Dow dropped 264, advancers slightly ahead of decliners & NAZ retreated 142. The MLP index added 2+ to the 205s & the REIT index was off 1 to the 452s. Junk bond funds edged higher & Treasuries saw a little buying (more below). Oil jumped 2+ to the 94s & gold gained 7 to 1863.
AMJ (Alerian MLP index tracking fund)
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Consumer spending bounced back sharply in Jan as rising inflation & a post-holiday surge kept cash registers ringing, the Commerce Dept reported. Retail sales for the month rose 3.8%, much better than the 2.1% estimate. The numbers are not adjusted for inflation; the 0.6% rise in the consumer price index for the month helped push a reversal from the 2.5% sales decline in Dec, which was revised lower from the initially reported 1.9% drop. CPI was up 7.5% on a year-over-year basis in Jan. Excluding auto sales, the retail gain was 3.3%, after falling 2.8% in the previous month. Online shopping contributed the most on a percentage basis, with nonstore retailers seeing a gain of 14.5%. Furniture & home furnishing sales increased 7.2%, while motor vehicle & parts dealers saw a 5.7% rise. Food & drinking establishments, considered a barometer for the pandemic-era economy, saw sales dip just 0.9% for the month despite the major escalation in Covid cases fueled by the omicron spread. On a year-over-year basis, retail sales overall rose 13%, pushed higher by a 33.4% surge in gasoline station sales & a 21.9% burst in clothing stores. The numbers came with the economy facing the worst inflation in 40 years, which helps feed into the retail sales numbers. The Federal Reserve is expected to enact multiple interest rate hikes this year to combat rising prices, with markets looking for the central bank to boost its benchmark short-term borrowing rate by perhaps ½ a percentage point in Mar.
Retail sales surge 3.8% in January, much more than expected amid inflation rise
Supply chain issues for homebuilders appear to be getting worse & that is weighing on confidence in the industry. Builder confidence in the single-family, newly built housing market fell 1 point in Feb to 82 on the National Association of Home Builders/Wells Fargo Housing Market Index (NAHB). That is the 2nd straight month of declines. Anything above 50 is considered positive. The index stood at 84 in Feb 2021. “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” said NAHB Chair Jerry Konter. “These delivery delays are raising construction costs and pricing prospective buyers out of the market.” Surging lumber prices are also adding thousands of $s to the cost of new homes. Homebuyers are already contending with rising interest rates. The average rate on the popular 30-year fixed mortgage just crossed over 4%, well over a full percentage point higher than it was a year ago. Add higher rates to higher home prices & some buyers are simply unable to afford it. This is why rental demand is currently so high. “Residential construction costs are up 21% on a year over year basis, and these higher development costs have hit first-time buyers particularly hard,” said Robert Dietz, NAHB's chief economist. “Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.” Of the 3 components, current sales conditions increased 1 point to 90 & sales expectations in the next 6 months fell 2 points to 80. Buyer traffic fell 4 points to 65.
Homebuilders’ confidence falls as they wait months for cabinets, garage doors and appliances
Treasury yields dipped as investor focus remained on geopolitical tensions, along with economic data releases. The yield on the benchmark 10-year Treasury note slipped by less than 1 basis point to 2.038% & the yield on the 30-year Treasury bond fell by 2.2 basis points to 2.35%. Yields move inversely to prices & 1 basis point is equal to 0.01%. Investors were weighing a stronger-than-expected retail sales report for Jan. The Commerce Dept said sales jumped 3.8% last month, though that number is not adjusted for inflation. The sales decline in Dec was also revised even lower. Developments around a potential Russian invasion of Ukraine have driven market sentiment this week. Markets around the world rallied yesterday after Russia announced that it had begun returning some of its troops from the Ukrainian border back to their bases. Treasury yields also moved higher, as investors sold out of safe haven assets, amid hopes of a de-escalation in geopolitical tensions. Yesterday Pres Biden downplayed the Kremlin's claim. Meanwhile, the Federal Reserve is due to release the minutes from its Jan meeting later. Investors will be poring over the minutes for any further indications of its plans for raising interest rates & tightening monetary policy, amid rising inflation.
10-year Treasury yield dips after strong retail sales data as investors await Fed minutes
With retail sales data, Fed minutes coming later & guessing what Putin will do next, there is a lot for traders to mull over. Currently oil is in strong demand & negative thinking investors keep buying gold.Dow Jones Industrials
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