Dow climbed 341 (near session highs), advancers modestly ahead of decliners & NAZ rose 83. The MLP index was up 3+ to the 227s & the REIT index bounced back 4+ to the 382s. Junk bond funds continued weak & Treasuries were sold, taking yields higher. Oil was fractionally higher to 79 & gold slid 3 to 1842 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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The average rate on the 30-year fixed mortgage jumped back over 7%, rising to 7.1%, according to Mortgage News Daily. Growing fears that inflation is not cooling off are pushing bond yields higher. Mortgage rates loosely follow the yield on the US 10-year Treasury. “Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly. This is scary considering this week’s data is insignificant compared to several upcoming reports,” said Matthew Graham, COO at Mortgage News Daily. Rates went over 7% last Oct. That was the highest level in over 20 years. But they pulled back in the following months, as inflation appeared to be easing. By mid-Jan rates were touching 6%, spurring a big jump in buyers signing contracts on existing homes. Pending home sales rose an unexpectedly strong 8% from Dec, according to the National Association of Realtors. But the past 4 weeks have been rough. Rates have moved 100 basis points higher since the start of Feb. For a buyer purchasing a $400K home with 20% down on a 30-year fixed loan, the monthly payment, including principal and interest, is now roughly $230 a month more than it would have been a month ago. Compared with a year ago, when rates were in the 4% range, today’s monthly payment is about 50% higher. As a result, mortgage applications from homebuyers have been falling for the past month & last week hit a 28-year low, according to the Mortgage Bankers Association. “The recent jump in mortgage rates has led to a retreat in purchase applications, with activity down for three straight weeks,” said Bob Broeksmit, president & CEO of the Mortgage Bankers Association. “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market.” “Consumers have taken on a record amount of debt, including mortgage, personal, auto, and student loans,” noted George Ratiu, senior economist at Realtor. com. “With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead.” While the trajectory for rates now appears to be higher again, it is not necessarily guaranteed for the long term. “If the bigger-ticket data has a friendlier inflation implication, we could see a bit of a correction. Unfortunately, traders will be hesitant to push rates aggressively lower until they have several successive months pointing to meaningfully lower inflation.”
Mortgage rates jump back over 7% as inflation fears drive yields higher
The number of people applying for unemployment benefits in the US fell for a 3rd straight week. That's good news for American workers, but potentially bad news in the fight against inflation by the Federal Reserve, which has been ratcheting up its benchmark interest rate for a year in an effort to cool the economy, loosen the labor market & tame inflation. Applications for jobless claims in the US for last week fell to 190K from 192K the previous week, the Labor Dept reported. It's the 7th straight week claims were under 200K. The 4-week moving average of claims, which evens out some of the weekly volatility, rose by 1750 to 193K, remaining below the 200K threshold for the 6th straight week. Applications for unemployment benefits are considered a proxy for the number layoffs in the US. The Fed's hawkish interest rate policy appeared to be slowing inflation, but recent data has suggested otherwise. Some economists now expect the Fed to raise its benchmark rate by a substantial ½-percentage point when it meets later this month. The Fed's rate hikes have done little to cool a red-hot US job market, which has put upward pressure on wages, & as a result, prices.
Applications for jobless claims fall for 3rd straight week
Best Buy (BBY) reported holiday-qtr earnings & revenue that topped expectations, as waning demand for consumer electronics wasn't
as bad as feared. For
the coming fiscal year, the consumer electronics retailer said it
expects revenue between $43.8-45.2B, a decline from
its most recent fiscal year & a same-store sales decline of 3-6%. The company is expecting to feel the majority of that
pressure during Q1 & then level out in H2
of the fiscal year. “We are preparing for another down year for the [consumer electronics] industry,” said CEO Corie Barry. EPS was$2.61 vs $2.11 expected & revenue was $14.74B vs $14.72B expected. BBY was a big beneficiary of sales trends during the Covid pandemic as
consumers bought computer monitors to work remotely, home theaters to
pass the time and kitchen appliances to cook more. Its quarterly sales
were down about 3% from the same period before the pandemic when it reported $15.2B in revenue. Same-store sales decreased by 9.3% during Q4,
slightly higher than expectations of 9.2%. For the full year, same-store sales were down 9.9%, in
line with guidance the retailer issued in Nov that same-store sales would decline about 10%. BBY had joined other retailers in cutting its outlook this summer. It also cut an undisclosed number of jobs. In
the fiscal Q4, EPS fell to $2.23 from $2.62, a
year earlier. The stock fell 1.23.
If you would like to learn more about BBY, click on this link:
club.ino.com/trend/analysis/stock/BBY_aid=CD3289&a_bid=6ae5b6f7
Best Buy tops expectations, warns of further sales declines in the coming year
US benchmark crude-oil prices marked their highest settlement in 2 weeks. Optimism surrounding China's economic recovery are offsetting more hot inflation data in Europe & the US which sparked further hawkish money flows in morning trade. Sticky high inflation is going to prompt more action from the Federal Reserve & ECB. While that is a negative for demand expectations, the Chinese gov is simultaneously raising their growth outlook for 2023 & considerably so. That's being seen as a balancing factor for any economic slowdown the West. Apr West Texas Intermediate crude climbed 47¢ (0.6%) to settle at $78.16 a barrel. Based on the front-month contract, that was the highest finish since Feb 16.
U.S. Oil Futures Settle At A 2-Week High
Gold futures settled with a loss, easing back after posting gains over 3 consecutive trading sessions. After struggling to digest last year’s steep interest rate hikes, financial markets are having to re-price a more hawkish outlook again for 2023. Still, gold futures have held onto a gain for the week. The fact that the precious metal is holding firm, even as exchange-traded funds see small net outflows, suggests central-bank demand has returned after the New Year price jump. It also highlights solid consumer demand, especially from China. Gold for Apr fell $4 to settle at $1840 an ounce.
Gold Futures Finish Lower After A Three-Session Climb
Today's rally was unimpressive with only a modest gain for advancers over decliners & tech stocks on NAZ did not see buying. Treasury yields are at their highest rates in the last 20 years keeping investors on the sideline.
Dow Jones Industrials
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