Markets slide to close out a dismal February

Dow retreated 232 (near session lows), advancers slightly ahead of decliners & NAZ finished down 11.  The MLP index slid lower to the 225s & the REIT index added 2 to the 385s.  Junk bond funds fluctuated & Treasuries finished pretty much even, after yields gained sharply in Feb (more below).  Oil was up 1+ to 77 & gold advanced 11 to 1836 following recent selling (more below).

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US consumer confidence unexpectedly fell for the 2nd straight month in Feb as Americans' outlook on the economy tumbled further, showing how persistent inflation is weighing on shoppers amid looming recession fears.  The Conference Board's latest Consumer Confidence Index declined to 102.9 for this month, slipping from 106.0 in Jan, which was revised lower.  The forecast had expected Feb's index to tick up to 108.5.  "The decrease reflected large drops in confidence for households aged 35 to 54 and for households earning $35,000 or more," said Ataman Ozyildirim, the Conference Board's senior director of economics.  Consumers' assessment of the current business climate also worsened in Feb, with 17.8% of respondents answering that business conditions were "good," down from 19.9% in Jan.   However, more consumers said the labor market was more favorable this month, with 52% saying jobs were "plentiful," up from 48.1%.  Still, the survey indicated Americans' have a dismal view of how economic conditions look in the near future.  "Expectations for where jobs, incomes, and business conditions are headed over the next six months all fell sharply in February," Ozyildirim reported, noting that "consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates."  "Fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances," the economist added.  "Vacation intentions also declined in February."

Consumer confidence slips again as recession fears mount

Treasury yields rose, adding to their sharp Feb gains, as traders weigh the prospects of higher tighter monetary policy for longer.  The yield on the benchmark 10-year Treasury note was up 3 basis points at 3.955% after touching a high of 3.983%, its highest level since Nov 10.  Meanwhile, the yield on the 30-year Treasury bond gained 3 basis points to trade at 3.95%.  The 2-year yield climbed slightly to 4.8% after reaching its highest level since Nov yesterday.  Yields move inversely to prices.  Today marks the final day of trading in Feb.  The 10-year Treasury yield has advanced more than 50 basis points for the month & the 2-year yield has gained more than 70 basis points.  Those gains come as traders increasingly bet on Federal Reserve rates staying higher for longer, as recent data points to persistent inflation.  The core personal consumption expenditures price index rose 4.7% in Jan from the year-earlier period, beating expectations. The overall PCE index advanced 5.4% year over year, also more than expected. 

10-year Treasury yield hits highest level since November

General Motors & Tesla topped the S&P Global S&P Global Mobility report on customer loyalty for 2022.  GM (GM) had the best combined performance for a manufacturer that sells multiple brands, while Tesla (TSLA) ranked number one among specific brands for the first time.  Ford (F) held the position for the last 12 years. "The past three years have been a challenge for the automotive industry," said Joe LaFeir, Pres, Automotive Insights, S&P Global Mobility.  "As customers are returning back to market post pandemic and inventory levels have slowly improved from last year's lows, retaining loyal customers has been more challenging than ever before."  The shortages and other issues helped push industry average down from 54.6% to 50.2%, according to the review of over 11.7M sales from Jan-Dec 2022.  GM had a 65.4% retention rate & also led five individual vehicle categories, including small utility vehicle with the Chevrolet Equinox & luxury sports car with the Chevrolet Corvette.  "We continue doing what we do best: delivering industry-leading quality and earning customers for life," GM CEO Mary Barra said.  "For the eighth consecutive year, General Motors received S&P Global Mobility's Overall Loyalty to Manufacturer award – a result of smart investments, strong execution and great teamwork. As we rapidly expand our #EV lineup this year, I’m excited to continue leading core segments and offering a portfolio that amazes our existing and new customers."  Along with hanging on to 67.2% of its customers, TSLA also had the highest conquest sales & led the small car & utility segments with the Model 3 & Model Y.

Study finds which automakers have the most loyal customers

Gold futures climbed, but registered their first monthly loss in 4 months.  Market expectations reflect a Federal Reserve reaching a 5.25-5.50% target fed funds range by mid-year, but with inflation continuing to surprise higher, investors are likely seeking some shelter from inflation pressures in the commodity complex, including gold.  Gold for Apr rose $11 (0.7%) to settle at $1836 an ounce.  For the month, prices for the most-active contract lost 5.6%

Gold Futures Post First Monthly Decline Since October

US benchmark crude-oil prices climbed, but marked a 4th monthly loss in a row.  Oil prices have fallen for the month due to an extremely warm winter in the US & Europe.  In addition, recent mixed data on inflation & associated hawkish Federal Reserve commentary have been a headwind for oil as the $ strengthened & stock prices came off of highs.  US benchmark West Texas Intermediate crude for Apr rose $1.37 (1.8%) to settle at $77.05 a barrel.  Based on the front-month contract, prices lost 2.3% for the month.

Oil Futures Rally For The Session, Fall For The Month

After Jan's market rise, Dow sank 1430 in Feb.  Even safe haven gold lost ground in Feb.  Not a good time for investors.  Worries about more rate hikes by the Fed which could bring on a recession in the coming months are everywhere.  Going into the new month stocks face more headwinds as interest rates jump.

Dow Jones Industrials 

Markets are mixed to close out a very difficult month for stocks

Dow dropped 104, advancers over decliners better than 3-2 & NAZ went up 30.  The MLP index stayed in the 226s & the REIT index was up 3+ to the 386s.  Junk bond funds were mixed & Treasuries had a little selling, raising yields slightly.  Oil rose 1+ to the 77s & gold gained 8 to 1833.

AMJ (Alerian MLP Index tracking fund)

 

 

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Higher mortgage rates weighed on home price gains at the end of 2022.  While prices were still higher than they were a year earlier, the rate of increase slowed quickly.  Home prices in Dec were 5.8% higher than the previous Dec, according to the S&P CoreLogic Case-Shiller US National Home Price NSA Index.  That is down from a 7.6% annual gain in Nov.  Prices are now 4.4% below their Jun peak.  For all of 2022, the 5.8% price gain was the 15th best performance in the index’s 35-year history, but was well below 2021′s record-setting 18.9% gain.  The annual increase for the 10-city composite, which includes the New York & Los Angeles metro areas, was 4.4% in Dec, down from 6.3% in the previous month.  The 20-city composite, which includes the Seattle & Dallas areas, marked a 4.6% year-over-year gain, down from 6.8% in the previous month.  “The prospect of stable, or higher, interest rates means that mortgage financing remains a headwind for home prices, while economic weakness, including the possibility of a recession, may also constrain potential buyers,” said Craig J Lazzara, managing director at S&P DJI.  “Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”  Mortgage rates began rising in the spring of last year, with the average rate on the 30-year fixed loan more than doubling to well over 7% by the end of Oct.  Rates then pulled back slightly in Dec & Jan, but are now edging closer to 7% again.  Home sales reacted in Jan, with a sharp jump in properties going under contract, but that is unlikely to have continued in Feb with rates higher again & still very little on the market for sale.  Home price gains weakened sharply to end 2022, according to S&P Case-Shiller

Home price gains weakened sharply to end 2022, according to S&P Case-Shiller

Despite Target beating expectations for Q4-2022 amid a rise in consumer foot traffic & store visits CEO Brian Cornell delivered a cautious warning to investors.  "Looking ahead, we're focused on executing our long-term strategy, including continued differentiation through affordability, assortment, ease and convenience. At the same time, we're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment," he said.  For the qtr, the retail giant reported revenue of $31.40B versus $30.46B expected, adjusted EPS was $1.89 versus $1.48 expected, & a brick & mortar same-store sales increase of 1.9% versus -2.80% expected.  "We're pleased that we entered the year in a very healthy inventory position, reflecting our conservative approach in discretionary categories and our commitment to reliability in our frequency businesses" Cornell added.  "As we plan for the year ahead, we will continue to make robust capital investments and pursue efficiency opportunities in support of our long-term growth."  Full-year sales increased 2.8% to $107.6B from $104.6B last year, reflecting a 2.2% increase in comparable sales combined with sales from non-mature stores.  Data shows foot traffic at TGT increased 4% from Jan 2022 to Jan 2023, leading to a 0.7% same-store sales increase over the qtr while beating estimates of -1.74%.  The stock rose 3.13.
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Target CEO gives cautious outlook after sales, profits improve

The cost of servicing America's national debt is expected to soar over the next 10 years to unprecedented levels, as net interest expense on the debt will cost more than $1.4T annually in 2033 based on the latest projections from the Congressional Budget Office (CBO).  The CBO’s recently released budget & economic outlook for the next 10 years projects that the cost of servicing the national debt will more than double in that timeframe & the gov will spend about $10.5T on interest expenses alone over the coming decade.  Spending on interest as compared to the size of the US economy is also expected to rise from 2.4% of the GDP in fiscal year (FY) 2023 to 3.6% of GDP in FY2033.  In FY2022, American taxpayers spent $475B in interest expenses on the national debt — a figure that is expected to rise to $640B in the current fiscal year, FY2023.  As the federal gov continues to run budget deficits & the debt level rises in the coming years, the amount spent on interest is projected to exceed $1T for the first time in FY2029 & rise to $1.4T in FY2033.  To help put the scale of that $1.4T in context, that's more than what the federal gov spent on discretionary appropriations, items like defense & non-defense domestic programs that Congress has to approve annually, in the last full fiscal year before the pandemic.  In FY2019, the federal discretionary budget totaled $1.3T, which was more or less evenly divided between defense & non-defense programs.  In the years since the pandemic began, discretionary spending has ballooned in part due to temporary relief measures enacted by Congress, but also because of annual spending on defense & non-defense programs rising.  Discretionary spending totaled more than $1.6T in FY2022 & is expected to exceed $1.7T in FY2023, with about $800B for defense & $941B for non-defense appropriations.  By FY2033, the CBO expects the US to spend over $2.3T on discretionary items, including $1.1T on defense & more than $1.2T on non-defense appropriations.  If the CBO’s projections play out as expected, federal spending to cover the $1.4T in interest payments on the national debt will exceed discretionary spending on either defense or non-defense appropriations in FY2033.

Interest payments on the national debt to reach $1.4 trillion annually in 2033: CBO

This has been an ugly month for stocks with the Dow down a very big 1300.  The CBO analysis above adds to a feeling of gloom by investors.

Dow Jones Industrials

 

Markets struggle to rebound after last week's big decline

Dow went up 72 (near session lows & well off session highs), advancers over decliners 4-3 & NAZ added 72.  The MLP index slid back to the 225s & the REIT index was little changed in the 382s.  Junk bond funds were higher & Treasuries continued to see modest strength which reduced yields.  Oil remained lower in the 75s & gold added 9 to 1826 (more below).

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Union Pacific Railroad (UNP) will find a new CEO this year after major shareholders complained of poor safety & profit metrics this month.  UNP is America's largest railroad operator, accounting for roughly $120B in market capital.  The company announced it will be replacing current CEO Lance Fritz by the end of the year.  The announcement came just days after a leading shareholder urged the company to make the move.  UNP's board says it is currently gathering "highly-qualified candidates both within the industry and adjacent industries."  UNP was dragged into recent turmoil over train derailments last week after one of its trains careened off the tracks in Nebraska.  Images from the Nebraska derailment showed roughly a dozen cars strewn across train tracks, but there were no flames or smoke.  UNP says the train was transporting coal & there is no indication that the crash poses a threat to locals.  UNP said "No one was injured. The incident occurred about three miles southeast of Gothenburg."  Cleanup has begun, with heavy equipment on site.  "One of the three mainline tracks near the derailment site reopened to train traffic at about 8 a.m. CST. The cause of the incident is under investigation," the statement continued.  The stock jumped 19.48 (10%) on news of a new leader.
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Major freight company shaking up leadership after train derailment

A sharp drop in mortgage interest rates brought homebuyers out in force in Jan, but rates have bounced back higher again, so the gains may be short-lived.  Signed contracts on existing homes jumped 8.1% last month compared with Dec, according to the National Association of Realtors (NAR).  That's the 2nd straight month of gains.  Sales, however, were still 24% lower compared with Jan 2022.  The “pending sales” are the most current indicator of housing demand, as it can take up to 2 months to close on a signed sale.  Closed sales in Jan were lower because they were based on contracts signed in Nov & Dec, when mortgage rates were higher.  And Jan's jump is all about mortgage rates.  After hitting a high of just over 7.3% in Oct, which caused sales to plummet, the average rate on the popular 30-year fixed mortgage dropped back close to 6% in Jan, according to Mortgage News Daily.  “Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR chief economist Lawrence Yun.  But mortgage rates moved higher again in Feb & the average rate stood at 6.88% as of Fri.  Sales activity is likely already slowing.  Mortgage applications to buy a home, which are a weekly indicator of buyer demand, have been falling for much of Feb.  The mortgage rate effect was also seen in sales of newly built homes in Jan, as those numbers from the Census Bureau are based on signed contracts as well, not closings.  Builder sales jumped just over 7% compared with Jan.  Some of that was due to incentives offered by big builders, but lower rates improved affordability, especially for buyers of entry-level homes.  Going forward, with rates higher & the supply of homes for sale still historically low, sales may not be able to continue this type of growth.  “Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” Yun said.  “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”

A rush of homes go under contract in January, but it’s unlikely to last

British Prime Minister Rishi Sunak signed a new trade deal with the EU designed to remedy problems caused by the Northern Ireland Protocol.  Speaking shortly after the announcement, Sunak described the new agreement, known as the Windsor Framework, as “the beginning of a new chapter” for the relationship between the UK & the EU.  “I’m pleased to report that we have now made a decisive breakthrough,” Sunak said.  “These negotiations have not always been easy,” he continued.  “The U.K. and the EU may have had our differences in the past, but we are allies, trading partners and friends. This is the beginning of a new chapter in our relationship.”  European Commission President Ursula von der Leyen added that the framework “respects and protects our respective markets and our respective legitimate interests. And, most importantly, it protects the very hard-earned peace gains of the Belfast Good Friday Agreement.”  Exact details of the new arrangement were not immediately available, but the 2 leaders said the deal had three main components.  Those include safeguarding trade flows within the UK, protecting Northern Ireland's place within the UK & giving the region's assembly in Stormont say over new EU rules with the introduction of a “Stormont brake.”  Sterling hit a session high of $1.2051, up 0.9%, shortly after the announcement.  The € also rose 0.7% hit a session high of $1.0613.  The FTSE 100 stock market index was up 60 points (0.7%) at 7934.  The UK may have left the EU on Jan 31, 2020, but the Northern Ireland Protocol has sparked persistent disagreement ever since.  This part of the Brexit deal mandates checks on some goods that travel to Northern Ireland from the rest of the UK — with the new negotiations aimed at easing these rules.

UK and EU agree to crucial Northern Ireland trade deal in Brexit breakthrough

Gold futures finished higher, with prices bouncing back after posting declines for 5 consecutive sessions.  There has been quite a shift in market direction in favor of the $ & yields, with most foreign currencies, gold & US equities, falling out of favor.  Those moves were as a result of the market changing its expectations for interest rates outlook swiftly higher.  Gold for Apr rose $7 to settle at $1824 an ounce.

Gold Futures Mark First Gain in 6 Sessions

Oil prices declined after posting back-to-back session gains.  Stubborn inflation data has returned the fears of a hawkish Federal Reserve, further complicating oil trade which is already under pressure from excess inventory.  US benchmark West Texas Intermediate crude for Apr fell 64¢ (0.8%) to settle at $75.68 a barrel.

Oil futures settle lower after back-to-back session gains

Markets struggled but could not pull off a relief rally.  The yield on the Treasury 10 year note is not far from its highs during the last 20+ years.  Investors are worried about what harm these rates will do to the economy.   For 4 months, Dow has been going sideways & is back to the low end of that trading range.

Dow Jones Industrials