Dow inched up 2, advancers over advancers 4-3 & NAZ slid back 22. The MLP index stayed in the 226s & the REIT index recovered 5+ to the 369s. Junk bond funds were flattish & Treasuries saw more selling, raising yields. Oil slid back to the 81s & gold fell 17 to 1998.
AMJ (Alerian MLP Index tracking fund)
Confidence among builders in the US housing market increased more than expected in Apr as declining mortgage rates & low inventory helped drive demand higher for new homes. The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose one point to 45, the highest reading since Sep. Despite the increase, the index still points to a slump in the housing sector ahead of the pivotal spring-selling season. Any reading above 50 is considered positive; prior to 2022, the gauge has not entered negative territory since 2012, excluding a brief – but steep – drop in May 2020. "For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates," said Alicia Huey, the NAHB chair. "Builders note that additional declines in mortgage rates, to below 6%, will price-in further demand for housing." The index has fallen to ½ of what it was just one year ago, when it stood at 81, although it has increased from a low of 31. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers, flush with cash & eager for more space during the pandemic, started flocking to the suburbs. The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy & slow the economy. Still, demand has shown early signs of returning as mortgage rates fall from a record high of 7.08% in Nov. Limited inventory has also bolstered demand this month. A recent report from realtor.com showed that while the number of available homes on the market in Mar is down more than 50% from the typical amount before the pandemic began. "Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%," said Robert Dietz, NAHB chief economist.
Homebuilder sentiment jumps to highest level since September
Treasury Secretary Janet Yellen said banks are likely to become more cautious & may tighten lending further in the wake of recent bank failures, possibly negating the need for further Federal Reserve interest rate hikes. Yellen said that policy actions to stem the systemic threat caused by last month's failures of Silicon Valley Bank & Signature Bank had caused deposit outflows to stabilize, “and things have been calm,” according to a transcript released on Sat. “Banks are likely to become somewhat more cautious in this environment,” Yellen said in the interview. “We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come.” She said that would lead to a restriction in credit in the economy that “could be a substitute for further interest rate hikes that the Fed needs to make.” But Yellen said she was not yet seeing anything “dramatic enough or significant enough” in this area to alter her economic outlook. “So, I think the outlook remains one for moderate growth and (a) continued strong labor market with inflation coming down,” she added. Yellen is far from the only finance official expecting some retrenchment in bank credit as a result of the financial sector upheaval in the last month. Some Fed officials have said the central bank should adopt a more cautious footing as they expect banks to restrict lending in the months ahead. Weekly bank balance sheet data published by the Fed has yet to show a material deterioration in bank lending, while also showing that deposit outflows have stabilized in the last 2 weeks after an initial flood of withdrawals around the time of the SVB & Signature failures in mid-Mar. Yellen was asked, in the wake of concerns about the safety of deposits, whether it would be wise to develop a central bank digital currency that would allow US consumers to have accounts directly with the Fed. “There are important pros ... and there are some cons with such a decision, so it’s one that needs to be seriously analyzed, but it could be something that is in Americans’ future,” Yellen concluded.
Yellen says U.S. banks may tighten lending and negate need for more Fed rate hikes
Treasury yields rose slightly as investors assessed the outlook for the economy & earnings season pressed on. The 10-year Treasury yield was up 4 basis points to 3.564% & the 2-year Treasury yield climbed more than 5 basis points to 4.154%. Yields & prices have an inverted relationship & one basis point equals 0.01%. The 2-year Treasury yield breached the key 4% level on Fri even though data published throughout the week indicated that inflationary pressures could be easing. That included Mar's consumer inflation report, which reflected a smaller than expected increase of 0.1% on a monthly basis. Also last week, the latest producer price index reading showed that wholesale prices fell by 0.5% in Mar. That prompted many investors to hope that a pause of Federal Reserve interest rate hikes was imminent. The central bank had previously hinted that if data suggested a cooling of the economy, rate increases may be halted shortly. Earnings seasons continues today
Yields rise slightly to start the week as investors weigh economic outlook
The stock market is looking for earnings reports to create excitement.Dow Jones Industrials
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