Dow finished down 90 with selling in the last hour, decliners over advancers about 5-2 & NAZ gained 49. The MLP index was off 2+ to the 221s & the REIT index continued strong, up 6 to the 366s. Junk bond funds were lower & Treasuries had a sharp drop in price, sending yields sharply lower. Oil fell almost 2 to the high 74s on recession fears & gold surged 50 to 1917 (more below).
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Goldman Sachs does not see a reason for the Federal Reserve to raise rates later this month in the wake of the US' 2nd-largest banking collapse last week, according to one of the company's economists. Jan Hatzius said he no longer expects a rate hike in Mar following recent actions from the federal agencies to calm depositors' worries after the Silicon Valley Bank's collapse on Fri. Yesterday, the Treasury, the Federal Reserve & the Federal Deposit Insurance Corporation (FDIC) put out a joint statement announcing actions intending to stabilize the banking system & prevent a potential banking crisis. "In light of recent stress in the banking system, we no longer expect the FOMC [Federal Open Market Committee] to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March," Hatzius said. The economist went on to say his company anticipates these regulatory measures to provide liquidity to other banks facing hurried deposits & bring confidence to depositors. His comments came as the Treasury Dept, Federal Reserve & the Federal Deposit Insurance Corporation (FDIC) released a joint statement to address factors that caused the California-based bank to fail. These regulators also worried the failure could potentially spread to other banks. "Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," the joint statement read. "This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth."
Goldman Sachs economist 'no longer' expects March rate hike in wake of Silicon Valley Bank collapse
Inflation & rising costs are why 33% of Americans said they were struggling to get by or were in trouble financially, according to Lincoln Financial Group's most recent Consumer Sentiment Tracker. Survey respondents also said they didn't expect much relief from these economic hardships, with 76% saying they anticipated that inflation, market volatility & debt will worsen this year. However, 88% of respondents said they saw room to improve their finances & 45% said they believed their financial situation would get better this year. Moreover, 53% said they planned to set financial goals for themselves this year despite the dire outlook on the US economy. "It's important that you're honest with yourself about where you are financially and what your goals are," Ed Walters, senior VP of Lincoln Financial Group's wealth management arm Lincoln Financial Network, said. "With a little discipline, knowledge, and guidance, you can have a strong financial year and see long-lasting results." Inflation rose 0.5% in Jan to register a 6.4% increase, the smallest 12-month increase since Oct 2021. The consecutive months of improving inflation have led many to believe that it may have peaked but continued high prices mean it's likely to take more time before inflation reaches the 2% target rate the Federal Reserve has set. That means that consumers will likely see borrowing costs continue to increase as the Fed maintains its restrictive monetary policy rates & continues raising interest rates this year to reach its target. "This latest CPI print is kept aloft most by the housing data component of its calculation," Adam Taggart, CEO & founder of Wealthion, said. "This housing data is lagging, reflecting what conditions were like for housing 12 months ago, much more so than today's, which are fast-softening." "Regardless, the Fed will use this stale data to justify hiking the federal funds rate further to tame inflation down towards its 2% CPI target," Taggart continued. "This indeed may lead to 'over-tightening' by the Fed, ultimately creating a deeper, more prolonged and more painful recession than necessary. The Fed would be wise to pause sooner and then wait to see if more hikes will be truly necessary. But it's unlikely to do so."
Inflation, recession fears dampen financial health outlook for many: survey
The average rate on the popular 30-year fixed mortgage dropped to 6.57% today, according to Mortgage News Daily. That's down from a rate of 6.76% on Fri & a recent high of 7.05% last Wed. Mortgage rates loosely follow the yield on the 10-year Treasury, which fell to a one-month low in response to the failures of Silicon Valley Bank & Signature Bank & the ensuing ripple through the nation's banking sector. In real terms, for a buyer looking at a $500K home with a 20% down payment on a 30-year fixed mortgage, the monthly payment this week is $128 less than it was just last week. It is still, however, higher than it was in Jan. So what does this mean for the spring housing market? In Oct, rates surged over 7%, & that started the real slowdown in home sales. But rates then started falling in Dec & were near 6% by the end of Jan. That caused a surprising 8% monthly jump in pending home sales, which is the National Association of Realtors' measure of signed contracts on existing homes. Sales of newly built homes, which the Census Bureau measures by signed contracts, also surged far higher than expected. While the numbers for Feb are not in yet, anecdotally, agents & builders have said sales took a big step back in Feb as rates shot higher. So if rates continue to drop now, buyers could return once again, but that’s a big “if.” “This mini banking crisis has to drive a change in consumer behavior in order to have a lasting positive impact on rates. It’s still all about inflation,” said Matthew Graham, COO at Mortgage News Daily. Markets now have to contend with the “inflationary impact of consumer fear,” he added, noting that tomorrow brings a fresh consumer price index report, a monthly measure of inflation in the economy.
Mortgage rates tumble in the wake of bank failures
Gold prices finished at a 5-week high as the $ weakened & Treasury yields declined after the Federal Reserve & other US authorities attempted to prevent a banking crisis from spreading in the aftermath of SVB collapse. Gold prices for Apr gained $49 (2.6%) to settle at $1916 per ounce. That was the highest close for a most-active contract since Feb 2 when it settled at $1930. Gold extended its safe-haven appeal today as investors were piling into the yellow metal despite Pres Biden's assurance that the banking system is still “safe” in the wake of the failures of Silicon Valley Bank & Signature Bank. Gold has been one of the few beneficiaries from the collapses of first Silvergate & then Silicon Valley Bank with the precious metal's safe haven appeal seeing its price surge to close above $1900 an ounce. Prices of precious metals were also taking advantage of falling Treasury yields. The yield on the policy-sensitive 2-year Treasury note fell below 4% & headed for its biggest 3-day decline since the 1987 stock-market crash, also known as Black Monday in which the S&P 500 plunged 20% for its worst one-day drop. The ICE US Dollar Index a gauge of the greenback's strength against a basket of rivals, was off 0.9% to 103.62.
Gold hits 4-week high after U.S. authorities intervene to save depositors in failing banks
Oil futures ended lower as the collapse of Silicon Valley Bank over the weekend stirred fears of a potential recession. West Texas Intermediate crude for Apr fell $1.88 (2.5%) to close at $74.80 a barrel. May Brent, crude the global benchmark, declined $2.01 (2.4%) to settle at $80.77 a barrel. While US stocks
gained ground, albeit in choppy trade, investors continued to pile into
safe-haven assets like Treasuries & gold, while shunning other
commodities. Energy
traders were not expecting the collapse of the 16th-largest lender in
America to trigger a major risk-aversion wave that would send Brent
crude below the $80 a barrel level. The
chaos in the bond market is also weighing on commodities. Oil's
roller-coaster ride won't be anytime soon as tomorrow's inflation report
could upend the rally hitting Treasuries. Downside, however, may
be limited by reports of strong buying from China.
Oil ends lower as SVB collapse stirs recession fears
Investor confidence was not greatly shaken for most stocks today despite all the negative news about banks. Dow finished lower from selling in the last hour, but was in the black for most of the trading session. It was interesting to see that all this chaos may cause the Fed to be more careful when it raises interest rates. That remains to be seen. The CPI index will be reported tomorrow & that should get some attention.
Dow Jones Industrials
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