Dow tumbled 505, decliners over advancers a very big 7-1 & NAZ sank 319. The MLP index dropped 4+ to the 172s & the REIT index was off 1+ to 461. Junk bond funds declined & Treasuries were heavily purchased while stocks were sold. Oil was off 1+ to 71 & gold shot up 15 to 1766.
AMJ (Alerian MLP index tracking fund)
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The debate may be raging over whether inflation is transitory, but America's CEOs & CFOs haven't been this concerned about rising prices in more than a decade. "224 cited the term ‘inflation’ during their earnings calls for the
second quarter. This is the highest overall number of S&P 500
companies citing ‘inflation’ on earnings calls going back to at least
2010," John Butters, senior earnings analyst at FactSet, wrote. "At the sector level, the Industrials sector had the highest number
of companies that cited ‘inflation’ on earnings calls for Q2 2021 at 50,
followed by the Consumer Discretionary (33), Financials (29), and Consumer Staples (27) sectors," he detailed. Some of these calls coincided with gas prices hitting 7-year highs & record-high lumber prices, as well as gov reports. Consumer
Prices for Aug jumped 5.3%, according to the Labor Dept,
matching expectations. Prices rose at a 5.4% annual pace in
Jul, matching the prior month's gain as the fastest since 2008. Producer
prices rose at the fastest annual clip on record for the 5th
consecutive month in Aug, jumping 8.3% year over year, as supply
chain bottlenecks continue to trip up deliveries. While uncertainty remains about whether inflation will subside, it is
not eating into top- or bottom-line growth yet. "Both
the estimated earnings growth rate for CY 2021 (42.6%) and the
estimated net profit margin (12.4%) for CY 2021 are higher today
compared to the estimates back on June 30," he added.
Inflation talk by S&P 500 CEOs hits 10-year high
Treasury prices jumped & yields declined as investors rushed into the safety of US gov bonds amid a global sell-off in financial markets. The move pushed the 10-year Treasury yield back down to as low as 1.31%. The yield on the benchmark 10-year Treasury note dropped 4 basis points to 1.329% & the yield on the 30-year Treasury bond fell 5 basis points to 1.86%. Yields move inversely to prices. China's 2nd-largest property developer, Evergrande, is on the brink of default & sending shockwaves across markets as some analysts warn the pain that could come from its collapse would extend beyond China. Meanwhile, Treasury Secretary Janet Yellen asked Congress to raise the federal debt ceiling. In an opinion article, Yellen wrote failing to raise the debt ceiling could spark a historic financial crisis. Furthermore, investors are looking ahead to a new Federal Reserve meeting, with Chair Jerome Powell due to speak on Wed. Powell has previously said the central bank could start lifting monetary stimulus before the end of the year & investors will be looking for clues about the tapering process.
10-year Treasury yield slides to 1.31% as investors crowd into bonds amid sell-off
Homebuilders in the single-family construction market are feeling better, as lumber prices are way down from sky-high levels and buyer demand is growing. Builder sentiment rose 1 point in Sep to 76, according to the National Association of Home Builders/Wells Fargo Housing (NAHB) Market Index, the first increase in 3 months. Sentiment stood at 83 in Sep of last year & then set a record high of 90 last Nov. It then dropped off dramatically when lumber prices spiked & supply chain issues hampered construction. “The September data show stability as some building material cost challenges ease, particularly for softwood lumber. However, delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers,” said NAHB Chair Chuck Fowke. Lumber reached more than $1600 per thousand board feet this spring, but the more recent price has been around $400. Of the index's 3 components, current sales conditions rose 1 point to 82. Buyer traffic increased 2 points to 61 & sales expectations in the next 6 months held steady at 81. “The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity, as reflected in the September HMI,” said NAHB Chief Economist Robert Dietz. “While building material challenges persist, the rate of cost growth has eased for some products, but the job openings rate in construction is trending higher.” The biggest hurdle for builders in the coming months will be affordability, as they are forced to raise prices in order to keep up with construction costs. Buyers are still getting help from low mortgage rates, but should rates begin to rise, the squeeze on their wallets will intensify. Mortgage giant Fannie Mae just lowered its expectations for Q4 new home sales from 846K units to 789K units (annualized), citing supply problems as well as high home prices.
Homebuilder sentiment improves after a big drop in lumber prices
Dow Jones Industrials
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