Dow edged up 44, advancers over decliners 5-2 & NAZ was off 85. The MLP index went up 2+ to the 229s & the REIT index gained 3+ to the 369s. Junk bond funds fluctuated & Treasuries were sold, raising yields. Oil rose 1 to the high 72s & gold retreated 7 to 1974.
AMJ (Alerian MLP Index tracking fund)
The threat of a commercial real estate market crash is hanging over the already fragile US economy. About $1.5T in commercial mortgage debt is due by the end of 2025, but steeper borrowing costs, coupled with tighter credit conditions & a decline in property values brought on by remote work, have increased the risk of default. Fitch Ratings already estimated that 35%, $5.8B, of pooled securities commercial mortgages coming due Apr-Dec 2023 will not be able to be refinanced. Office & retail property valuations could ultimately plummet as much as 40% from peak to trough this year as higher interest rates make it harder for investors to refinance trillions in looming debt, according to Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management. "MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis," Shalett wrote. "More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points." Complicating the matter is the fact that small & regional banks are the biggest source of credit to the $20T commercial real estate market, holding about 80% of the sector's outstanding debt. Regional banks were just at the epicenter of the upheaval within the financial sector & there are concerns that the turmoil could make lending standards drastically more restrictive. During a credit crunch, banks significantly raise their lending standards, making it difficult for businesses or households to get loans. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end. "I do think there will be issues with commercial real estate," Treasury Secretary Janet Yellen said. But she suggested that banks will be able to handle the strains ahead. Banks were already tightening lending standards before the crisis within the industry began. A quarterly survey of loan officers published by the Fed showed that a growing number of banks tightened lending standards & saw a sharp slowdown in demand during the final 3 months of 2022.
Real estate market crash looms over already fragile economy
With concerns growing that gas prices could surge
following Saudi Arabia's decision to slash oil production, Chevron
(CVX), a Dow stock & Dividend Aristocrat, CEO Mike Wirth says a friendlier policy environment for the
US energy industry would help domestic producers pump more at home. "We have the ability, as we've seen in recent years, to make the U.S. an energy powerhouse," Wirth said. "But it does need to be done with a supportive policy, with
an environment that encourages investment. And we've seen some mixed
signals here over recent years." Wirth said some "modest but meaningful steps on permitting reform" for US producers were included in the recent debt ceiling deal, & the industry hopes "that's a sign of an intent on the part of the
[Biden] administration and Congress to work further towards energy
policy that balances economic prosperity, energy security and
environmental protection but doesn't over-focus on any of those." The
CEO pushed back against Pres Biden's frequent criticisms
over US energy producers making record profits last year, & the
pres's claims that American oil companies could be drilling more
using existing leases. Wirth noted that the oil industry "lost a lot of money" when the
onset of the COVID-19 pandemic caused demand to plummet, & "as we've
come out of COVID we've been on the other side of that." "The
numbers can be large, but they can go in both directions, and they can
go there quickly," he explained. As for leases, Wirth said, "we're not
sitting on permits that we're not using." Wirth agreed with Energy
Secretary Jennifer Granholm's claim that the US is on track to reach
record levels of production this year & re-upped his call for the
administration to tone down its hostilities toward oil companies. "We'd like to see a more collaborative and open dialog with the
administration," Wirth added. "We can work together to
protect the environment, to address climate change, and to create energy
security." The stock rose 3.34.
If you would like to learn more about CVX, click on this link:
club.ino.com/trend/analysis/stock/CVX_aid=CD3289&a_bid=6aeoso5b6f7
Chevron CEO: Energy industry needs more ‘supportive’ policies
Wholesale used vehicle prices reached their lowest level of the year in May, as sales fell amid high interest rates & inflated retail prices. Cox Automotive reported a 2.7% decline from Apr to May in its Manheim Used Vehicle Value Index to 224.5. It marks the 2nd consecutive monthly decline & the index's lowest level since 219.3 in Dec. The index, which tracks vehicles sold at its US wholesale dealership auctions, remains elevated from historical levels but is expected to continue to decline this year amid improving new vehicle inventory levels & high interest rates that appear to be scaring off consumers. “Taking a longer view, May’s year-over-year decline accelerated from April and March; however, the rate of decline might slow over the next several months as we encounter the lower prices seen at auction from May through November last year,” said Chris Frey, Cox senior manager of economic & industry insights. Used retail sales are estimated to have been down 11% year over year in May, Cox reports. The notable decline comes as many Americans, especially those with lower credit ratings, are being priced out of the market & repairing their vehicles instead of replacing them. The declines in sales & wholesale prices signal the used vehicle market is weakening. That's not good for US auto dealers but a win for the Federal Reserve's battle to taper inflation by ratcheting up interest rates. Used vehicle prices have increasingly become a barometer for inflation since early last year when the Biden administration blamed the market for rising inflation rates. Used vehicle prices have been elevated since the early days of the coronavirus pandemic, as the global health crisis combined with supply chain issues caused production of new vehicles to sporadically idle. That led to a low supply of new vehicles & record-high prices amid resilient demand. The costs & scarcity of inventory led consumers to the used vehicle market, boosting those prices as well.
Used car prices are falling as sales soften amid high interest rates
It feels like the economy is in a recession, even if it's only a mild one. But the stock market keeps muddling along on its track which is going sideways. Traders are looking for more optimistic stories.
Dow Jones Industrials
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