Dow soared 617 (closing at the highs), advancers over decliners 4-1 & NAZ jumped 208. The MLP index gained 3 to 245 & the REIT index added 1+ to 351. Junk bond funds went up & Treasuries climbed higher. Oil sank 1+ to about 50 (more below) & gold rose 8 to 1221 after dovish comments by the Fed's Powell.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Fed's Powell signals interest rates near neutral in speech
Pres Trump could push for a compromise on trade with China at this weekend's G-20 summit in Argentina even after his recent tough talk. A report said Trump is increasingly anxious about the impact of a long trade war on financial markets & the economy. This could lead Trump to seek an agreement with China that would delay new tariffs on Chinese goods while the 2 countries work to resolve their issues. This would be a departure from Trump's most recent comments on US-China trade relations. Recently he said it is "highly unlikely " that the US would hold off on increasing tariffs on $200B of Chinese goods to 25%. He added the US would slap charges on the remaining $267B worth of goods from China that are not yet subject to tariffs. Trump & Chinese Pres Xi Jinping are scheduled to meet for dinner at the G-20 on Sat & the 2 leaders are expected to discuss trade, among other issues. The increasingly protectionist stance on US-China trade has rattled investors all year as they gauge how tougher trade conditions will impact corp earnings as well as the global economy. Any progress or resolution on the matter would be seen as a positive by investors for the market.
Trump could reportedly seek trade truce with China at G-20 despite tough rhetoric
Fed warns about 'particularly large' plunge in asset prices
Sales of new US single-family homes tumbled to a more than 2½-year low in Oct amid sharp declines in all 4 regions, further evidence that higher mortgage rates were hurting the housing market. The Commerce Dept said new home sales dropped 8.9% to a seasonally adjusted annual rate of 544K units last month. That was the lowest level since Mar 2016 & the percent drop was the biggest since last Dec. The Sep sales pace was revised higher to 597K units from the previously reported 553K units. New home sales have dropped in 4 of the last 6 months. The forecast called for new home sales, which account for about 9.4% of housing market sales, rising 3.7% to a pace of 575K units in Oct. New home sales are drawn from permits & tend to be volatile on a month-to-month basis, decreasing 12% from a year ago. Data last week showed moderate increases in homebuilding & sales of previously owned homes in Oct. The housing market is taking a hit from higher borrowing costs, further pushing homeownership out of the reach of many workers. The 30-year fixed mortgage rate is currently at 4.81%, not far from a 7-year high of 4.94%, according to mortgage finance agency Freddie Mac. While house price inflation is slowing as demand for home purchases cools, it continues to outpace wage growth. House prices increased 5.1% year-on-year in Sep. In contrast wages rose 3.1% in Oct from a year ago. House price growth has been driven by an acute shortage of properties available for sale. The median new house price fell 3.1% to $309K in Oct from a year ago. There were 336K new homes on the market in Oct, the most since 2009 & up 4.3% from Sep. Supply is, however, just over ½ of what it was at the peak of the housing market boom in 2006. At Oct's sales pace it would take 7.4 months to clear the supply of houses on the market, the most since 2011, from 6.5 months in Sep. Nearly 2/3 of the houses sold last month were either under construction or yet to be built.
US new home sales plunged 8.9% in October
Oil prices fell, continuing a recent run of losses, after US crude inventories rose for the 10th week in a row. The market also remains nervous over whether OPEC-led producing countries will reach an accord next week on output cuts. Saudi Arabia said today it would not cut output alone & Nigeria stopped short of committing to a new push to curb supplies. West Texas Intermediate crude fell $1.27 (2.5%) to $50.29, the lowest settle price since early Oct 2017. Brent crude, the global benchmark, was down $1.05 (1.7%) at $59.16 a barrel. US crude stockpiles rose 3.6M barrels in the latest week, exceeding expectations. After falling to 2½-year lows in September, crude stocks have risen 14% with 10 straight weeks of increases. The price of Brent has dropped by more than 30% from a 4-year high above $86 in early Oct. Investors sold oil over worries about slowing economic growth in 2019 & DC's decision to grant several waivers to importers of Iranian oil after re-imposing sanctions on that nation. Crude's drop since Oct is on a par with the 2008 price crash & steeper than that of 2014-2015, both of which prompted OPEC to agree output curbs to support the market. The steady build in US crude stocks is partly due to seasonal refining maintenance, but domestic production also has surged to a record 11.7M barrels a day. US stockpiles sit at 450M barrels, most in a year, adding to worries about a return of a worldwide supply glut. OPEC plus Russia & other allies meet on Dec 6. Producers are discussing a supply curb of 1-1.4M barrels per day (bpd) & possibly more, OPEC delegates have said. The OPEC meeting in Vienna will follow a gathering by the Group of 20 (G20) nations in Argentina this weekend, at which oil policy is expected to be discussed. The market drew support from a supply outage in the North Sea, home to the crude that underpins the Brent contract. The Buzzard oilfield, the UK's largest, has closed temporarily, prompting the cancellation of some cargoes.
Oil falls on 10th straight US crude build
Investors listened & liked what they heard from Powell about interest rates. However sudden sharp moves based on gut reactions are always suspicious. Chances are the Fed may have another rate increase in 3 weeks & then signal just 1 increase next year (down from 3 in its previous forecast). Macro economics are still stumbling. US-China trade issues are stuck in the mud, the housing & auto sectors are faltering while oil (a part of every business) is in a bear market. But the bulls are happy to see the Dow over 25K. This weekend Trump will take center stage when he meets with Xi. A lot is riding on the outcome of that meeting!
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Federal Reserve Chairman Jerome Powell struck a generally
optimistic note about the state of the US financial
system & indicated that interest rates, while still low by historical
standards, are near neutral, sending stocks higher. “Interest
rates are still low by historical standards, and they remain just below
the broad range of estimates of the level that would be neutral for the
economy -- that is, neither speeding up nor slowing down growth,”
Powell said. "My own
assessment is that, while risks are above normal in some areas and below
normal in others, overall financial stability vulnerabilities are at a
moderate level." Powell noted that the central bank is trying to carefully strike a
balance between raising interest rates too quickly, & too slowly. “There is a great deal to like about this outlook,” he added. “But we
know that things often turn out to be quite different from even the most
careful forecasts.” Fed policymakers have already voted to hike the
benchmark federal funds rate 3 times this year & are expected to
do so again in Dec. Pres Trump has
been a vocal & outspoken critic of Powell -- whom he selected to
replace Janet Yellen as Fed chair -- saying he was “not thrilled” with
him. He kept up his criticisms with Powel, saying rising
interest rates have hurt the economy. "So far,
I’m not even a little bit happy with my selection of Jay," Trump said .”Not even a little bit. And I’m not blaming anybody,
but I’m just telling you I think that the Fed is way off-base with what
they’re doing."
Fed's Powell signals interest rates near neutral in speech
Pres Trump could push for a compromise on trade with China at this weekend's G-20 summit in Argentina even after his recent tough talk. A report said Trump is increasingly anxious about the impact of a long trade war on financial markets & the economy. This could lead Trump to seek an agreement with China that would delay new tariffs on Chinese goods while the 2 countries work to resolve their issues. This would be a departure from Trump's most recent comments on US-China trade relations. Recently he said it is "highly unlikely " that the US would hold off on increasing tariffs on $200B of Chinese goods to 25%. He added the US would slap charges on the remaining $267B worth of goods from China that are not yet subject to tariffs. Trump & Chinese Pres Xi Jinping are scheduled to meet for dinner at the G-20 on Sat & the 2 leaders are expected to discuss trade, among other issues. The increasingly protectionist stance on US-China trade has rattled investors all year as they gauge how tougher trade conditions will impact corp earnings as well as the global economy. Any progress or resolution on the matter would be seen as a positive by investors for the market.
Trump could reportedly seek trade truce with China at G-20 despite tough rhetoric
The Federal Reserve issued a cautionary note about risks to financial stability,
saying trade tensions, geopolitical uncertainty & a buildup in
corporate debt among firms with weak balance sheets pose strong threats. In a lengthy first-time report on the
banking system & corp & business debt, the Fed warned of
"generally elevated" asset prices that "appear high relative to their
historical ranges." In addition, the central
bank said ongoing trade tensions, which are running high between the
US & China, coupled with an uncertain geopolitical environment could
combine with the high asset prices to provide a notable shock. "An escalation in trade
tensions, geopolitical uncertainty, or other adverse shocks could lead
to a decline in investor appetite for risks in general," the report
said. "The resulting drop in asset prices might be particularly large,
given that valuations appear elevated relative to historical levels." The drop in asset prices
would make it more difficult for companies to get funding, "putting
pressure on a sector where leverage is already high," the report said. The report further noted
that the Fed's own rate hikes could pose a threat. A market & economy
used to low rates could face issues as the Fed continues to normalize
policy thru rate hikes & a reduction in its balance sheet, or
portfolio of bonds it purchased to stimulate the economy. "Even if central bank policies are fully anticipated by the public,
some adjustments could occur abruptly, contributing to volatility in
domestic and international financial markets and strains in
institutions," the report added. On the bright side, banks & other financial institutions are seen as well capitalized & thus
in a good position to absorb shocks. Consumer debt also has kept pace
with GDP increases, indicating little threat there. For businesses, though, there could be issues, particularly among those that have added to already high debt levels. Leveraged loans
have surged recently, as have companies whose bonds are rated near the
bottom of the investment-grade ladder & are thus susceptible to
slipping into junk territory. "High leverage has
historically been linked to elevated financial distress and retrenchment
by businesses in economic downturns," the report said. "Given the
valuation pressures associated with business debt ... such an increase
in financial distress, should it transpire, could trigger a broad
adjustment in prices of business debt." The Fed noted that the
share of investment-grade debt classified at the low end of the range
has "reached near-record levels" of $2.25T (35%)
of the total corp bonds.
Fed warns about 'particularly large' plunge in asset prices
Sales of new US single-family homes tumbled to a more than 2½-year low in Oct amid sharp declines in all 4 regions, further evidence that higher mortgage rates were hurting the housing market. The Commerce Dept said new home sales dropped 8.9% to a seasonally adjusted annual rate of 544K units last month. That was the lowest level since Mar 2016 & the percent drop was the biggest since last Dec. The Sep sales pace was revised higher to 597K units from the previously reported 553K units. New home sales have dropped in 4 of the last 6 months. The forecast called for new home sales, which account for about 9.4% of housing market sales, rising 3.7% to a pace of 575K units in Oct. New home sales are drawn from permits & tend to be volatile on a month-to-month basis, decreasing 12% from a year ago. Data last week showed moderate increases in homebuilding & sales of previously owned homes in Oct. The housing market is taking a hit from higher borrowing costs, further pushing homeownership out of the reach of many workers. The 30-year fixed mortgage rate is currently at 4.81%, not far from a 7-year high of 4.94%, according to mortgage finance agency Freddie Mac. While house price inflation is slowing as demand for home purchases cools, it continues to outpace wage growth. House prices increased 5.1% year-on-year in Sep. In contrast wages rose 3.1% in Oct from a year ago. House price growth has been driven by an acute shortage of properties available for sale. The median new house price fell 3.1% to $309K in Oct from a year ago. There were 336K new homes on the market in Oct, the most since 2009 & up 4.3% from Sep. Supply is, however, just over ½ of what it was at the peak of the housing market boom in 2006. At Oct's sales pace it would take 7.4 months to clear the supply of houses on the market, the most since 2011, from 6.5 months in Sep. Nearly 2/3 of the houses sold last month were either under construction or yet to be built.
US new home sales plunged 8.9% in October
Oil prices fell, continuing a recent run of losses, after US crude inventories rose for the 10th week in a row. The market also remains nervous over whether OPEC-led producing countries will reach an accord next week on output cuts. Saudi Arabia said today it would not cut output alone & Nigeria stopped short of committing to a new push to curb supplies. West Texas Intermediate crude fell $1.27 (2.5%) to $50.29, the lowest settle price since early Oct 2017. Brent crude, the global benchmark, was down $1.05 (1.7%) at $59.16 a barrel. US crude stockpiles rose 3.6M barrels in the latest week, exceeding expectations. After falling to 2½-year lows in September, crude stocks have risen 14% with 10 straight weeks of increases. The price of Brent has dropped by more than 30% from a 4-year high above $86 in early Oct. Investors sold oil over worries about slowing economic growth in 2019 & DC's decision to grant several waivers to importers of Iranian oil after re-imposing sanctions on that nation. Crude's drop since Oct is on a par with the 2008 price crash & steeper than that of 2014-2015, both of which prompted OPEC to agree output curbs to support the market. The steady build in US crude stocks is partly due to seasonal refining maintenance, but domestic production also has surged to a record 11.7M barrels a day. US stockpiles sit at 450M barrels, most in a year, adding to worries about a return of a worldwide supply glut. OPEC plus Russia & other allies meet on Dec 6. Producers are discussing a supply curb of 1-1.4M barrels per day (bpd) & possibly more, OPEC delegates have said. The OPEC meeting in Vienna will follow a gathering by the Group of 20 (G20) nations in Argentina this weekend, at which oil policy is expected to be discussed. The market drew support from a supply outage in the North Sea, home to the crude that underpins the Brent contract. The Buzzard oilfield, the UK's largest, has closed temporarily, prompting the cancellation of some cargoes.
Oil falls on 10th straight US crude build
Investors listened & liked what they heard from Powell about interest rates. However sudden sharp moves based on gut reactions are always suspicious. Chances are the Fed may have another rate increase in 3 weeks & then signal just 1 increase next year (down from 3 in its previous forecast). Macro economics are still stumbling. US-China trade issues are stuck in the mud, the housing & auto sectors are faltering while oil (a part of every business) is in a bear market. But the bulls are happy to see the Dow over 25K. This weekend Trump will take center stage when he meets with Xi. A lot is riding on the outcome of that meeting!
Dow Jones Industrials
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