Wednesday, October 24, 2018

Markets decline after lower new home sales in September

Dow fell 121 after starting the day in the black, decliners over advancers 4-3 & NAZ sank 67.  The MLP index fell 2+ to the 263s & the REIT index went up 1+ to the 338s.  Junk bond funds hardly budged in price & Treasuries were purchased.  Oil rose in the 66s & gold lost 2 taking it to 1234.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.03

GC=FGold   1,233.50
 -3.30 -0.3%

3 Stocks You Should Own Right Now - Click Here!

Stocks were mixed, with the Dow getting some lift from Boeing's (BA) latest quarterly results, which topped expectations.  The aircraft maker also hiked its projection for full-year earnings & revenue.  A slew of other big names report results were reported.  Commodities were mixed.  Stocks pared heavy losses yesterday after disappointing profit forecasts & geopolitical tensions rattled the stock market.  The Dow dropped 125 (0.5%) to 25,191 & the S&P 500 was down 15 (0.6%) at 2740.  The NAZ fell 31 (0.4%) to 7437.

Dow positive following Boeing's quarterly results

Pres Trump said his administration & Reps are working to introduce a “major” 10% tax cut for middle-class Americans around the beginning of Nov.  “We’re putting in a resolution sometime in the next week or week-and a-half, two weeks … we’re giving a middle-income tax reduction of about 10 percent – we’re doing it now – for middle-income people,” he told reporters.  “That’s on top of the tax decrease that we’ve already given.”  The House Ways & Means Committee Chair Kevin Brady confirmed he was working with the administration on the measure.  The pres said on Sat that he was hoping to introduce the tax cuts around the beginning of Nov, though he noted on Mon that the new tax resolution was unlikely to be voted on before the midterm elections since Congress is out of session thru the middle of next month.  Trump said that while the previous tax cuts benefited both the middle class & businesses, the next plan would focus solely on helping middle-income Americans.  It should be noted that Congress will not be in session until after the midterm elections.  One potential strategy being discussed by the administration is holding a symbolic vote in Congress, which would signal its intent to implement the new tax cut in the future.  That plan is one of several options being considered.  The House of Representatives voted to advance a new tax package in Sep.  That bill, Tax Cuts 2.0, would make some parts of the initial round of tax cuts -- known as the Tax Cuts & Jobs Act of 2017 -- permanent, introduce a number of provisions to help Americans save more & expand tax breaks for startup businesses.

Trump says ‘major tax cut’ on the way for middle class

New home sales plunged in Sep, falling 5.5% to an almost 2-year amid pressures for rising interest rates that have hammered the real estate market.  The Commerce Dept reported that sales for the month came in at 553K on seasonally adjusted basis.  That's 5.5% below the downward revised Aug rate of 585K & a 13.2% tumble from the 637K reported for the same period a year ago.  Sep represented the worst month since Dec 2016.  The number also was well below the estimate for a 1.4% drop to 625K.  The report comes as mortgage rates have been drifting higher, with the most recent average at 4.87%.  Housing experts believe a 5%  average rate could be an inflection point for a market under pressure all year from rising rates.  Despite the big miss in the Sep numbers, real estate shares were broadly higher.  Still, builders are broadly down nearly 40% YTD & the latest data reflects a difficult time for the housing market.  The Federal Reserve has hiked its benchmark interest rate 3 times this year, to a target range of 2-2.25% & mortgage rates have risen in kind.  Jun & Jul sales rates were also revised lower.  New home sales have now declined for 4 straight months.  From a geographic standpoint, the South, which is the biggest area for home sales, likely saw some impact from Hurricane Florence.  The region reported 318K sales for the month, a decline of 1.5%.  The Northeast, which usually has the lowest number of sales, saw its numbers collapse by 40.6% to the lowest level since Apr 2015.  Only the Midwest saw a gain, rising 6.9%, while the West declined 12%.  New home sales are drawn from permits & tend to be volatile on a month-to-month basis.  The weak new home sales came on the heels of reports last week showing declines in homebuilding, permits & housing completions in Sep.   In addition, sales of previously owned homes dropped to a near 3-year low in Sep.

Dallas Federal Reserve Pres Robert Kaplan became the latest central banker to say it's time to let the economy run on its own.  At a time when the Fed is undergoing criticism from Pres Trump & some notable market voices, Kaplan said policymakers are on the right track with their gradual approach to raising interest rates.  The unemployment rate is running at 3.7% & inflation is just above the Fed's 2% target.  Believing that the Fed has met its dual mandate, the Federal Open Market Committee has hiked its benchmark rate 3 times this year & is on track for a 4th increase in Dec.  Kaplan said that remains the right strategy.  “As we reach our dual-mandate objectives, I believe that the Federal Reserve should be gradually easing off the accelerator — we no longer need to be stimulating the U.S. economy,” he said.  “As such, I believe we should be gradually and patiently moving toward a neutral policy stance.”  The comments come a day after Atlanta Fed President Raphael Bostic said the Fed doesn't need ” to keep our foot on the gas pedal.”  Trump launched his latest broadside at the Fed & Chairman Jerome Powell on Tues.  The pres repeated criticism that higher rates are the biggest threat to the economic boom during his administration & said Powell “looks like he’s happy raising interest rates.”  Kaplan backs further rate hikes even though he said he expects economic growth to slow in the years ahead as fiscal stimulus fades.  He added that his estimate of the longer-run “neutral” late is somewhat lower than his colleagues’ median estimate, but he said he’s on board for at least the next several rate hikes.  Kaplan favors allowing the benchmark funds rate target to rise to as high as 2.75-3% before pausing for evaluation.  The current range is 2-2.75%.  The current estimate is closer to 3.1 & Powell has said it may be prudent to go even a bit beyond that to tame inflation.  While not a voting member on the FOMC, Kaplan does get to provide input at committee policy meetings.  “I intend to avoid prejudging what, if any, further actions we should take once we get into the range of our best estimate of a neutral stance. I intend to make that judgment sometime in the spring or summer of 2019 based on the economic outlook at that time,” Kaplan added.

Fed's Kaplan: 'We no longer need to be stimulating the US economy' 

Stocks began the day higher, then the sellers returned.  The glum sales report on home sales & a weak tech sector hurt market sentiment.  The biggest tech giants are due to report earnings shortly.  In addition, thoughts about US-China trade relations & higher interest rates are never far from traders' minds.

Dow Jones Industrials

No comments: