Dow dropped 543 (not far from session lows), decliners over advancers 5-1 & NAZ declined 386. The MLP index was flattish in the 198s & the REIT index dropped 4+ to the 478s. Junk bond funds were mixed & Treasuries saw very heavy selling, taking the yield on the 10 year Treasury up 9 basis points to 1.87%. Oil jumped 2+ to the high 85s (not seen since 2014) & gold fell 2 to 1813 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The World Health Organization (WHO) said the pandemic will not end as the omicron variant subsides in some countries, warning that the high levels of infection around the world will likely lead to new variants as the virus mutates. “We’re hearing a lot of people suggest that omicron is the last variant, that it’s over after this. And that is not the case because this virus is circulating at a very intense level around the world,” Maria Van Kerkhove, the WHO's Covid-19 technical lead, said. New infections have increased by 20% globally over the past week with nearly 19M total cases reported during that period, according to the WHO. However, Van Kerkhove said new infections are likely far higher than what is reported to the WHO. Dr Bruce Aylward, a senior WHO official, warned high levels of transmission give the virus more opportunity to replicate & mutate, raising the risk that another variant will emerge. “We don’t fully understand the consequences of letting this thing run,” Aylward said. “Most of what we’ve seen so far in areas of uncontrolled transmission has been we paid a price for the variants that emerge and new uncertainties we have to manage as we go forward.” Van Kerkhove said now is not the time to relax public health measures, such as masks & physical distancing. She called on govs to strengthen those measures to bring the virus under better control & head off future waves of infection as new variants emerge.
WHO says omicron won’t be last Covid variant as global cases surge by 20% in a week
The average rate on the popular 30-year fixed mortgage hit 3.7%, according to Mortgage News Daily. That is the highest since early Apr 2020 & 83 basis points higher than the same time one year ago. Rates are reacting to surging bond yields, as financial markets react to swifter & more aggressive monetary policy tightening by the Federal Reserve. Mortgage rates loosely follow the yield on the 10-year Treasury, but they are also affected by demand for mortgage-backed bonds. The Fed had been buying those bonds aggressively during the pandemic in order to keep rates low, but it is now pulling out of the MBS market faster than expected. Mortgage rates, “would be higher, but lenders are compressing their margins to compete in a rising rate environment. Some will be at 3.625%, but many are already up to 3.75%,” said Matthew Graham, COO of Mortgage News Daily. Lenders are losing vast amounts of refinance business, which had been booming just a year ago when rates were much lower. Applications to refinance a home loan were down 50% from a year ago, according to the most recent weekly survey from the Mortgage Bankers Association. “While the rapid rate spike is motivating a certain portion of fence-sitters--especially those looking for cash-out refinances, rates are now becoming a bigger deterrent,” said Graham. “In other words, the refi share of the origination market should be taking a substantial hit in forthcoming updates.” Mortgage rates set more than a dozen record lows in 2020, causing already strong homebuyer demand to surge even more. With the extra purchasing power afforded by low rates, buyers bid up prices on the low supply of homes for sale, & those prices are now still up double digits from a year ago. Both new & existing home prices are at record highs & there is still not enough supply to cool the market.
Mortgage rates jump again, causing headaches for homebuyers
Rising bond yields could keep a choke hold on tech & growth stocks for now, as investors bet the Federal Reserve will raise interest rates 4 or more times this year. Stocks tumbled today, with tech among the worst performing sector as Treasury yields jumped. The 10-year yield, which moves opposite price, was at a new post-pandemic high of 1.86% yesterday, after trading at just under 1.8% Fri. The 2-year yield also zipped higher, crossing above 1% to 1.04%. For perspective, the 2-year, which most reflects Fed policy, was just above 0.5% at the beginning of Dec. Bond pros expect yields to continue to rise into the Fed's meeting Jan 25-26, & then will take their cue from the Fed's tone. That could mean rough sledding for stocks. Yields rise as prices fall & bonds are selling off as investors repostion ahead of the Fed meeting. The Fed had already set a hawkish tone when it met in Dec, but the minutes from that meeting showed central bankers were even more bent on tightening. The minutes revealed Fed officials had discussed shrinking its balance sheet starting this year. That is in addition to the 3 qtr point rate hikes contained in its forecast. But Fed speakers have also added to the speculation that more rate hikes are coming. St Louis Fed Pres James Bullard last week said he could see 4 interest rate hikes this year. Fed Governor Christopher Waller Fri said 3 rate hikes would be a good baseline but there could be fewer, or as many as 5 depending on the course of inflation. Bond strategists expect the closely watched 10-year yield will be on a quick path to 2%. The 10-year is important because it influences home mortgage rates & other business & consumer loans. It is also the bond barometer the stock market watches most & it's moves can influence tech & other stocks that have high valuations based on expectations for their best earnings being in the future.
Rising interest rates could keep a choke hold on tech and growth stocks
US employers expect to pay an average 3.4% raise to their workers in 2022, according to a Willis Towers Watson survey. That projected wage growth is faster than actual raises paid in the prior 2 years, amid a competition for workers & high inflation, according to the poll of 1004 companies, conducted Oct-Nov. “Inflation is an element of it, but that’s not the sole factor,” said Lesli Jennings, senior director of work & rewards at Willis Towers Watson. “I think the bigger piece is about this race for talent.” ,mWhat’s more, companies expect to pay similar average raises across positions, from entry level to more senior workers, Jennings added. Job openings in the US are near an all-time high as a record 4.5M workers quit their jobs in Nov, a phenomenon that's been dubbed the “Great Resignation.” Ongoing public health fears surrounding Covid-19, as well as other factors such as child care duties, burnout & higher relative levels of savings amassed during the pandemic, have reduced the number of workers in the labor force. Labor shortages have been most acute for low-paying, in-person jobs — such as bar, restaurant & hotel positions in the leisure & hospitality sector. Employers have increased wages to attract & retain employees amid the demand for labor. About 74% of companies cited the tight labor market as a reason to increase their budgeting for raises. Fewer companies (31%) cited inflation as a factor in higher estimated pay. The cost of living is growing at its fastest annual pace in about 4 decades, as the pandemic has snarled supply lines & led consumers to shift consumption toward more physical goods. Employers may feel the need to increase pay to help employees keep up with rising costs. Corp profits also jumped significantly in 2021, giving companies more bandwidth to expand pay for their employees. Just over a 3rd of companies cited stronger anticipated financial results as a reason to boost pay. Overall, 32% of companies increased their salary projections over the course of just a few months. In Jun 2021, for example, respondents had budgeted for an average 3% increase in worker pay this year, according to Willis Towers Watson. Respondents paid a 2.8% raise to employees in 2021, on average.
U.S. companies are expecting to pay an average 3.4% raise to workers in 2022
Gold prices ended lower, giving up early gains that followed downbeat US economic data & an overall decline in global stock markets, with the precious metal posting a 3rd straight decline as Treasury yields rose to levels not seen since 2020 & the $ strengthened. Investing in gold in recent weeks has closely followed concerns about inflation & moves in the $ which the commodity has been pricing in. Investors expect a surge in inflation will prompt the Federal Reserve to raise interest rates at least 3 times this year as it combats pricing pressures. Against that backdrop, the yield on the 2-year Treasury note yield rose to 1.026%—around the highest level since Feb 2020, with the short-term gov debt tending to be the most sensitive to expectations for higher interest rates from the Federal Reserve. Meanwhile, the benchmark 10-year Treasury note yields climbed to as high as 1.857%, representing the highest level since about Jan 2020. Rising yields can undercut appetite for nonyielding precious metals. Separately, the $ has gained 0.5%, as gauged by the ICE Dollar Index, which measures the currency against a basket of a ½-dozen others.
Gold prices end lower for a third session, pressured by firmer dollar, rising yields
Crude-oil prices settled at their highest level since 2014 with geopolitical tensions in focus after an attack on an Abu Dhabi oil facility. Iran-backed Houthi rebels from Yemen claimed responsibility for the attack on the oil facility in Abu Dhabi that killed 3 people yesterday & caused a fire at the capital of UAE's intl airport. The UAE is the world's 8th largest oil producer & instability in the Gulf can spark concerns of supply shortages. West Texas Intermediate (WTI) crude for Feb rose $1.61 (1.9%) to settle at $85.43 a barrel, following a 6.2% gain last week, its 4th weekly rise in a row. Mar Brent crude, the global benchmark, added $1.03 (1.2%) to end at $87.51 a barrel, after last week’s 5.3% weekly advance. Prices for both WTI & Brent crude marked their highest settlements since 2014. Oil remained higher after OPEC, in its monthly report, left its forecast for 2022 growth in oil demand unchanged at 4.2M barrels a day, estimating total global consumption at 100.8M barrels a day. Separately, a monthly report from the Energy Information Administration forecast a rise in oil production from 7 major US shale plays, by 104K barrels per day to 8.54M barrels per day in Feb, compared with Jan, with output from the Permian leading the rise.
Crude oil settles at its highest price since 2014 after Abu Dhabi oil facility attack
Investors need to adjust to higher interest rates that are coming, although they will be moderate compared with long term average interest rates. The OPEC forecast for oil is bullish for the global economy. A strong economy will need more oil. There was a limited rally in the last hour, but the bears returned for additional selling.
Dow Jones Industrials
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