Dow jumped 315 (near session highs), advancers over decliners about 3-1 & NAZ advanced 228. The MLP index went up 2 to the 214s & the REIT index gained 2 to the 439s. Junk bond funds were mixed & Treasuries saw more buying, reducing yields. Oil finished up 2+ to the 98s (with a high at 101) & gold rose 11 to 1780 (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)
Just one day after the Federal Reserve raised its benchmark rate, mortgage rates took a sharp turn lower. The average rate on the popular 30-year fixed mortgage fell to 5.22% yesterday from 5.54% on Wed, when the Fed announced its latest rate hike, according to Mortgage News Daily. Rates hadn't moved much in the days leading up to the Fed meeting earlier this week, but they had been slowly coming off their most recent high in mid-Jun, when the 30-year fixed briefly crossed 6%. The drop also came on the heels of the Bureau of Economic Analysis' GDP report, which showed the US economy contracted in Q2. That is a widely accepted signal of recession. GDP fell 0.9% at an annualized pace for the period, according to the advance estimate. The forecast had expected growth of 0.3%. After the news, investors rushed to the relative safety of the bond market, causing yields to fall. Mortgage rates loosely follow the yield on the 10-year Treasury bond. This is an exceptionally fast drop!” wrote Matthew Graham, COO of Mortgage News Daily. “Perhaps even more interesting (and uncommon) is the fact that mortgage rates have dropped faster than U.S. Treasury yields. It’s typically the other way around as investors flock first to the most basic, risk-free bonds.” Graham said the big picture shift in rates over the past month has created a situation where investors greatly prefer to be holding mortgage debt with lower rates. “In a way, mortgage investors are trying to get ahead of the game. If they’re holding mortgages at a higher rate, they will lose money if those loans refinance too quickly,” he added. The question now is whether the market is in a new range & rates will settle where they are now. “If rates reverse course, volatility could be just as big going in the other direction,” Graham warned. He also noted that mortgage rates could move even lower if economic data continues to be gloomy & inflation moderates. Already, lower rates appear to be having a slight impact on potential homebuyers. Real estate brokerage Redfin just reported seeing a slight uptick in searches & home tours in the past month, as rates came off their recent highs. “The housing market seems to be settling into an equilibrium now that demand has leveled off,” Redfin's chief economist, Daryl Fairweather, said. “We may still be in for some surprises when it comes to inflation and rate hikes from the Fed, but for now an ease in mortgage rates has brought some relief to buyers who were reeling from last month’s rate spike.” The increase in buyer interest, however, has not translated into new contracts, nor sales. The supply of homes for sale is increasing slowly, & there are reports of more sellers dropping their asking prices.
Mortgage rates tank after negative GDP report and Fed’s latest hike
US trucking CEOs expect to maintain pricing power even with volumes softening in H2 as retailers, manufacturers & consumers adjust to disruptions from Covid lockdowns, the Russia-Ukraine war & inflation. A recent survey of customers by SAIA, a trucker for prominent retailers, found the majority of companies are still working to figure out their next step & what the “new normal” is for their business, according to CEO Fritz Holzgrefe. “They were talking a lot about continuing to rebuild inventory positions, straightening out their supply chains through the balance of the year, even into the first part of next year,” Holzgrefe said. “Maybe things have slowed a bit, but customers are still continuing to re-sort their supply chain position to more effectively to achieve their goals in their respective businesses.” The supply chain is improving & past the worst, according to Derek Leathers, CEO of Werner Enterprise. But, he warned, headwinds for truckers will keep rates well above prepandemic levels for the rest of 2022. “You’ll see rates hold up for the remainder of the year. Our cost increases are real. Our customers understand that,” Leathers said. “We’re talking large scale successful winning brands like [Amazon and Walmart] and many others that know the reliance on their carrier is a competitive advantage. They want good quality transportation, on time, every time safely. To do that they work with large well capitalized carriers.” Earlier this year there were concerns about a “freight recession” because of falling rates in the spot market for trucking. According to the most recent data from Evercore ISI, those rates are down more than 11% year over year. The spot market provides on-demand freight transportation, & pricing varies based on supply & demand. Spot trucking saw a boom at the height of the pandemic as companies adjusted to snarled supply chains & were willing to pay historic rates to transport goods during the e-commerce boom. However, the majority of trucking is still done through contracts with carriers & their customers like large retailers.
Trucking CEOs expect higher prices, potential disruptions in second half of 2022
Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, Q2 EPS of $4.14 — excluding identified
items — beat the estimate of $3.80 & improved from the
year-ago profit of $1.10. Total
revenues of $115.7B missed the estimate of
$118B but jumped from the year-earlier figure of $68B. The strong earnings
were owing to higher realized commodity prices & solid refinery
utilization, offset partially by increased ethane feed costs in North
America. The upstream segment reported quarterly earnings of $11.4B, improving from $3B in the year-ago qtr. Higher
commodity prices primarily drove this upside. Operations in the US recorded a profit of $3.7B,
skyrocketing from $663M in Q2-2021. The company
reported a profit of $7.6B from non-US operations, improving
from $2.5B in the year-ago qtr. During the qtr under review, XOM generated cash flow of
$20.9B from operations & asset divestments. The company's
capital & exploration spending was $4.6B. The stock was up $4.41.
If you would like to learn more about XOM, click on this link:
club.ino.com/trend/analysis/stock/XOM?a_aid=CD3289&a_bid=6ae5b6f7
ExxonMobil (XOM) Q2 Earnings Beat Estimates, Revenues Miss
Gold futures finished higher, contributing to a gain for the week, as some traders expect the Federal Reserve to be less aggressive on interest-rate hikes, but prices for the precious metal still post a loss for the month. The most-active Dec gold contract gained $12 (0.7%) to settle at $1781 an ounce. Based on the most-active contract, gold gained nearly 3.2% for the week, but lost 1.4% for the month. In Jul, gold bulls were terrorized by expectations of very aggressive interest-rate hikes by the Federal Reserve, & almost all central banks, which led to a historical high in the US $ index & rising bond yields. Gold logged a loss for the month. However, the price of the most-active gold contract has gained roughly $40 since Federal Reserve Chair Jerome Powell spoke on Wed. Gold has benefited from the market's interpretation that the Fed might not be as aggressive with its interest-rate hikes going forward. Gold’s rise today came on the back of weakness in the US $, with the ICE US Dollar index down 0.2% at 106.168s, as well as a fall in Treasury yields, with the yield on 10-year Treasury down 3.9 points at 2.638%.
US oil futures climbed, posting a gain for the week on tight supplies, but prices were down for the month as worries about a potential US recession dulled the outlook for energy demand. Still, with no major signs of fuel demand destruction, oil seems like it will soon find a home above the $100 a barrel mark. US oil rig counts posted a gain of 6, bringing the total to 605 rigs, data from Baker Hughes. But that should do little to help the market find balance anytime soon. Sep West Texas Intermediate rose $2.20 (2.3%) to settle at $98.62 a barrel. Prices based on the front-month contract climbed 4.1% for the week & lost nearly 6.8% for the month.U.S. oil prices settle higher for the week, down for the month
Getting less attention with all the excitement this week, Treasury yields have dropped rapidly. The yield on the 10 year Treasury has plunged almost 1 percentage point to 2.6% since mid Jun. That is while the Fed has been raising its interest rates. Now the Fed will have to work harder to slow the economy & reduce the inflation rate. Nervous investors are buying gov debt. Meanwhile stocks had a good week with the Dow up 855.
Dow Jones Industrials
