Dow dropped 261, decliners over advancers a hefty 4-1 & NAZ was off 65. The MLP index fell 1 to the 235s & the REIT index pulled back 2+ to the 266s. Junk bond funds were pretty much even & Treasuries saw a tiny amount of buying. Oil fell 1+ to go below 81 & gold was off 2 to 1941.
AMJ (Alerian MLP Index tracking fund)
Americans picked up their spending at retail stores in Jul, even as inflation accelerated for the first time in more than a year. Retail sales, a measure of how much consumers spent on a number of everyday goods, including cars, food & gasoline, rose just 0.7% in Jul, the Commerce Dept reported. That is above both the 0.4% increase projected & the 0.2% gain recorded in Jun. Excluding the more volatile measurements of gasoline & autos, sales climbed 1% last month. The figures are not adjusted for inflation. Consumers spent more on items like food, clothing & building & also garden materials. They also continued to open their wallets when online shopping, with spending at non-store retailers jumping 1.9% from the previous month,& at sporting goods, musical instrument & book stores, which saw sales climb 1.5%. Sales rose in 9 of 13 retail categories last month. At the same time, Americans pulled back on spending in areas like furniture & home furnishing stores; electronics & appliance stores, & a solid job market. big wage increases have helped to buoy consumer spending in recent months, despite record-high inflation. However, many economists expect consumers to grow more cautious in coming months as student loan payments resume & high interest rates continue to work their way thru the economy.
Retail sales rise more than expected as consumers pick up spending
A Fitch Ratings analyst warned that the US banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of US banks that could even include the likes of JPMorgan Chase (JPM), a Dow stock. The ratings agency cut its assessment of the industry’s health in Jun, a move that analyst Chris Wolfe said went largely unnoticed because it didn't trigger downgrades on banks. But another one-notch downgrade of the industry's score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 US banks it covers, Wolfe said. “If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe said. The credit rating firms relied upon by bond investors have roiled markets lately with their actions. Last week, Moody's downgraded 10 small & midsized banks & warned that cuts could come for another 17 lenders, including larger institutions. Earlier this month, Fitch downgraded the US long-term credit rating because of political dysfunction & growing debt loads, a move that was derided by business leaders including JPM's (CEO) Jamie Dimon.
Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase
Rising mortgage rates are hitting potential homebuyers hard & that is taking steam out of the homebuilding market. Builder sentiment in the market for newly built homes dropped 6 points to 50 in Aug, according to the National Association of Home Builders/Wells Fargo Housing Market Index. That is the first decline in seven months & the lowest level since May, when sentiment first rose out of negative territory. Anything over 50 is considered positive. “Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said Alicia Huey, NAHB chair & a homebuilder & developer. Mortgage rates are now holding solidly over 7%, hitting 7.24%, according to Mortgage News Daily. The average rate on the 30-year fixed loan rose over 7% in the last week of Jul. Of the index's 3 components, current sales conditions fell 5 points to 57 & sales expectations in the next 6 months fell 4 points to 55. Buyer traffic dropped 6 points to 34. “Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%,” said Robert Dietz, NAHB’s chief economist, who added that the market currently has a shortfall nationwide of about 1.5M housing units. After dropping for 4 straight months, the share of builders cutting prices rose to 25% in Aug from 22% in Jul. The average price cut, however, remained at 6%. The share of builders using all types of incentives, including buying down interest rates, rose to 55% in Aug from 52% in Jul. But it was still lower than the 62% share at the end of last year.
Homebuilder sentiment drops sharply, as mortgage rates surge over 7%
News today was largely gloomy. Strong retail sales indicate the Fed may have more to discuss about rate hikes. Banking problems have resurfaced & home builders (a major part of the economy) are already feeling the effects of higher interest rates. The rally for the Dow has hit the pause button for the last month.
Dow Jones Industrials
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