Dow was up 120 although off early highs, advancers over decliners 4-1 & NAZ gained 93. The MLP index remained in the 226s & the REIT index rose 2+ to the 385s. Junk bond funds were higher along with stocks & Treasuries had limited buying which lowered yields. Oil slid down to the 75s & gold added 4 to 1821.
AMJ (Alerian MLP Index tracking fund)
Treasury yields fell as investors continued to monitor the outlook for inflation & the economy. The yield on the 2-year note yield briefly reached its highest level since 2007 & was trading down by more than 1 basis point at 4.791%. The yield on the benchmark 10-year Treasury note was down nearly 4 basis points at 3.91%. Yields move inversely to prices. The prospect of stickier inflation necessitating more persistent monetary policy tightening from the Federal Reserve led the major average to their biggest weekly losses of the year by the time markets closed Fri. Stocks sank Fri & Treasury yields jumped following a bigger-than-expected increase in the latest reading for personal consumption expenditures, the Fed's preferred inflation gauge. They have also put more upside pressure on yields recently. For the month, the 2-year yield has advanced more than 70 basis points. The benchmark 10-year rate, meanwhile, has soared more than 50 basis points. Durable goods orders fell in Jan as consumers pulled back spending on big-ticket items. Consumer confidence & the ISM manufacturing survey are on the slate later in the week.
Treasury yields retreat after 2-year note reaches highest level since July 2007
Sales of new US homes rose for the 4th straight month in Jan to the highest level in nearly a year as buyers took advantage of a decline in mortgage rates. New single-family home purchases rose 7.2% to a seasonally adjusted annual rate of 670K units, the Commerce Dept reported. The forecast expected new home sales, which account for a small percentage of total sales, to rise just 0.6% last month. "Sales are still far below levels seen a year ago, but this market is settling into what could be the new normal, one with a slower pace than seen during the pandemic and with fewer homes on the market and fewer transactions largely led by the affordability crunch," said Zillow senior econoales in the South surged 17.1% last month to the highest annualized pace in close to a year. Across the rest of the country, sales plunged, including a 19.4% drop in the Northeast. There were about 439K new homes for sale at the end of Jan, the lowest since May. That equates to about an 8-month supply at the current sales rate. The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy & slow the economy. Although mortgage rates have fallen from a peak of 7.08% notched in Nov, they have recently reversed that trend & started to march higher amid interest rate-hike fears. The average rate for a 30-year fixed mortgage climbed to 6.5% this week, according to data from mortgage lender Freddie Mac. That remains significantly higher than just one year ago, when rates hovered around 3.92%.
New home sales jump more than expected in January to 10-month high
America’s top economists are divided on their outlook for the economy amid persistently hot inflation data & robust job growth. The National Association for Business Economics (NABE) released the Feb 2023 edition of its economic outlook survey which showcased a wide range of opinions among economists on prospects for US growth, inflation & a potential recession this year. NABE Pres Julia Coronado said the survey's results reflect "significant divergence regarding the outlook for the U.S. economy." "Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy – ranging from recession to soft landing to robust growth," Coronado added. Underscoring that wide range of views, the NABE survey's median for US real GDP growth from Q4 2022 to Q4 2023 came in at 0.3% – with estimates from the lowest 5 & highest 5 ranging from -1.3% to 1.9%. A majority of panelists continue to believe the economy will experience a recession in 2023, with 58% of survey panelists believing the likelihood of a recession in the next 12 months is greater than 50%. However, panelists' views on when that recession will begin have shifted from the Dec survey, when 52% of respondents expected a recession would begin in Q1 2023. Only 28% hold that view as of Feb, while a further 33% expect a recession to begin in Q2, 21% in Q3 & 9% each in Q4 or after 2023. Economists surveyed for the NABE outlook continue to see the unemployment rate rising, but the uptick is expected to be smaller than in prior surveys. The consensus forecast sees unemployment rising from 3.5% in Q1 2023 to 4.4% in Q1 2024, then averaging 4.3% for all of next year. A strong 77% majority of respondents believe that the unemployment rate will peak at 4.9% or lower in the next 12 months, while 23% believe it will peak at 5% or higher. Inflation is expected to remain above the Federal Reserve's target rate of 2%, although economists see inflation slowing over the course of 2023 & 2024. Respondents see the consumer price index (CPI) rising by 3% year-over-year as of Q4 2023, a significant slowdown compared to a like period ending in Q4 2022 that came in at 7.1%. Headline inflation is expected to decline further to 2.3% year-over-year as of Q4 2024 – slightly above the Fed's goal. An overwhelming 71% majority believe the debt limit will be raised to resolve the situation, while 26% believe it will be suspended & only 2% expect the US to breach the debt limit.
Nation's top economists are divided on the US economy
While there was buying at the opening, enthusiasm is fading quickly. There are just too many uncertainties & limited strong economic data to encourage investors.
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