Markets drops for the worst H1 in more than 5 decades

Dow fell 253, decliners over advancers 2-1 & NAZ lost 149.  The MPL index slid back 1+ to the 189s & the REIT index was off 2+ to the 404s.  Junk bond funds were mixed & Treasuries saw heavy buying, taking on the 10 year Treasury below 3%.  Oil dropped 4 to the 105s & gold slid 10 to 1807 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Free Apple Analysis!

Bring Your Portfolio Into The 21st Century

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

A historic housing shortage brought on by the one-2 punch of slow construction & strong pandemic-induced demand is finally starting to ease.  Active listings for homes jumped 19% in Jun, the fastest annual pace since Realtor.com began tracking the metric 5 years ago.   And the number of new listings during the month finally surpassed typical pre-Covid levels, up 4.5% from a year ago.  Overall inventory, however, is still about ½ pre-Covid levels.  Some markets that saw the biggest surges in demand during the pandemic are now among those seeing the biggest gains in supply:  “We expect to see additional inventory growth in July, building on accelerated improvements seen throughout June,” said Danielle Hale, chief economist at Realtor.com, adding that the supply gains increased as the month progressed.  And Hale said even more homeowners could decide to sell, adding new supply as buyers grapple with higher costs & difficulty finding homes that fit their budgets.  Still, the expanding supply is not easing sky-high home prices yet.  The median listing price in Jun hit another record high of $450K.  Annual gains are moderating slightly, but still up almost 17%, partly because the share of larger, more expensive homes is rising.  The costs of owning the median-priced home in the second quarter required 31.5% of the average US wage, according to a new report by ATTOM, a property data provider.  That's the highest percentage since 2007 & up from 24% the year before, marking the biggest jump in more than 2 decades.  Lenders generally see a 28% debt-to-income ratio as the ceiling for approving a mortgage.  It's why some potential homebuyers today are no longer qualifying for a mortgage.  As a result, the affordability of buying a home in Q2 dropped in 97% of the nation, according to ATTOM.  That's up from 69% in the same qtr a year ago & the highest reading since just before the housing crash in the last recession.

The housing shortage is starting to ease after supply surged in June

The Food & Drug Administration (FDA) said vaccine manufacturers should update their Covid-19 booster shots to target the most recent omicron subvariants that are gaining ground in the US.  Dr Peter Marks, head of the FDA's vaccine division, said manufacturers should update their shots to target omicron BA.4 & BA.5 in addition to the original strain of the virus that first emerged in Wuhan, China in 2019.  The FDA wants to update the booster shots to provide longer lasting protection ahead of the fall, when public health experts expect another wave of infection as immunity from the vaccines wanes and people head indoors, where Covid spreads more easily, to escape the cold.  The 2-dose primary vaccination series won’t immediately change, Marks said. In other words, people who are fully vaccinated will not start from scratch in the fall.  They would simply receive an omicron shot to increase their protection against the virus.  People who are not yet vaccinated will get 2 doses of the original vaccine first & then likely a jab with the new version.  Marks said the FDA will review the new vaccines for safety, effectiveness & manufacturing quality to ensure they meet the highest standards before they authorize them for public use.  The FDA's panel of independent experts voted overwhelmingly yesterday to recommend a new formula after an all-day meeting in which they evaluated the benefits & downsides of updating the shots ahead of a fall booster campaign in the US.  But the vaccine makers are having trouble keeping up with the rapid evolution of the virus.  But BA.1 has been pushed out by other omicron subvariants & is no longer circulating in the US Omicron BA.4 & BA.5 now make up more than 50% of Covid infections in the US, according to the Centers for Disease Control & Prevention.  It's unclear how long it will take the vaccine makers to switch gears & develop shots that include BA.4 & BA.5 rather than the original version of omicron.  The FDA has asked the companies to start clinical trials on these newer subvariants, Marks said.  The FDA panel of experts generally favored targeting BA.4 & BA.5 in an effort to keep up with the evolution of the virus.

FDA backs changing Covid booster shots to target most recent omicron subvariants

The Supreme Court dealt a significant blow to the Biden administration's climate change agenda, ruling that the Environmental Protection Agency (EPA) cannot pass sweeping regulations that could overhaul entire industries without additional congressional approval.  The 6-3 decision limits how far the executive branch can go in forcing new environmental regulations on its own.  "Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible ‘solution to the crisis of the day,’  But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d)," Chief Justice John Roberts said in the Court's opinion, referencing Section 111 of the Clean Air Act.  "A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body."  The case stemmed from the Obama administration’s 2015 Clean Power Plan which aimed to reduce carbon emissions at power plants by pushing a shift from coal, to natural gas, & ultimately to wind & solar energy.  The plan was put on hold by the Supreme Court in 2016, & then repealed by the Trump administration & replaced by the less extreme Affordable Clean Energy (ACE) Rule.  The question of how much power the EPA has was based on a provision in Section 111 of the Clean Air Act, which grants the EPA power to set "standards of performance" for existing sources of air pollutants as long as they take into account cost, energy requirements, & non-air health & environmental impacts.  The Trump EPA, in repealing the Clean Power Plan, took the position that Section 111 only let them determine measures to be implemented at the physical power plants themselves (an "inside-the-fence-line" restriction) & not broadly-applied measures for entire industries.  Similarly, West Virginia & other states claimed that Section 111 does not allow the EPA to go so far as to make rules that would completely reshape American electrical grids or force industries to eliminate carbon emissions altogether.

SCOTUS deals Biden green agenda serious blow with EPA decision

Initial jobless claims ticked down last week, but were marginally higher than forecast, as investors continue to assess the labor market for potential signs of a slowdown.  First-time filings for unemployment insurance in the US totaled 231K for last week, falling slightly from the prior week's upwardly revised 233K, the Dept of Labor said.  The forecast had expected the latest reading to come in at 230K.  The 4-week moving average, which smooths out some weekly volatility in the data, was 231K, an increase of 7K from the previous week's revised average, per the Labor Dept.

US jobless claims total 231,000 last week

Oil futures fell to tally a loss for the month, but held on to a gain so far this year.  OPEC+ confirmed an existing agreement to boost production in Aug.  The decision either illustrates the group's inability to boost production above what is planned or its indifference to do in order to meet western demand.  West Texas Intermediate crude for Aug fell $4.02 (3.7%) to settle at $105.76 a barrel.  Based on the front-month contracts, prices fell 7.8% for the month, but trade nearly 41% higher YTD.

Oil futures fall for the month, but hold on to a year-to-date gain

Gold futures settled lower for a 4th day in a row as expectations for aggressive action by the Federal Reserve diminished the precious metal's luster, sending prices down by more than 2% for the month to their lowest finish since Feb.  Gold futures for Aug lost $10 (0.6%) to settle at $1807 per ounce, the lowest most-active contract finish since early Feb.  Prices fell 2.2% for the month & 7.5% for the qtr & trade 1.2% lower YTD.  The prospect of higher interest rates has dampened demand for gold because higher rates make bonds a more attractive investment by comparison, since gold doesn’t offer a yield.  Powell said yesterday that there is “no guarantee” that the Fed could drive inflation back down to its 2% target without crashing the robust American labor market.

Gold falls more than 2% for the month, settles at lowest since February

The EPA ruling will have a big effect on the economy in coming years. In the meantime, the stock market had one of its worst 6 month periods in history.  Dow dropped 5560 in H1.  Very, very ugly!!!

Dow Jones Industrials 

Markets fall, heading for the worst half in half a century

Dow dropped 376, decliners over advancers better than 3-1 & NAZ pulled back 181.  The MPL index was off 2+ to the 188s & the REIT index slid back 2+ to the 404s.  Junk bond funds were sold & Treasuries continued in heavy demand.  Oil fell 3+ to 106 after OPEC+ meeting (see below) & gold declined off 6 to 1820.

AMJ (Alerian MLP index tracking fund)

 

 

Start Using the Leverage of Options and the Power of MarketClub Today!

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

Inflation held at stubbornly high levels in May, though the monthly increased was slightly less than expected, according to a Commerce Dept gauge closely watched by the Federal Reserve.  Core personal consumption expenditures prices rose 4.7% from a year ago, 0.2 percentage point less than the previous month but still around levels last seen in the 1980s. The forecast was looking for a reading around 4.8%.  On monthly basis, the measure, which excludes volatile food & energy prices, increased 0.3%, slightly less than the 0.4% estimate.  Headline inflation, however, shot higher, rising 0.6% for the month, much faster than the 0.2% gain in Apr.  That kept year-over-year inflation at 6.3%, the same as in Apr & down slightly from Mar's 6.6%, which was the highest reading since 1982.  In addition, the report reflected pressures on consumer spending, which accounts for nearly 70% of all economic activity in the US.  While personal income rose 0.5% in May, ahead of the 0.4% estimate, income after taxes & other charges, or disposable personal income, declined 0.1% on the month & 3.3% from a year ago.  Spending adjusted for inflation fell 0.4%, a sharp drop from the 0.3% gain in Apr, though it was up 2.1% on a year-over-year basis.  Goods inflation rose 9.6% while services prices were up 4.7%, both up 0.1 percentage point from Apr.  The personal saving rate edged higher, rising to 5.4%, up 0.2 percentage point from the previous month.

Fed’s preferred inflation measure rose 4.7% in May, around multi-decade high levels

A group of some of the world's most powerful oil producers agreed to stick to a planned output increase in Aug, defying calls to pump more barrels to cool red-hot crude prices.  OPEC+, concluded a meeting via videoconference by deciding to stay the course with its production policy.  It means the Middle East-dominated group will increase monthly overall production for the month of Aug to 648K barrels per day.  OPEC+ said its next meeting would take place on Aug 3.  At the group's last gathering at the start of the month, OPEC+ decided to raise output by 648K barrels per day in both Jul & Aug, bringing forward the end of the historic output cuts implemented during the throes of the coronavirus pandemic.  The decision was welcomed by Pres Biden's administration at the time, which has repeatedly pushed for the group to pump more.  OPEC+ has been slowly returning the nearly 10M barrels per day it agreed to pull from the market in Apr 2020.  In recent months, production has risen between 400K & then 432K barrels per day each month.

OPEC+ sticks with planned oil production hike as supply concerns weigh on energy markets

Walgreens (WBA), a Dividend Aristocrat, said its quarterly sales declined and profits got hit by waning Covid-19 vaccination demand, heavy investments in its health care business & an opioid settlement with Florida.  The drugstore chain stood by its full-year forecast, saying it expects adjusted EPS to grow by the low single-digits.  It pointed to rebounding store traffic & more online traffic.  And it said investing in health care, such as opening doctor offices at stores, will pay off in the future.  With inflation hitting consumers’ wallets, CEO Roz Brewer said WBA is working with suppliers to make sure it has lower prices than competitors.  She added that WBA has historically seen stable prescription trends in an economic downturn. “There’s a shift in calculus due to food and fuel inflation, but health and wellness will always be a priority,” she continued.  In the qtr, EPS fell to 33¢ from  $1.38 a year earlier.  The sharp decline reflected a $683M charge related to its opioid settlement with the state of Florida, a decline in US pharmacy sales as it lapped a high volume of Covid-19 vaccinations a year ago & investments in its expanding health care facilities.  The stock fell 1.83 (4%).
If you would like to learn more about WBA, click on this link:
club.ino.com/trend/analysis/stock/WBA?a_aid=CD3289&a_bid=6ae5b6f7

Walgreens stands by full-year forecast as retail gains help offset steep Covid vaccine drop

The Dow is down almost 5700 (16%) YTD & the outlook is gloomy.  What else is there to say?

Dow Jones Industrials

 

Markets were mixed in a choppy session on inflation, growth concerns

Dow went up 82, decliners over advancers 2-1 & NAZ was off 3.  The MLP index declined 3+ to 191 & the REIT index fell 3+ to the 407s.  Junk bond funds drifted lower & Treasuries continued to be purchased.  Oil reversed course & slid 2 to the 109s & gold was about even at 1820 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Free Apple Analysis!

Bring Your Portfolio Into The 21st Century

Four Days, Four Trades, +40% Average Returns
Learn to trade options with MarketClub!

Federal Reserve Chair Jerome Powell vowed that policymakers would not allow inflation to take hold of the US economy over the longer term.  “The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening,” he said.  “We will not allow a transition from a low-inflation environment into a high-inflation environment.”  Speaking to an ECB forum, Powell continued his tough talk on inflation in the US that is currently running at its highest level in more than 40 years.  In the near term, the Fed has instituted multiple rate hikes to try to subdue the rapid price increases.  But Powell said that it/s also important to arrest inflation expectations over the longer term, so they don't become entrenched and create a self-fulfilling cycle.  “There’s a clock running here, where we have inflation running now for more than a year,” he added.  “It would be bad risk management to just assume those longer-term inflation expectations would remain anchored indefinitely in the face of persistent high inflation. So we’re not doing that.”  The Fed now is charged with bringing down those expectations while not crashing the economy.  Powell said he's confident that will happen, though he acknowledged the risks ahead.  “We’re strongly committed to using our tools to get inflation to come down. The way to do that is to slow down growth, ideally keeping it positive,” he continued.  “Is there a risk that would go too far? Certainly, there’s a risk. I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make ... would be to fail to restore price stability.”  Since the Fed started raising rates in Mar, market indicators of inflation expectations have fallen considerably.  A measure of the outlook over the next 5 years that compares inflation-indexed gov bonds to standard Treasuries fell from nearly 3.6% in late Mar to 2.73% this week.

Powell vows to prevent inflation from taking hold in the U.S. for the long run

Mortgage rates have eased recently, but overall remain elevated, which has had an impact on parts of the mortgage industry, especially when it comes to refinancing.  The Refinance Index increased 2% from the previous week, but is way down from year-ago levels.  "The decline in mortgage rates led to a slight increase in refinancing, driven by an uptick in conventional loans," said Joel Kan, MBA's associate VP of economic & industry forecasting.  "However, refinances are still 80 percent lower than a year ago and more than 60 percent below the historical average."  Demand for mortgage applications saw an overall increase over the prior week by 0.7%.  "Mortgage rates continue to experience large swings. After increasing 65 basis points during the past three weeks, the 30-year fixed rate declined 14 basis points last week to 5.84%," added Kan.  "Rates are still significantly higher than they were a year ago, when the 30-year fixed rate was at 3.2%."  "Overall purchase activity has weakened in recent months due to the quick jump in mortgage rates, high home prices, and growing economic uncertainty," said Kan.  The average size of a purchase loan continues to decline to $413K.  The record size of $460K was hit in Mar 2022.  The survey covers over 75% of all UD retail residential mortgage applications & has been conducted weekly since 1990.

Mortgage refinancing 80% lower than last year's levels

The Western military organization NATO has officially invited Sweden & Finland to join the alliance in a historic move.  The development comes after the alliance reached a deal with Turkey to accept the membership bids from both countries after initial objections from Ankara.  The summit — arguably the most important meeting of the alliance in recent months, & perhaps years — has also seen the alliance reiterate its condemnation of Russia’s invasion of Ukraine, pledge to beef up its defenses in Europe, & slam China as posing a “challenge” to its interests.  NATO's Secretary-General Jens Stoltenberg announced this week that the Western military organization would increase the number of troops within its rapid response force — which comprises land, air, sea & special forces units that are capable of being deployed quickly — to 300K from about 40K personnel.  Russia has issued an initial reaction to the NATO deal that allows its expansion to go ahead, roughly doubling the land border Russia will have to share with NATO members, with one official calling it “a purely destabilizing factor.”  The US will work with Turkey on modernizing its F-16 fighter jet fleet on the heels of a brokered deal to allow Finland & Sweden to join the NATO alliance.  “The U.S. Department of Defense fully supports Turkey’s modernization plans for its F-16 fleet. These plans are in the works. And, you know, they need to be worked through our contracting processes,” Celeste Wallander, assistant secretary of Defense for intl security affairs, said.  “The United States supports Turkey’s modernization of its fighter fleet because that is a contribution to NATO security and therefore American security,” she added.  All 30 NATO members must approve a country's bid for it to be accepted into the alliance.  Yesterday, NATO Secretary-General Jens Stoltenberg said that the world's most powerful military alliance reached a deal to admit the 2 countries.

Russia calls NATO expansion deal ‘destabilizing’; Ukraine releases footage of deadly mall strike

Gold futures ended lower, with strength in the $ contributing to a fall in prices for the precious metal to their lowest in more than 2 weeks.  Gold for Aug fell $3 to settle at $1817 per ounce.  That was the lowest most-active contract finish since Jun 14.  During a panel discussion at a ECB policy conference today, Fed Chair Jerome Powell said the Fed “will not allow a transition from a low inflation environment into a high inflation environment.”  A final reading on Q1 GDP showed the US economy contracted at a slightly faster clip than previously believed.  The final reading showed the economy shrunk by 1.6%, compared with the 1.5% contraction reflected in the first revision.  That fed fears over a recession, which can provide haven-demand for gold.  In Europe, the headline reading on German inflation declined in Jun for the first time since Jan, but inflation data out of Spain showed price pressures accelerating at their fastest pace in decades.  According to preliminary data released by German statistics office Destatis, consumer prices rose 7.6% year-over-year, lower than the 8% forecast.  In Spain, the annualized inflation rate in Jun topped 10%, the highest since 1985.  The ICE US Dollar Index, a measure of the $'s strength against a basket of rivals, edged up by 0.5% at 105.03.

Gold ends lower as strength in the U.S. dollar helps pull prices to a more than 2-week low

Oil futures settled lower, easing back after 3 consecutive session gains, even as a more than 3M-barrel drop in US crude supplies over the past 2 weeks fed concerns over tight global inventories.  West Texas Intermediate crude for Aug fell $1.98 (1.8%) to settle at $109.78 a barrel.  The front month the global benchmark Aug Brent crude contract shed $1.72 (1.5%) to $116.26 a barrel.  The most active Sep Brent crude contract lost $1.35 (1.2%) to end at $112.45 a barrel.  Prices had seen an early boost, driven by China's moves to ease COVID restrictions, continued worries about tight supplies & a constrained outlook for production increases, though fears of recession remained, as the Federal Reserve & other major central banks tighten monetary policy aggressively in an effort to rein in inflation.  OPEC held a meeting today, ahead of a broader gathering of OPEC members & their allies (OPEC+) tomorrow.  OPEC+ is expected to confirm an already agreed supply increase of 648K barrels a day in output for August.  The Energy Information Administration released data showing declines in US crude supplies in the past 2 weeks, totaling more than 3M barrels, excluding oil from Strategic Petroleum Reserve.

Oil prices snap 3-day winning streak

The Dow fluctuated above breakeven for most of the day.  The bulls tried to take it higher in the AM & then in the PM.  The OPEC+ meeting tomorrow will be important although the production increase has been advertised.  For those who forgot about the year from hell in 2020, the price of oil dropped into the red in Apr.  So they cut production 10M barrels.  Last year, they started a program to raise production 400K monthly, their way of restoring the prior levels.  Now they are up to a 638K monthly increases.  But some of the weaker countries such as Libya don't meet their targets,

Dow Jones Industrials