Dow fell 41 (off 250 from early highs & falling), decliners ahead of advancers better than 3-2 & NAZ slid back 76. The MLP index stayed near 236 & the REIT index was even at 360. Junk bond funds were higher & Treasuries had a little selling bringing slightly higher yields (more below). Oil was up almost 1 to nearly 80 & gold slid back 7 to 1940.
AMJ (Alerian MLP Index tracking fund)
Freddie Mac's latest data shows the average rate for a 30-year fixed note has climbed to 7.23%, marking a 2nd consecutive multi-decade record after last week's average reached 7.09% for the first time since 2002. At this time last year, the 30-year fixed rate averaged 5.55%. The rate on a 15-year fixed mortgage is also up, averaging 6.55% after coming in last week at 6.46%. One year ago, the rate on a 15-year fixed note averaged 4.85%. Freddie Mac chief economist Sam Khater signaled that rates are not expected to fall any time soon, saying "indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term." The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring last year & homeowners who locked in a low mortgage rate before the pandemic have been reluctant to sell & jump into a higher rate on a new property, leaving few options for buyers. "As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall," Khater added. "However, there are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament." Realtor.com chief economist Danielle Hale said recent data on housing has been mixed, with existing home sales dropping last month while new home sales & construction both picked up. But there are signs more would-be buyers are giving up on purchasing a home right now. "As rates have surged past 7% and homebuying costs have risen yet again, home purchase mortgage applications have eased, suggesting that at least some potential buyers have been shut out of the market," Hale said. "Furthermore, as rents notch a third month of decline, hopeful first-time home buyers may have more reasons to take their time or extend their lease, rather than rushing in a challenging and expensive market."
Mortgage rates leap to decades-long high
Treasury yields were little changed as traders absorbed Federal Reserve Chair Jerome Powell's comments at the central bank's Jackson Hole symposium that reiterated his stance against inflation. The yield on the benchmark 10-year Treasury note were flat at 4.231%, while the yield on the 30-year Treasury bond inched lower to 4.295%. Yields move inversely to prices. Investors digested Powell's comments at the Kansas City Fed's annual retreat in Jackson Hole, Wyoming that warned there could still be further rate hikes ahead. While Powell said the central bank could be flexible, it said it still has further to go to fight inflation. “Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in prepared remarks. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” A recent surge took 10-year yields to their highest level since 2007 earlier this week, as investors grappled with a surprisingly resilient US economy & the possibility that sticky inflation could force the central bank to keep interest rates higher for longer.
Treasury yields edge higher ahead of Powell’s Jackson Hole speech
Federal Reserve Chair Jerome Powell called for more vigilance in the fight against inflation, warning that additional interest rate increases could be yet to come. While acknowledging that progress has been made, the central bank leader said inflation is still above where policymakers feel comfortable. He noted that the Fed will remain flexible as it contemplates further moves, but gave little indication that it's ready to start easing up anytime soon. “Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said at his keynote address at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” The speech resembled remarks Powell made last year at Jackson Hole, during which he warned that “some pain” was likely as the Fed continues its efforts to pull runaway inflation back down to its 2% goal. But inflation was running well ahead of its current pace back then. Regardless, Powell indicated it's too soon to declare victory, even with data this summer running largely in the Fed's favor. Jun & Jul both saw easing in the pace of price increases. “The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” he added. He acknowledged that risks are 2-sided, with risks of doing both too much & too little. “Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment,” he said. “Doing too much could also do unnecessary harm to the economy.” “As is often the case, we are navigating by the stars under cloudy skies,” he continued. Markets reacted little as Powell began to speak, with the Dow up about 100 points & Treasury yields mixed. The reaction contrasted to the 2022 reaction, when markets plunged following Powell's speech. Powell provided no clear indication of which way he sees the decision going. “Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said. However, he gave no sign that he's even considering a rate cut. “At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks,” Powell said. “Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.” He noted the risk of strong economic growth in the face of widespread recession expectations.
Fed Chair Powell calls inflation ‘too high’ and warns that ‘we are prepared to raise rates further’
Markets are assessing Powell's comments. But comments that the central bank is prepared to raise rates further does not cheer. Already mortgage rates are at multi year highs (see above). Investors are very nervous.
Dow Jones Industrials
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