Dow settled down 270 with selling in the last hour, advancers over decliners 2-1 & NAZ went off 55. The MLP index fell 1+ to the 217s & the REIT index lost 1+ to the 365s. Junk bond funds edge a little lower & Treasuries finish with a smaller gain than in early trading. Oil retreated 3+ to the 68s & gold was up 70 to 2030 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The Federal Reserve approved its 10th interest rate increase in just a little over a year & dropped a tentative hint that the current tightening cycle is at an end. In a unanimous decision widely expected by markets, the central bank's Federal Open Market Committee raised its benchmark borrowing rate by 0.25 percentage point. The rate sets what banks charge each other for overnight lending but feeds thru to many consumer debt products such as mortgages, auto loans & credit cards. The increase takes the fed funds rate to 5.00-5.25%, the highest since 2007. Markets, though, are more focused on where the Fed will be going from here, particularly amid concerns over economic growth & a lingering bank crisis that has rattled investors. The post-meeting statement offered only some clarity, not by what it said but what it didn't say. The document omitted a sentence present in the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to achieve its 2% inflation goal. Also, the statement tweaked language to outline the conditions under which “additional policy firming may be appropriate.” Previously, the FOMC had framed the forward guidance around how it would determine “the extent of future increases in the target range.” The statement reiterated that the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Taken together, the moves are at least a tenuous nod that while tight policy could remain in effect, the path ahead is less clear for actual interest rate hikes as policymakers assess incoming data & financial conditions.
Fed increases rates a quarter point and signals a potential end to hikes
Mortgage demand from homebuyers has been erratic to say the least during the usually busy spring housing market. That is likely because today's buyers are hypersensitive to mortgage rates, which have been fluctuating widely week to week but which are still considerably higher than they were a year ago. Now, several bank failures are starting to make it more difficult even for wealthier buyers. Mortgage applications to purchase a home dropped 2% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Demand was 32% lower than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) decreased to 6.50% from 6.55%, with points remaining at 0.63 (including the origination fee) for loans with a 20% down payment. The rate was 5.36% the same week one year ago. The average rate for jumbo loans (higher-balance mortgages) was slightly lower at 6.37%, but that spread has been shrinking for the last few months. Jumbo loan rates had been far lower than conforming because banks generally hold these loans on their balance sheets, as Fannie Mae & Freddie Mac don’t purchase them. Fannie & Freddie have imposed higher fees since the last recession, so their rates are now higher. “The jumbo-conforming spread continues to narrow, an indication that there is reduced lender appetite for jumbo loans following the recent turmoil in the banking sector and heightened concerns about liquidity,” wrote Joel Kan, MBA's deputy chief economist. “The spread was 13 basis points last week, after being as wide as 64 basis points in November 2022.” Applications to refinance a home loan increased 1% from the previous week but were 51% lower than the same week one year ago. The refinance share of mortgage activity rose to 27.2% of total applications from 26.8% the previous week.
Mortgage demand drops as bank failures hit jumbo loan rates
The Alzheimer's treatment donanemab which is made by Eli Lilly (LLY), significantly slowed progression of the mind-robbing disease, according to clinical trial data released today by the company. Patients
who received the monthly antibody infusion during an 18-month study
demonstrated a 35% slower decline in memory, thinking & their ability
to perform daily activities compared with those who did not receive the treatment. Patients
who took donanemab were 39% less likely to progress to the next stage
of the disease during the study. But
the treatment's benefits will have to be weighed against the risk of
brain swelling & bleeding that can be serious & even fatal in rare
cases. 3 participants in the trial died from these side effects. LLY plans to apply for Food & Drug Administration
(FDA) approval of donanemab as soon as this qtr. The trial studied individuals in the early stages of
Alzheimer's who had a confirmed presence of brain plaque associated with
the disease. Dr Daniel Skovronsky, LLY's chief scientific &
medical officer, said donanemab demonstrated the highest level of
efficacy of any Alzheimer's treatment in a clinical trial. The company
is working to get donanemab approved & on the market as quickly as
possible, he said. And Skovronsky believes the FDA feels the same sense of urgency. “Every
day that goes by, there are some patients who pass through this early
stage of Alzheimer’s disease and become more advanced and they won’t
benefit from treatment,” he said. “That’s a
very pressing sense of urgency.” The stock surged 25.84 (6%).
If you would like to learn more about LLY, click on this link:
club.ino.com/trend/analysis/stock/LLY_aid=CD3289&a_bid=6aeoso5b6f7
Eli Lilly Alzheimer’s treatment donanemab slowed disease progression
Gold futures finished with a 2nd straight gain, as economic uncertainty 7 banking sector worries lifted haven demand for the precious metal. Gold prices then slipped in electronic trading in the minutes after the Federal Reserve's latest decision to raise interest rates. Gold for Jun tacked on $13 (0.7%) to settle at $2037 per ounce. The Fed decision came after the day's settlement, paring some of the day's gains to bring prices to $2034 shortly after the announcement. Gold futures finished higher with the trading session focused on the Fed's announcement, which came after the Comex settlement. A ½-hour after the Comex gold settlement, the Fed announced an increase of a qtr percentage point in its key interest rate to 5.00-5.25%. The central bank also reworked the language in its statement to scrap prior language that “some” additional hikes “may” be needed. The language accompanying the increase seems to indicate the Fed was more-likely-than-not to pause increases & gauge the cumulative effect of past hikes, including their effect on the banking system.
Gold settles higher, then moves lower after Fed rate-hike decision
Oil futures declined, with US prices settling below $70 a barrel at their lowest level in over 6 weeks. Oil has continued to slide as the rising prospect of a US economic slowdown raises concerns over future demand. The banking crisis is likely to trigger a tightening of credit conditions, which could also constrain economic activity. Jun West Texas Intermediate crude fell $3.06 (4.3%) to settle at $68.60 a barrel. That was the lowest finish for a front-month contract since Mar 20.
U.S. Oil Futures Settle at Their Lowest in More Than 6 Weeks
The future of interest rate hikes continue to be unsettled. It will depend how the economy performs & if high inflation shows improvement. The low prces for oil suggests a recession is coming & soon.
Dow Jones Industrials
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