Dow retreated 361 (near session lows), decliners over advancers about 5-1 & NAZ was off 157. The MLP index fell 2+ to the 233s & the REIT index declined 4+ to the 364s. Junk bond funds slid lower & Treasuries had a little selling, bringing higher yields. Oil remained weak, off 1+ to 81, & gold dropped 8 to 1935 (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)
Minneapolis Federal Reserve Pres Neel Kashkari favors getting tougher on regional banks, following a crisis earlier this year that he said may not be over. Asked during a town hall whether he agrees with proposals setting higher capital requirements for banks with more than $100B in assets, the central bank official said, “My own personal opinion is it doesn’t go far enough. I think it’s a step in the right direction, but I would like to go significantly further.” The architect of the Troubled Asset Relief Program that helped bail out banks during the 2008 financial crisis, Kashkari said that if the Fed has to keep raising interest rates, it could cause more problems for smaller banks. At the root of the crisis was duration risk. A crisis of confidence forced some banks to liquidate assets to meet withdrawal demand. Those banks holding longer-dated Treasuries faced capital losses as rates went up & bond prices fell. Should the Fed have to keep raising rates, that could affect banks in the same situation. Kashkari did not indicate if he thought the Fed was positioned for more rate hikes, but he noted that “we’re a long way away from cutting rates.” “Right now it seems like things are quite stable, that banks have gotten through this reasonably well,” he added. “Now, the risk is that if inflation is not completely under control, and that we have to raise rates further from here, to bring it down, that they might face more losses than they currently face today. And these pressures could flare up again in the future.” Referring to the issues in that took down Silicon Valley Bank & others, Kashkari replied “all of the above” when asked whether it was higher interest rates or bank mismanagement that caused the failures.
Regional banks slide after Fed’s Kashkari advocates ‘significantly further’ capital regulation
The H1 rally in US equities has drawn more investors off the sidelines & that's one of several reasons why Bank of America's Michael Hartnett sees a tougher path ahead. He said the bottom-line conclusion to draw from the Aug survey of global fund managers–247 panelists with $635B ($981B) of assets under management–is that they are the “least bearish” since Feb 2022. “Bear positioning [represented a] strong tailwind for risk assets in the first half,” he said, adding that's “not the case” for H2. Cash holdings among fundies fell to a 21-month low of 4.8% in Aug from 5.3% in Jul. When cash falls below 5%, BofA says it marks the end of one contrarian “buy signal”; a “sell signal” is triggered when cash drops to 4% or lower. In addition, the survey found that fundies have the smallest underweight equity position since Apr 2022 & at the same time the largest tech stock overweight since Dec 2021. 3 out of 4 of those who responded to the survey expect the US economy to slow without entering into a recession. In addition, 42% of respondents said they don't expect the global economy to enter a recession in the next 12 months, that's the most positive they've been since Jun 2022. However, the survey concluded before the latest data from China which has cast a shadow over the outlook. More than 80% of respondents expect global inflation to slow further in the next 12 months, driving the biggest conviction that rate cuts will follow in the year ahead since 2008 (a net 60%). In terms of asset allocation, the survey found fundies shifted out of cash & REITs (capitulation to GFC/Lehman levels) & into stocks & commodities. The biggest tail risks for markets: high inflation keeps central banks hawkish 45%; geopolitics worsen 14%; bank credit crunch & global recession 14%; systemic credit event 12% & AI/tech bubble 10%.
Investors least bearish on stocks since early 2022: Bank of America on stocks since early 2022: BofA
Home Depot (HD), a Dow stock, topped earnings expectations, but posted a 2% year-over-year
sales decline as customers remained wary of big purchases & major
projects. It marked the first time in 3 qtrs that the company beat revenue expectations. Yet
the home improvement retailer reiterated its muted
forecast for the fiscal year despite the beat, saying it still expects
sales & comparable sales to decline 2-5% compared with
the year-ago period. It had lowered the forecast last qtr. CFO McPhail said the
company has seen “continued caution on the part of consumers when it
comes to larger-ticket, more discretionary spending.” He added in some
cases, homeowners already made those bigger purchases during the Covid pandemic. In other instances, they are likely deferring them because of higher interest rates. McPhail
said key pandemic dynamics are reversing, too. Transportation costs
have dropped. Vendors aren't coming to HD with as many requests
for price increases & added that supply chain disruption is “largely
behind us. “We don’t expect to see meaningful inflation in the second half of the year,” McPhail said. The company reported net income for the 3-month period that ended
Jul 30 of $4.66B, $4.65 per share, down from $5.17B, $5.05 per share, a year earlier. Revenue fell year over year from
$43.8B. Comparable sales in the US & companywide declined by 2% in fiscal Q2, but that exceeded expectations for a 3.9%
decline. It marked the 3rd straight qtr of
falling comparable US sales. The stock rose 2.14.
If you would like to learn more about HD, click on this link:
club.ino.com/trend/analysis/stock/HD_aid=CD3289&a_bid=6aeoso5b6f7
Home Depot beats earnings estimates, but sales slide as consumers pull back
Gold closed with a loss for a 7th-straight session early today after the US reported retail sales surged more than expected last month, showing the economy remains robust despite high interest rates. Gold for Dec closed down $8 to 1935 per ounce. The US Census Bureau reported retail sales rose by 0.7% in Jul from Jun, ahead of the estimate for a 0.4% rise. However forecasts continue to expect no change to the Federal Reserve's interest-rate policies for the remainder of the year. Sentiment remains weak with ETF holdings continuing to decline, down 4.3 tons yesterday to a fresh 3 year low & remain a focus with traders currently scaling back their expectations. The $ surged immediately following the data release but quickly retreated. The ICE $ index was last seen down 0.1 points to 103.09. Treasury yields were mixed. The US 2-year note was last seen down 2.1 basis points to 4.948%, while the 10-year note was unchanged at 4.195%.
Gold Falls Again as the US Reports Retail Sales Surged in July
Oil futures slumped again, ending lower after another round of disappointing economic data out of China, which was followed by interest rate cuts by the central bank in Beijing. West Texas Intermediate crude for Sep fell $1.52 (1.8%) to close at $80.99 a barrel. Oct Brent crude, the global benchmark, dropped $1.32 (1.5%) to settle at $84.89 a barrel. In the US, Sep gasoline finished with a loss of 2% at $2.848 a gallon, while Sep heating oil declined 2% to $3.028 a gallon. Sep natural gas dropped 4.9%, ending at $2.659 per M British thermal units. Data released today showed China's retail sales & industrial production grew less than expected in Jul. The figures followed other lackluster data & comes amid worries over severe distress in the countries property sector, which prompted a series of interest rate cuts by the People's Bank of China.U.S. Oil Price Ends More Than 2% Lower on China Worries
China has reported a further decline in health for its economy. Its central bank unexpectedly cut a range of key interest rates in a bid to spur growth. And now some US banks are getting more attention. Risk averse thinking by investors has become more common among investors.
Dow Jones Industrials
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