Markets slump on slower growth forecast for Q3 earnings

Dow dropped 139 (near session lows), decliners over advancers better than 3-1 & NAZ pulled back 100.  The MLP index fell 4+ to the 216s & the REIT index was was even at 400.  Junk bond funks continued to be sold & Treasuries saw modest buying.  Oil was even in the 85s & gold went up 6 to 1683 (more on both below).

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US consumer sentiment improved modestly in early Sep as gas prices continued to decline, but Americans' confidence in the economy remains near a record low.  The University of Michigan's consumer sentiment index rose to 59.5 in Sep – up from the Aug reading of 58.2 but below forecast for a reading of 60.0.  That is still more than an 18% drop from just one year ago, when the gauge was at 72.8.  "Consumer sentiment was essentially unchanged in September, just 1.3 index points above August," survey director Joanne Hs said.  "The one-year economic outlook continued lifting from the extremely low readings earlier in the summer, but these gains were largely offset by modest declines in the long run outlook."  Consumers expect prices to rise 4.6% over the next year, the lowest in a year but well above the pre-pandemic average.  Americans believe prices will rise at an annual rate of 2.8% over the next 5-10 years, which is down slightly from Aug.  While Americans remain concerned about the state of the economy as painfully high inflation persists, a recent decline in the price of gasoline helped to bolster the economic mood nationwide.  After hitting a record high of $5.01 per gallon in mid-Jun, a gallon of gas now costs about $3.69 on average.  Still, there are dark clouds on the horizon:  Investors are increasingly convinced that the Federal Reserve will trigger a recession with its aggressive interest rate hike campaign.  The data comes just three days after the Labor Dept reported that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries & rents, rose 0.1% in Aug from the previous month.  Prices climbed 8.3% on an annual basis.  Those figures were both higher than the 8.1% headline figure and 0.1% monthly decline forecast, a worrisome sign for the Fed as it seeks to cool price gains & tame consumer demand with an aggressive interest rate hike campaign.  Even more concerning is that core prices, which strip out the more volatile measurements of food & energy, re-accelerated last month:  Core prices climbed 6.3% from the previous year, above the 6.1% forecast & climbed 0.6% on a monthly basis – a bigger increase than in Apr, May, Jun & Jul & a troubling sign that underlying inflationary pressures in the economy remain strong.

Americans' confidence in the US economy near historic low

For the first time since Mar 2021, the average home is selling for less than its list price, but high mortgage rates are still impacting what people can afford.  Mortgage rates are the highest they've been in 14 years, reaching nearly 6%, according to the real estate company Redfin.  "This is the sharpest turn in the housing market since the housing market crash in 2008," said Daryl Fairweather, Redfin's Chief Economist.  While home prices are still higher than a year ago, with the average home now selling for just under $370K, inflation & high interest rates are slowing down the market.  "We haven't seen interest rates this high since 2008, 2007, so it is a big change from the housing market we've all gotten used to," Fairweather said.  With these higher interest rates, mortgages are up about 40% from a year ago.  "Buyers just don't have the 40% extra money to put towards housing every month," Fairweather said.  "A lot of homebuyers had to drop out and go to the rental market instead or choose not to buy that second home or investment property."  Redfin said larger cities like San Francisco & Los Angeles are seeing the greatest impacts from this.  "When you're talking about a $1.5M home, that's an extra thousand dollars a month towards a mortgage payment."  In New Orleans, the pres of the Metropolitan Association of Relators David Favret said there's more homes on the market in his area than in the last 2 years.  "I think both buyers and sellers are in a good position right now," Favret said.  "Sellers are still seeing a premium, although prices have softened slightly, but there are many buyers who are still there, particularly those who may have sat on the sideline when the market was tighter."  While the seller's market might be as competitive as it was earlier this year, Favret said now is still a good time to sell.  "If your property is priced well, you will be very successful," Favret said.

Redfin predicts sharpest turn in housing market since 2008 crash

Ukraine’s relations with Germany have soured this week, with Kyiv asking why Berlin reneged on its promise to provide heavy weaponry.  Tensions over Germany’s provision of Leopard tanks & infantry fighting vehicles to Ukraine — or lack thereof — came to a head this week when Ukraine's foreign minister, Dmytro Kuleba, publicly asked why Berlin was backtracking on a pledge made to send these weapons to Ukraine.  “Disappointing signals from Germany while Ukraine needs Leopards and Marders now — to liberate people and save them from genocide,” Kuleba said, adding that there was “not a single rational argument on why these weapons can not be supplied, only abstract fears and excuses.”  “What is Berlin afraid of that Kyiv is not?” he added.  The Marder is a German infantry fighting vehicle designed to be used alongside Leopard battle tanks in combat.  Kuleba's comments came as Ukraine launches counterattacks against Russian forces in both the south & northeast of the country. Ukraine's counterattack in the northeast Kharkiv region was hailed as a particular success, with Russian forces withdrawing from towns and villages across the region, almost completely deoccupying it.  Ukraine is largely reliant on Western weapons systems to fight Russian forces.  And its allies in the West, NATO members essentially, have individually sent Ukraine a vast range of military hardware.  In Apr, Germany promised to give Leopard tanks & Marders to Ukraine.  Rather than deliver them directly, it proposed a swap scheme.  The intention was that NATO members, Poland or Slovakia for example, could send Ukraine older Soviet-era tanks (such as Leopard 1s) & Germany would then replenish their stocks with its own more modern equivalent weapons (such as Leopard 2s).  Germany justified the proposal to send older weapons by saying that Ukraine's forces were used to Soviet-era weapons & that it should only supply weapons they know how to use.  The only problem with the plan is that this exchange of weapons has largely failed to materialize & Germany is now facing a backlash from critics, both within Germany & externally — & not least of all, from a disappointed Ukraine.

Germany promised Ukraine weapons but hasn’t delivered. Now, anger toward Berlin is rising

Gold futures climbed, after a report on US consumer sentiment showed that inflation expectations have slowed, but prices ended the week with a nearly 3% loss, a day after settling at their lowest in over 2 years.  Gold for Dec rose $6 (0.4%) to settle at $1683 an ounce, for a weekly decline of 2.6%.  Gold was under pressure this week, though pared some of those losses today, after a hotter-than-expected reading of the US Aug consumer-price index reinforced expectations the Federal Reserve will raise its fed-funds rate by at least another 75 basis points when it meets next week.  The monetary tightening represents a cloud over gold that has begun to weigh on prices, having fallen somewhat steadily since Apr of this year, despite ongoing risk.  While gold is often described as an inflation hedge, the aggressive tightening by the Fed has served to send the $ surging versus major rivals, with a $ index, trading near a 20-year high, while Treasury yields have jumped.  A stronger $ is seen as a negative for commodities priced in the unit, making them more expensive to users of other currencies.  Higher bond yields are also a headwind, raising the opportunity cost of holding nonyielding assets.  Gold prices today, however, moved higher shortly after a report from the University of Michigan showed that US consumer sentiment rose to 59.5 in Sep & hit a 5-month high.  It also revealed that inflation expectations have slowed a bit in the past few months.  Yesterday, gold futures fell 1.9% to settle at $1677, their lowest finish since Apr 2020 & biggest one-day percentage loss since Jul 5.

Gold ends higher but falls for the week, a day after settling at a more than 2-year low

US oil futures gained just a penny today after settling with a nearly 4% loss a day earlier.  There's a lot of uncertainty overseas both on the supply side & on the demand side.  For the US however, the most significant fundamental factor is how long the gov plans to keep running down the Strategic Petroleum Reserve, with midterm elections in 6 weeks, & once they stop, when & how quickly does the drawdown supply become to refill demand.  Oct WTI crude rose by a penny to settle at $85.11 barrel.  For the week, the front-month contract lost 1.9%,

U.S. oil futures little changed for session, post a loss for the week

There was buying in the last 2 hours which trimmed losses for the week.  But this was another very ugly week with the Dow falling 1300.  The gloomy forecast by FedEx (FDX), down a whopping 43 today, just added to the woes.  Next week, the Fed will make the increase in its interest rate official & that will probably not bring out stock buyers.  Higher interest rates will pinch the economy & they will be a major factor going forward.  It's difficult to come up with encouraging words about the future for stocks.

Dow Jones Industrials