Dow gained 209, advancers over decliners better than 2-1 & NAZ added 24. The MLP index stayed in the 231s & the REIT index inched up 1+ to the 375s. Junk bond funds were higher along with the stock market & Treasuries saw a little buying that reduced yields, but yields are still near highs for the last year. Oil slipped back in the 73s & gold was off 1 to 1931 (more on both below).
AMJ (Alerian MLP Index tracking fund)
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Americans are bracing for higher inflation over the next few years even as they anticipate a drop in consumer prices over the short term, according to a key Federal Reserve Bank of New York survey. The median expectation is that the inflation rate will be up 3.8% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, down from a high of 7.1% recorded in Jun 2022, the lowest reading since Apr 2021. But consumers anticipate that inflation will remain sticky in coming years, estimating that inflation will hover around 3% 3 years from now & remain steady at 3% 5 years from now. By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2% by 2025. Americans expect the cost of homes, college tuition, medical care & rent to increase over the next year, but they projected declines in the price of gasoline & food. The survey, which is based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis. That is because actual inflation depends, at least in part, on what consumers think it will be. It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%. Workers, in turn, will want a 3% pay raise to offset the rising costs. Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed's 2% target goal. "A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year," Powell said at the end of Jun. "Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go." The latest inflation expectation projections come just 2 days before the release of new consumer price index data, which is expected to show the growing stickiness of higher inflation: The expectation is that inflation rose 0.3% from the previous month & 3.1% from the previous year. More concerning is that economists expect core inflation, which excludes the more volatile measurements of food & energy, to increase 0.3% for the month & 5% from the previous year. The report also found that more Americans are feeling pessimistic about the outlook for the labor market. The mean perceived probability of losing one's job in the next 12 months jumped by 2 percentage points to 12.9%, the highest reading since Nov 2021. Mean unemployment expectations, the probability that US unemployment will be higher one year from now, tumbled by 2.3 percentage points to 37.7% in Jun, the lowest reading in more than a year.
How long will inflation stick around? Americans give their take
Home prices hit a record high in May, rising 0.7% nationally compared with Apr at a seasonally adjusted rate, according to the Black Knight Home Price Index. Prices, which have been rising since Jan, were 0.1% higher in May than a year earlier. The sharp jump in mortgage interest rates last year threw cold water on an overheated housing market, but it didn't last long. Even with rates still high, home prices are now gaining again & the gains are accelerating with each new month. “There is no doubt that the housing market has reignited from a home price perspective,” said Andy Walden, VP of enterprise research at Black Knight. “Though the backward-looking annual growth rate dipped to 0.1%, May’s exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months,” Walden added. Prices began dropping last summer, after the average interest rate on the 30-year fixed-rate mortgage more than doubled in just 6 months. They continued to fall until Jan, when buyer demand returned but came up against very tight supply. Buyers may have simply gotten used to higher rates. “Earlier this year I shared that I believed 6% mortgage rates were accepted as the new normal. I think now we’re in an environment where 7% mortgage rates are now the new normal, and people are accepting it,” Robert Reffkin, CEO of Compass Real Estate said last week. In general, though, supply is declining again. New listings are down about 25% from a year ago, as homeowners with sub-4% mortgage rates are reluctant to sell their homes & potentially pay a much higher interest rate on another home. Total inventory is now about ½ of what it was just before the pandemic, which caused a massive housing boom. Sales of pre-owned homes are still much weaker than they were a year ago, but that has less to do with higher costs & more to do with less supply. The median price of a pre-owned home in May was $396K, according to the National Association of Realtors. Redfin, a real estate brokerage, reported last week that the average home is now selling just above its list price for the first time in nearly a year.
Home prices are hitting new highs again, as high rates put the squeeze on supply
Wholesale used vehicle prices posted their largest decline last month since the beginning of the Covid-19 pandemic, as prices are set to stabilize during H2. Cox Automotive reported Mon a 4.2% decline from May to Jun in its Manheim Used Vehicle Value Index to 215.1. It marks the 3rd consecutive monthly decline & one of the index's largest monthly drops on record. “Buyers at auction look to have taken an early summer break, and while used retail inventory has been improving over the last several weeks, we are expecting less volatility in wholesale price movements through year-end,” Chris Frey, Cox senior manager of economic & industry insights, said. The index, which tracks vehicles sold at its US wholesale dealership auctions, remains elevated from historical levels but is down 10.3% compared with Jun 2022. The decline could help bring used vehicle pricing down for consumers in the months to come, as retail prices traditionally follow changes in wholesale prices. The retail used vehicle market remains strong but was estimated to be off 6% last month compared with Jun 2022. The decline was led by rising availability of new vehicles & high interest rates, Cox senior economist Jonathan Smoke said. “We are now at a turning point where the market returns to more balance and that balanced market is likely to deliver small but predictable changes in sales and less news about big changes in prices,” Smoke said.
Used car prices expected to stabilize following major decline in June
Gold futures tumbled after clinching their strongest one-day gain in a month on Fri following the release of the Labor Dept's Jun jobs report. Traders are now looking ahead to the next reading on US inflation, which is due out Wed. Gold futures for Aug shed $2 to settle at $1930 per ounce. Gold prices benefited from the sharply weaker $ late last week, but the boost appears to have faded as gold futures have once again stabilized around the $1930 per ounce level. Consumer prices are expected to have risen by 0.3% in Jun, according to the forecast. Meanwhile, the ICE US Dollar Index a gauge of the $'s strength against a basket of rivals, rose by 0.2%, to 102.40, helping to push gold lower.
Gold prices retreat as traders await CPI data
US oil futures fell by more than 1%, their largest daily decline in a week. Having come off the back of 2 weeks of gains, the same old concerns over weaker demand are serving to help cap gains. West Texas Intermediate crude for Aug fell by 87¢ (1.2%) to settle at $72.99 a barrel.
U.S. Oil Futures Post Biggest Daily Percentage Decline in a Week
With a lack of meaningful news, stocks drifted with the bulls managing to round up some stock buyers. Once again, Dow remains near the 34K trend line.
Dow Jones Industrials
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