Dow surged 607, advancers over decliners nearly 2-1 & NAZ jumped 196. The MLP index fell 2+ to the 222s & the REIT index rose 5+ to the 368s. Junk bond funds rose along with the stock market & Treasuries saw modest selling driving higher yields. Oil slid back 1 to the 88s following recent strength & gold tumbled 19 to 1645.
AMJ (Alerian MLP index tracking fund)
The Federal Reserve's preferred inflation gauge accelerated again in Sep, keeping prices elevated near a 4-decade high, according to new data. The Personal Consumption Expenditures (PCE) index showed that core prices, which strip out the more volatile measurements of food & energy, climbed 0.5% from the previous month & rose 5.1% on an annual basis, according to the Bureau of Labor Statistics. Those figures are in line with the 0.5% monthly increase & 5.2% annual increase forecast, indicating that inflationary pressures are broadening throughout the economy. The more encompassing headline figure rose 6.2% on an annual basis after prices rose 0.3% from the previous month, the same as Aug. That increase came despite a sharp decline in gas prices. While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously said that core data is actually a better indicator of inflation. "Core inflation is a better predictor of inflation going forward," Powell said. "Headline inflation tends to be volatile." Both the core & headline numbers point to inflation that is running well above the Fed's preferred 2% target, a troubling sign as the central bank is already hiking interest rates at the fastest pace in decades. Despite scorching-hot inflation, the report showed consumers continued to open their wallets in Sep when spending rose 0.6%. Data for Aug was also revised higher to show spending climbed 0.6% instead of the initially reported 0.4%. Inflation-adjusted spending rose just 0.3%.
Inflation gauge closely watched by the Fed surges again in September
Pending home sales, a measure of signed contracts on existing homes, dropped a much worse-than-expected 10.2% in Sep from Aug, according to the National Association of Realtors (NAR). The forecast predicted a 4% drop. Sales were down 31% year over year. This marks the lowest level on the pending sales index since 2010, excluding Apr 2020, when the Covid pandemic was in its early days. Realtors point squarely to sharply higher mortgage rates, which had sat at record lows for the first 2 years of the pandemic. The average rate on the popular 30-year fixed mortgage was right around 3% at the start of this year, but then rose swiftly, crossing 6% in Jun, according to Mortgage News Daily. It pulled back a bit in Jul & Aug, but then began rising again, crossing 7% in Sep, when these contracts were signed. “Persistent inflation has proven quite harmful to the housing market,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
Pending home sales fell 10% in September, much worse than expected
The Biden administration says it is keeping a close watch on diesel inventories & working to boost supplies following news that reserves have been depleted & could run out in less than a month if not replenished, sparking fears of shortages and rising prices. The Energy Information Administration (EIA) reported this week that the US had only 25 days of reserve diesel supply, a low not seen since 2008. National Economic Council Director Brian Deese acknowledged that the level is "unacceptably low," & "all options are on the table" to address the situation. The EIA also said that distillate fuel includes heating oil inventories & is about 20% below the 5-year average for this time of year. But areas in the Northeast are already rationing heating oil as temperatures drop, driving concerns that energy costs will surge further. A White House official said the administration is closely monitoring diesel inventory levels, especially on the East Coast & that it is in touch with US energy firms regarding the need to build up reserves & drive toward solutions. The NEHHOR holds roughly 1M barrels of home heating oil & House Dems from New England are asking Pres Biden to release some of those reserves to help reduce home heating prices in the region leading into the winter months. But experts say the developing home heating oil shortage is not going away anytime soon.
Fears spark as threat of diesel shortage looms and reserves dwindle
Today's rally is a mystery. A key inflation indicator gave a disappointing reading & now a shortage of energy looks to be a looming crisis. The Dow's rally of 3600 in a little over 2 weeks puts it into heavily overbought territory.
Dow Jones Industrials
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