Markets continue sliding lower after Powell's speech

Dow dropped 280, decliners over advancers better than 2-1 & NAZ was off 66.  The MLP index stayed in the 218s & the REIT index was off 1 to the 215s.  Junk bond funds fluctuated & Treasuries had limited selling today.  Oil slipped back 2+ to 89 & gold fell 11 to 1724 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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The Food & Drug Administration (FDA) authorized Covid booster shots that target the omicron BA.5 subvariant as the US prepares for another surge of infections this fall & winter.  It is the first time the FDA has authorized an updated vaccine formula since the original shots rolled out in 2020.  Pharmacies are expected to start administering the new boosters after Labor Day weekend.  The US has secured 171M doses of Pfizer's (PFE) & Moderna's (MRNA) updated shots so far, according to the Health & Human Services Dept.  Pfizer's (PFE) new booster dose is authorized for people ages 12 & older, while Moderna's (MRNA) new shots are authorized for adults ages 18 & older.  The eligible age groups can receive the boosters 2 months after completing their primary series or their most recent booster with the old shots.  The US will no longer use the original vaccines as booster doses for individuals ages 12 & older now that the the updated shots have been authorized.  The Centers for Disease Control & Prevention (CDC) has to sign off on the boosters before pharmacies can give them to patients.  The CDC's independent advisory committee is scheduled to meet tomorrow & Fri to review the data & issue its recommendations for health-care providers.  Public health officials believe the redesigned boosters will provide longer-lasting protection against the virus & reduce hospitalizations this fall & winter.  The new boosters target both the original strain that emerged in China more than 2 years ago, which scientists refer to as the “wild type,” & omicron BA.4 & BA.5, which are now the dominant variants in the US.

FDA authorizes Covid booster shots that target omicron BA.5 variant 

The head of McDonald’s (MCD), a Dow stock & Dividend Aristocrat,  US criticized a landmark California bill that would give the state more control over pay for fast-food workers, saying it unfairly targets big chains.  The remarks by Joe Erlinger, pres of MCD US, come after the California state Senate earlier this week passed a bill that would give a 10-person council the authority to raise the industry's minimum wage to up to $22 an hour for chains with more than 100 locations nationally.  California's current wage floor is $15.50 an hour.  The council would also have the authority to establish safety conditions.  Proponents of the bill say it will empower fast-food workers & help solve industry problems such as unsafe working conditions & wage theft, which can include not paying employees for overtime.  But the FAST Act faces strong opposition from the restaurant industry, which fears the impact on California restaurants and the example it sets for other states.  “It imposes higher costs on one type of restaurant, while sparing another. That’s true even if those two restaurants have the same revenues and the same number of employees,” Erlinger wrote in a letter.  The stock was up 22¢.
If you would like to learn more about MCD, click on this link:
club.ino.com/trend/analysis/stock/MCD?a_aid=CD3289&a_bid=6ae5b6f7 

McDonald’s U.S. head says California fast-food bill unfairly targets big chains 

Walmart's (WMT), a Dow stock & Dividend Aristocrat, owned Sam's Club will raise its annual fees this fall, as the warehouse club's membership hovers at a record high & inflation-pinched shoppers seek deals on bulk items.  Fees will increase to $50 from $45 for club members & to $110 from $100 for members of its higher-tier level,  “Plus,” which includes some additional perks.  The changes take effect Oct 17.  It marks the first fee hike in 9 years for the entry-level membership.  Sam's Club has not raised the price of the “Plus” membership since it debuted in 1999.  Sam's Club is hiking annual fees as warehouse clubs benefit from budget-conscious customers.  Inflation may make the increase sting.  In a note to members, Sam's Club CEO Kath McLay said the company is “mindful of the financial pressure on wallets right now.”  With that in mind, she said, Sam's Club will pick up the tab this year by reimbursing the fee increase in Sam's Cash that can be used at its stores.  The stock rose 21¢.
If you would like to learn more about WMT, click on this link:
club.ino.com/trend/analysis/stock/WMT?a_aid=CD3289&a_bid=6ae5b6f7

Walmart-owned Sam’s Club raises annual membership fee for the first time in nine years

Gold prices softened for a 4th straight day as traders bet that the Federal Reserve is likely to keep benchmark interest rates higher for longer following Fed Chair Jerome Powell's Jackson Hole speech last Fri.  Meanwhile, gold ended the month of Aug with its 5th straight monthly decline — its longest monthly losing streak in about 4 years.  Gold futures for Dec were down $10 (0.6%) to settle at $1726 per ounce.  Prices for the most-active contract fell 3.1% for the month, down a 5th consecutive month — the longest monthly losing streak since the 6 month drop ended Sep 2018.  Powell's speech on Fri drove Treasury yields & the $ higher, dulling the luster of the yellow metal.  The 10-year Treasury yield was up 1.3 basis points at 3.124%, while the ICE Dollar Index, a gauge of the $'s strength against a basket of rivals, was up 0.1%.  Gold ended the month with a loss, down a 5th straight month.

Gold logs a 5th straight monthly decline, its longest losing streak in 4 years

Oil futures fell amid worries about the global economic outlook, as central banks move to squelch inflation, contributing to a loss of more than 6% for US benchmark crude prices.  Slower economic growth is expected in Europe, China & the US as economies recover from the disruptions caused by the coronavirus pandemic & central banks raise interest rates to combat inflation.  Data showing a 3rd-weekly decline in US crude inventories, however, helped oil pare some of its price losses today.  West Texas Intermediate crude for Oct fell $1.47 (1.6%) to $90.17 a barrel with the front-month trading down by 6.7% for the month.  Prices touched an intraday low of $88.27.  Oct Brent crude, the global benchmark, declined by $2.51 (2.5%) at $96.80 a barrel.  The contract, which expires at the end of the trading session, was down 7.1% for the month.  The most actively traded Nov contract declined $1.68 (1.7%) to $96.16.  Both WTI & Brent slid more than 5% yesterday.  Oil prices dived yesterday after a Russian news report said OPEC+ wasn't discussing production cuts.  Saudi Arabia's energy minister last week had raised the possibility of reductions.  OPEC+ meets on Sep 5.  Meanwhile, the OPEC+ Joint Technical Committee today said it sees the oil-market surplus rising by 100K barrels a day from its previous estimate to 900K barrels a day.  The committee advises OPEC+ on market fundamentals.  US benchmark stock indices moved lower again today, after falling for a 3rd straight day yesterday, rattled by Fri's speech by Federal Reserve Chair Jerome Powell warning that economic pain may lie ahead as the central bank continues to tighten monetary policy in its effort to get inflation under control.

Oil futures end lower, with economic jitters fueling a more than 9% monthly loss for U.S. prices

The Dow chart below shows the last couple of weeks in Aug has seen a lot of selling.  About ½ of the recent rise has been wiped out.  For the month, Dow fell over 1300.  As long as Powell's comments overhang stocks, more selling is expected.        

Dow Jones Industrials

Markets drift lower after weak jobs data for August

Dow dropped 61, advancers over decliners 4-3 & NAZ was off 5.  The MLP index crawled up to the 219s & the REIT index was up 1+ to the 416s.  Junk bond funds fluctuated & Treasuries were little changed.  Oil was off 1+ to 90 & gold fell 4 to 1732.

AMJ (Alerian MLP index tracking fund)

 

 

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Private payroll job growth slowed markedly in Aug, suggesting that companies are pulling back on hiring amid growing fears of an economic slowdown, according to the ADP National Employment Report (ADP).  Companies added just 132K jobs last month, sharply missing the 288K gain that had been predicted.  That is also below the 270K gain recorded in Jul & is the lowest since May, when employers hired just 128K workers.  "Our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy’s conflicting signals," said ADP chief economist Nela Richardson.  "We could be at an inflection point, from super-charged job gains to something more normal."  The ADP report has been paused for 2 months as the company reworked the methodology for the jobs data & started collaborating with the Stanford Digital Economy Lab.  The changes are largely technical, as ADP previously faced criticism for struggling to accurately predict the employment count in the Labor Dept's more closely watched job report.  But the report now includes data on wages, which showed that annual pay climbed 7.6% in Aug – a concerning development as consumers continue to confront the hottest inflation in close to 4 decades.

US companies sharply miss job expectations in August

Cleveland Federal Reserve Pres Loretta Mester said she sees interest rates rising considerably higher before the central bank can ease off in its fight against inflation.  Mester, a voting member this year of the rate-setting FOMC, sees benchmark rates rising above 4% in the coming months.  That's well above the current 2.25-2.5% for the federal funds rate.  Markets currently are pricing in only a 1-in-3 chance of the funds rate climbing above 4% next year.  “My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there,” she said.  “I do not anticipate the Fed cutting the fed funds rate target next year.”  In line with that, Mester said rates will remain elevated “for some time,” a phrase used in recent days by both Fed Chairman Jerome Powell & New York Fed Pres John Williams.  She said real rates, or the difference between the fed funds rate & inflation, will need to “move into positive territory.”  The Fed this year has raised rates 4 times for a total of 2.25 percentage points.  Markets are pricing in a 3rd consecutive 0.75 percentage point increase at the Sep meeting & looking for rate cuts to start in the fall of 2023.  Mester anticipates the rate increases to slow economic growth, which she sees as running “well below 2%” while the unemployment rate rises & financial markets remain volatile.  She expects inflation to fall to 5-6% this year & then get closer to the Fed's target in subsequent years.  In one concession to those looking for lower rates, she said she does not think the Fed necessarily will have to keep raising rates until inflation hits the central bank's 2% goal.  But she added that policymakers must remain vigilant.  “It would be a mistake to declare victory over the inflation beast too soon. Doing so would put us back in the stop-and-go monetary policy world of the 1970s, which was very costly to households and businesses,” she said.

Fed’s Mester sees benchmark rate above 4% and no cuts at least through 2023

After falling back earlier this month, mortgage rates began rising sharply again to the highest level since mid-Jul.  That caused mortgage demand to pull back even further.  Total mortgage application volume fell 3.7% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Volume was 63% lower than the same week one year ago.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647K or less) increased to 5.80% from 5.65%, with points rising to 0.71 from 0.68 (including the origination fee) for loans with a 20% down payment.  That rate was 3.11% one year ago.  “Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer. Mortgage rates have been volatile over the past month, bouncing between 5.4 percent and 5.8 percent,” said Joel Kan, MBA's associate VP of economic & industry forecasting.  As a result, refinance demand, which is highly sensitive to weekly rate moves, fell another 8% for the week & was 83% lower than the same week one year ago.  The refinance share of mortgage activity decreased to 30.3% of total applications from about 66% a year ago.  Mortgage applications to purchase a home dropped 2% for the week & were 23% lower than the same week one year ago.  “Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates and a weaker economic outlook,” Kan added.  “However, rising inventories and slower home-price growth could potentially bring some buyers back into the market later this year.”

Mortgage demand falls even further, as rates shoot back up to July highs

Dreary economic news keeps coming.  While short of terrible, it's not good & it seems like a low grade recession is already here.  High interest rates are supposed to slow the economy.  That's happening already.  Sep has been traditionally been the toughest month for stocks.  That may play out next month.

Dow Jones Industrials

 

Markets slump extends to a third day after Powell's speech

Dow sank 308 (near session lows), decliners over advancers 4-1 & NAZ declined 134.  The  MLP index dropped 6+ to the 218s & the REIT index fell 6+ to the 415s.  Junk bond funds remained weak & Treasury prices were little changed in trading today.  Oil  tumbled 5+ to the 91s & gold pulled back 13 to 1735 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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New York Federal Reserve Pres John Williams said he expects interest rates to continue higher & to remain at those levels until inflation is subdued.  Echoing recent comments from Fed Chair Jerome Powell, Williams said that he also is in the higher-for-longer camp when it comes to monetary policy.  “We’re going to need to have restrictive policy for some time,” he said.  “This is not something we’re going to do for a very short period and then change course.”  That outlook comes just a few days after Powell also used the “for some time” language to describe his expectations for benchmark interest rates.  In his annual policy speech at Jackson Hole, Wyoming, the Fed chief noted that “the historical record cautions strongly against prematurely loosening policy.”  Along with Vice Chair Lael Brainard, Powell & Williams make up the Fed's policy brain trust.  They are seeking to reduce inflation that is running near its highest level in more than 40 years & well above the central bank’s target of 2%.  Williams didn't specifically say where he’d like to see rates go.  But he noted that he believes reducing inflation will require real interest rates — nominal levels minus inflation — to be positive.  The fed funds rate is currently targeted at 2.25-2.5%, which is well below the central bank's preferred core personal consumption expenditures price index inflation gauge, which was at 4.6% in Jul.  “I do think with demand far exceeding supply, we do need to get real interest rates … above zero,” Williams added.  “We need to have somewhat restrictive policy to slow demand, and we’re not there yet.”  He continued that he thinks the Fed is “still quite a ways from that.”  Current marking pricing is for the rate-setting Federal Open Market Committee to approve a 3rd consecutive ¾ point rate increase in Sep, followed by a ½-point move in Nov & a ¼-point hike in Dec.  Markets then expect the Fed to start cutting in the fall of 2023.  Williams said he's been encouraged by some tightening in financial conditions following the hikes but added he needs to see more before considering a change in policy.

Fed’s Williams pushes back on market expectations of a rate cut next year

US consumer confidence rebounded more than expected in Aug after 3 straight monthly declines, with vacation intentions rising to an 8-month high, a potential positive signal for consumer spending.  The Conference Board said its consumer confidence index rose to 103.2 this month from 95.3 in Jul.  The forecast called for the index to climb to 97.7.  The survey's present situation index, based on consumers' assessment of current business & labor market conditions, climbed to 145.4 from 139.7 in Jul.  Its expectations index, based on consumers' short-term outlook for income, business & labor market conditions, increased to 75.1 from 65.6 last month.  "Purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high," said Lynn Franco, senior director of economic indicators at the Conference Board.  "August's improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term."

U.S. consumer confidence rises more than expected in August

Home price increases slowed in Jun for the 3rd consecutive month, evidence that rising mortgage rates are starting to slow activity in the housing market.  Prices climbed 18.6% nationally in Jun from the previous year, down slightly from the gain of 19.7% recorded in May, the S&P CoreLogic Case-Shiller index showed.  "The deceleration in U.S. housing prices that we began to observe several months ago continued in June," Craig Lazzara, a managing director at S&P Dow Jones Indices, said.  "Relative to May’s 19.9% gain, prices are clearly increasing at a slower rate."  The Case-Shiller index reports with a 2-month delay, meaning it may not capture the latest slowdown in the market.  A separate report from the National Association of Realtors last week showed that the national median home price moderated slightly in Jul, falling from a record high to $403K.  That is still up 10.8% from the previous year when the median cost of a home was $364K.  The housing market has started to cool as the Federal Reserve hikes interest rates at the fastest pace in decades in order to bring scorching-hot inflation under control. Policymakers already approved 2 consecutive 75-basis point rate increases in Jun & Jul & confirmed that another super-sized hike is on the table in Sep.  Following the rate hikes, the average rate on a 30-year fixed mortgage – the most popular among new homeowners – climbed to nearly 6% in Jun, though they have since moderated.  The average rate for a 30-year fixed rate mortgage hovered around 5.13% last week.  That is significantly higher than just one year ago, when rates stood at 2.86%.  Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market.  A new report from Redfin last week showed that home sale cancellations soared in Jul to another 2-year high as buyers retreated from the market.  About 63K home purchase agreements were called off in Jul, equal to 16% of homes that went into contract that month.

US home price growth cooled in June for third straight month

Oil futures fell sharply with US prices down more than 5% as economic worries dulled the outlook for energy demand.  Traders also weighed prospects for a production cut at yesterday's meeting of major oil producers.  Oct WTI crude fell $5.37 (5.5%) to settle at $91.64 a barrel.  Front-month prices marked their lowest finish in more than a week, a day after settling at their highest since Jul 29.

U.S. oil futures drop by more than 5%

Gold prices marked a 3rd straight decline today, with precious metals settling at their lowest in more than a month.  Prices for gold had fallen near session lows shortly after data yoday showing that a survey of US consumer confidence rose in Aug for the first time in 4 months amid efforts by the Federal Reserve to tame inflation.  Gold futures for Dec were off $13 (0.8%) to $1736 per ounce, with most-active contract prices logging their lowest finish since Jul 27.  The surge in interest-rates rates & the $ have helped subdue gold's energy with Federal Reserve Jerome Powell's remarks on Fri.  Gold, like the markets, are facing a more hawkish, stern sounding Powell who will have to keep face at the next meeting & raise rates by another 75 basis points & that is being now factored into the market.  For the month, gold futures traded lower, pressured by strength in the $ as well as Treasury yields.  The 10-year Treasury yield edged up by 1.3 basis points to 3.120%, while the ICE US Dollar Index, a gauge of the $'s strength vs a basket of rivals, was down nearly 0.1% at 108.786, though trading up by 2.7% month to date.

Gold, silver prices down a third straight session, settle at lowest in more than a month

Today there was selling in the first hour of trading.  Then buyers stayed away for the rest of the session.  Higher interest rates & what seems like a recession are the main thoughts from investors.  Dow is down more than 1000 in Aug & the outlook is glum.

Dow Jones Industrials