Dow finished down 522 (session lows), decliners over advancers 2-1 & NAZ retreated 204. The MLP index was off 2+ to the 215s & the REIT index fell 6+ to the 384s. Junk bond funds slid lower & Treasuries saw more selling, taking yields higher (more below). Oil was off 1 to the high 82s & gold inched up 1 to 1673 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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Small businesses are growing increasingly worried about the financial impact of high inflation, with an overwhelming majority of owners saying the worst is yet to come. A new survey from the Chamber of Commerce & MetLife found that a stunning 90% of small business owners are concerned about the ramifications of the highest inflation in nearly 4 decades. More than ½ (54%) of respondents said they were very concerned, an increase of 23 percentage points from the beginning of 2022. "In recent quarters, there has been optimism from small businesses who still felt good about how their business is doing," said Tom Sullivan, VP of small business policy at the Chamber of Commerce. "However, inflation is really hitting small business hard, and that reality is negatively impacting their confidence, their ability to hire, invest in their businesses, and grow." Inflation – which came in hotter than expected in Aug, climbing 8.3% on a year-over-year basis – now ranks as the biggest financial challenge for small businesses. About 45% of owners said that steeper prices is their single top concern, an 11 percentage point increase from the beginning of the year. That compares to 28% who ranked supply chain bottlenecks as the #1 issue. Other concerns include revenue, rising interest rates and COVID-19 safety protocols & compliance. To cope with higher prices, about 7 in 10 businesses said they were raising costs for consumers. On top of that, nearly ½ reported taking out a loan in order to cover higher costs, while about 35% have cut payroll. Small business owners are also increasingly uneasy about the economic outlook. About 88% of owners expressed concern about the US entering an economic downturn in the next year, with 54% saying they are "very concerned." The majority of small business owners (59%) believe the economy is either in "somewhat poor" or "very poor" health. Still, when asked to choose between reducing inflation or avoiding an economic downturn, 59% said the priority now should be combating higher prices, while 41% preferred preventing a recession. Despite the headwinds, small businesses said they remain relatively optimistic about their operations & expectations for the future. About 66.8% said their business is in good health; that's up from a low of 39.5% recorded in 2020, at the height of the COVID-19 pandemic.
Inflation concerns hit fever pitch for small business owners
The Federal Reserve raised its benchmark interest rate by 75 basis points for the 3rd straight month as it tries to bring scorching-hot inflation under control, a move that threatens to slow US economic growth & exacerbate financial pain for Ms of households & businesses. The 3-qtr percentage point hikes in Jun, Jul & Sep – the most aggressive series of increases since 1994 – underscore just how serious Fed officials are about tackling the inflation crisis after a string of alarming economic reports. Policymakers voted unanimously to approve the latest super-sized hike. The move puts the key benchmark federal funds rate at 3-3.25%, the highest since the 2008 financial crisis. It marks the 5th consecutive rate increase this year. In addition to the super-sized rate hike, Fed officials laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the 2-day meeting showed policymakers expect interest rates to hit 4.6% in 2023, which would be the highest level since 2008. Inflation ran even hotter than expected last month, with the consumer price index increasing 0.1% in Aug from the previous month, dashing hopes for a slowdown. On an annual basis, inflation is running at 8.3% — a nearly 40-year high. But the efforts to combat inflation carry a potential risk of recession, with a growing number of economists & financial firms forecasting an economic downturn this year or next. Hiking interest rates tends to create higher rates on consumer & business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago to 6%, while some credit card issuers have ratcheted up their rates to 20%. Economists widely agree the risks of a recession climbed considerably this year & that avoiding a downturn in the near future will be increasingly difficult as the Fed tightens monetary policy.
Fed raises rates again as it tries to control scorching-hot inflation
The yield on the 2-year Treasury note topped 4.1% after the Federal Reserve raised interest rates by another 0.75 percentage point & surged to its highest level since 2007. The policy-sensitive 2-year Treasury rose 15 basis points to 4.113%, to a level not seen since 2007 when it hit a high of 4.138%. Meanwhile, the yield on the benchmark 10-year Treasury hit a high of 3.64%, the highest level since 2011 when the 10-yr yielded as high as 3.651%. It was last at 3.587%, up by roughly 1 basis point. The significant inversion, with short-term rates higher than long-term rates, points to the risk of a recession, some investors believe. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. The 2-year rate started 2022 trading at around 0.73%. Today's move puts it 328 basis points (3.28 percentage points) above that level.
2-year Treasury yield tops 4% for the first time since 2007
Oil futures declined, with US benchmark prices settling down by more than 1%. The Federal
Reserve said that it would raise its benchmark federal-funds rate by 0.75 percentage point & said rates are going to move sharply higher before the end of the year. Higher rates are restrictive in nature & likely to become headwinds on consumer spending including on refined products like gasoline & diesel. However, today's Fed announcement is not a bearish game changer for the oil market & bulls are continuing to look for oil to find a bottom in the upper $70s to low $80s range, as the still fluid fundamental backdrop is reassessed in real time. Nov WTI crude fell $1 (1.2%) to settle at $82.94 barrel.
U.S. oil futures settle lower as Fed rate hike feeds worries about a recession
Gold found a modicum of haven-related buying interest after
Russian Pres Vladimir Putin ordered reservists to mobilize & made
remarks seen as a threat to use nuclear weapons, as he escalated the
war in Ukraine. But the upside remained constrained as investors awaited the conclusion
of a Federal Reserve policy meeting that’s expected to deliver another
interest rate increase of 75 basis points (0.75 percentage point). Gold for Dec rose $10 (0.6%) to $1681 an ounce. The most actively traded contract ended yesterday at its lowest
since Apr 2020.
Gold climbs from its lowest price since April 2020 as Russia steps up Ukraine war
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