 11 bankruptcy protection to reorganize its business affairs, which will include restructuring and possibly rejecting theater leases, company president David Corwin wrote in a bankruptcy declaration.

The Los Angeles-based movie theater chain on Feb. 29 filed its Subchapter V bankruptcy petition in the U.S. Bankruptcy Court for the Central District of California in Los Angeles.

Some movie theater chains that filed for Chapter 11 protection because of the effects of the Covid-19 pandemic , however, emerged from reorganization and are thriving in the business.

A pedestrian walks past Alamo Drafthouse in Austin, Texas, on March 3, 2021. Photographer: Thomas Ryan Allison/Bloomberg via Getty Images

Bloomberg/Getty Images

Alamo Drafthouse chain seeking a sale

Dine-in movie theater chain Alamo Drafthouse Cinema has bucked the trend of distressed multiplexes across the nation, as its recent success may have made it attractive for an acquisition. The Austin, Texas, company is seeking a buyer for its 41-theater chain, with 17 franchise-owned sites, located in 13 states, Deadline reported. 

Word of the company inquiring about a possible sale came from several unnamed Deadline sources, who also said no asking price has been revealed and there have been no bidders yet.

Alamo Drafthouse, founded in 1997, reportedly generated $134 million at the box office in 2023, which was more than a 25% increase over 2022.

The dine-in movie theater chain in March 2021 filed for Chapter 11 bankruptcy suffering from the effects of the Covid-19 pandemic and emerged from bankruptcy in June 2021 after a sale to an investment group that included Altamont Capital Partners, Fortress Investment Group and founder Tim League.

The theater chain presents the latest motion picture releases, foreign language films or cinematic classics. The theaters' seats have tables in front of them for guests' food and drinks that are delivered to their seats. Some theaters also have recliner chairs. 

Each location's menu serves burgers, pizzas, salads, snacks and desserts, and the bar features selections from local craft breweries, as well as innovative cocktails, according to the theater chain's website.

Related: Veteran fund manager picks favorite stocks for 2024

Read More

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$1 Billion In Tax Refunds Remain Unclaimed As May 17 Filing Deadline Approaches

$1 Billion In Tax Refunds Remain Unclaimed As May 17 Filing Deadline Approaches

Authored by Naveen Athrappully via The Epoch Times (emphasis…

Published

16 hours ago

on

March 29, 2024

By

$1 Billion In Tax Refunds Remain Unclaimed As May 17 Filing Deadline Approaches

Authored by Naveen Athrappully via The Epoch Times (emphasis ours),

The IRS building in Washington on Oct. 16, 2023. (Madalina Vasiliu/The Epoch Times)

The IRS is reminding taxpayers who have not filed their 2020 returns to do so quickly or risk losing out on unclaimed refunds.

Nearly 940,000 Americans have unclaimed refunds from the 2020 tax year worth an estimated $1 billion, the IRS said on March 25. The individuals face a May 17 deadline to submit their returns.

The median refund is $932. American citizens typically have up to three years to file and claim refunds, after which the money goes to the U.S. Treasury.

Since taxpayers may find it difficult to gather information necessary to file returns for 2020, the IRS outlined three ways to access such information:

  • Taxpayers who are missing their W-2, 1098, 1099, or 5498 forms can request copies from their employer, bank, or other payers.
  • Those who are unable to get these forms from employers, banks, or other payers can order a free wage and income transcript at IRS.gov using the agency’s online tool. The agency noted that this will be the quickest and easiest option for many individuals.
  • A third way is for the individual to file a 4506-T form with the IRS, requesting a “wage and income transcript.” Taxpayers can then use information to file their returns. The agency warned that written requests for such transcripts can take several weeks. As such, taxpayers are encouraged to try out other options first.

Usually, the deadline to claim old refunds is around the regular tax deadline, which is April 15 this year. The three-year window for the 2020 returns had been extended to May 17 due to the COVID-19 pandemic.

“We want taxpayers to claim these refunds, but time is running out for people who may have overlooked or forgotten about these refunds. There’s a May 17 deadline to file these returns so taxpayers should start soon to make sure they don’t miss out,” said IRS Commissioner Danny Werfel.

Since taxpayers faced “extremely unusual situations” during the pandemic, some of them may have forgotten about a potential refund on their 2020 returns, he stated.

“People may have just overlooked these, including students, part-time workers, and others. Some people may not realize they may be owed a refund. We encourage people to review their files and start gathering records now.”

In addition to missing out on refunds, failure to file the 2020 return could also result in some taxpayers losing out on the earned income tax credit, which was worth as much as $6,600 in 2020.

“The IRS reminds taxpayers seeking a 2020 tax refund that their funds may be held if they have not filed tax returns for 2021 and 2022,” the agency said.

“In addition, any refund amount for 2020 will be applied to amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or other past due federal debts, such as student loans.”

The state with the highest number of individuals estimated to have 2020 refunds due was Texas, with 93,400 taxpayers. This was followed by California with 88,200; Florida with 53,200; and New York with 51,400.

Processing Refunds

The IRS usually takes up to 21 days to process refunds for returns filed electronically. It can take four weeks or more if traditional mail was used. The processing time can be extended in case the returns require extra review or corrections. The fastest way to get refunds is through direct deposit.

In certain cases, taxpayers may not receive the refund amount they were expecting. This could be due to the agency identifying errors on tax returns, or if the refund was used to pay off certain state or federal debts owed, or if the refund from a joint return was used to pay off a spouse’s debts.

In case of errors corrected by the IRS, the agency will send a notice to the taxpayer clarifying the changes.

Tax refunds are critical for many American households as they represent the largest annual cash injection into their budgets. Many families use the refunds to boost their savings or cut down debts.

According to a January survey conducted by Credit Karma, 37 percent of taxpayers who expect to receive a refund plan on using some or all of the money to pay for necessities. Over half of the respondents said they were looking to file their taxes early to get faster refunds.

Thirty-one percent of taxpayers surveyed said they would need their refund to make ends meet.

“That number jumps to 40 percent for millennials and 38 percent for Gen Z taxpayers,” the survey report stated.

In addition to encouraging 2020 tax year nonfilers to file their returns, the IRS has launched an effort to identify high-income taxpayers who have not filed their income taxes since 2017. Over 125,000 such instances have been identified, with taxes being owed in many of these cases.

The initiative was launched late last month, with the agency sending compliance letters to these 125,000 taxpayers.

“The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021,” the agency stated.

Mr. Werfel said that if someone hasn’t filed a tax return in recent years, “this is the time to review their situation and make it right. … For those who owe, the risk will just grow over time as will the potential for penalties and interest. These non-filers should review information on IRS.gov that can help and consider talking to a trusted tax professional as soon as possible.”

Tyler Durden Fri, 03/29/2024 - 16:05

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