Thursday, September 24, 2015

Markets tumble on worries about rate hike by the Fed

Dow sank 256, decliners over advancers 5-1 & NAZ lost 76.  The MLP index dropped 6+ to the 312s & the REIT index fell 1+ to the 303s.  Junk bond funds mixed & Treasuries rose as stocks declined.  Oil went up & gold shot up (going over 1150) as stocks were sold.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM...Crude Oil Nov 15...44.14 Down ......0.34  (0.8%)

GCU15.CMX...Gold Sep 15......1,152.70 Up ...21.10 (1.9%)

The Federal Reserve held interest rates near zero last week, though 13 of 17 policy makers still expect a rise this year.  That forecast faces a major threat:  The concerns that persuaded officials to delay action are just as likely to escalate over the next 3 months as to die down.  Financial market turmoil, slower global growth & lingering doubt about the path of inflation led the central bank to postpone its first rate rise since 2006.  Those headwinds could abate in time for officials to lift off at their meeting in either Oct or Dec, but should they worsen, it may kill all hope of an increase in 2015.  Exhibit A: There are several reasons why inflation might continue to languish or even soften further before the end of the year, causing it to fall short of the Fed’s already modest 0.4% 2015 estimate.

Declining unemployment may fail to push up wages as the Fed expects because of hidden slack in the labor market.  Tumbling oil prices, while not measured in core readings of inflation, could pass through to other prices.  And a stronger dollar could cool inflation further by dampening the cost of imports.  Though the Fed often cites the dollar & commodity prices as headwinds that it views as transitory, they might not be the only things contributing to subdued price pressures.

Yellen's `Uncertainties' Could Imperil Fed's 2015 Liftoff

The momentum in orders for business equipment stalled in Aug following gains the prior 2 months as. investment took a breather amid volatility in financial markets & concerns that global growth is slowing.  Bookings for non-military capital goods excluding aircraft fell 0.2% after rising 2.1% in Jul, according to the Commerce Dept.  Orders for all durable goods, meant to last at least 3 years, dropped 2% reflecting declines in defense & aircraft.  The relatively steady reading in capital goods bookings following the best back-to-back gains in more than a year signals companies waiting to assess prospects for US demand as global growth slows & financial markets turn volatile.  A strong American consumer, powered by more jobs, growing incomes & low inflation, will be needed to help support the outlook for growth in H2.  The forecast estimated bookings for total durable goods would fall 2.3%.  The Jul reading was revised from a prior estimate showing a 2.2% gain.  Shipments of non-military capital goods excluding aircraft, which are used to calculate GDP, decreased 0.2% after rising 0.5% the month before.  Commercial aircraft orders dropped 5.9% after falling 8.7% a month earlier.  Demand for automobiles also took a breather, falling 1.6%.  Bookings rose 4.9% in Jul.  Excluding transportation equipment were little changed.  Demand for defense equipment dropped 24.3%, reversing the prior month’s gain.  Stronger investment in capital equipment would be a welcome boost for US growth, which has relied on a solid pace of consumer spending this year.

Orders for U.S. Business Gear Stall After Two-Month Gain

Purchases of new homes jumped in Aug to a 7-year high as Americans took advantage of historically low mortgage rates.  Sales climbed 5.7% to a 552K annualized pace, exceeding all forecasts & the highest since Feb 2008, from a 522K rate in Jul that was stronger than initially reported, according to the Commerce Dept.  Steady job gains & cheaper borrowing costs are bolstering demand for new homes, particularly as the supply of previously owned properties is still scant.  Further healing in residential real estate should help underpin the US economy amid weakness from the stronger dollar & slower overseas growth.  The forecast called for 515K & the Jul reading was previously reported as 507K.  The median sales price increased 0.3% from Aug 2014 to $292K.  Purchases climbed in 3 of 4 US regions, led by a 24.1% jump in the Northeast.  New-home purchases, tabulated when contracts get signed, are considered a timelier barometer of the residential market than purchases of previously owned dwellings.

 Sales of U.S. New Homes Surged in August to Seven-Year High

Stocks are spooked again, another sign that this is not a healthy market.  Janet will be testifying shortly & traders worry about what she might say about a rate hike.  They should wake up & realize that a hike is long overdue (I remember their worries in 2013).  It will probably come this year  & should be a modest 25 basis points followed by a pause for at least 1-2 meetings.  This much nervousness about a long overdue rate hike is a sad state of affairs for the stock market.

Dow Jones Industrials

stock chart

3 Stocks You Should Own Right Now - Click Here!


No comments: