Markets tumble while financial yields are at multi year highs

Dow sank 291 (near session lows), declines over advancers 2-1 & NAZ dropped 157.  The MLP index crawled higher in the 234s & the REIT index was off 2+ to the 358s.  Junk bond funds drifted lower & Treasuries continued to see selling which raised yields.  Oil rose 1 to 80 & gold lost another 10, falling to 1917 (more on both below).

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The number of Americans filing new claims for unemployment benefits fell last week, pointing to continued tightness in the labor market even as job growth slows.  Labor market tightness is underpinning the economy, with data this week showing a solid increase in retail sales in Jul & a surge in single-family homebuilding, which prompted economists to raise their growth estimates for Q3.  But that resilience raises the risk that the Federal Reserve could hike interest rates again.  Initial claims for state unemployment benefits dropped 11K to a seasonally adjusted 239K for last week, reversing ½ of the surge in the prior week, the Labor Dept said.  The forecast called for 240K claims for the latest week.  Claims shot up in the prior week, with applications in Ohio accounting for a big chunk of the increase.  The state, which has previously experienced fraudulent filings, attributed the jump to layoffs in the manufacturing & automobile industries.  Automakers normally idle plants in Jul to retool for new models.  Unadjusted claims dropped 15K to 213K last week.  The labor market is only slowing at the margin, with job gains in Jul being the 2nd-smallest since Dec 2020.  The unemployment rate is hovering around levels last seen more than 50 years ago.  There were 1.6 job openings for every unemployed person in Jun.  Claims, relative to the size of the labor market, are below the 280K level that would signal a significant slowdown in job growth.

US Weekly Jobless Claims Fall as Labor Market Remains Tight

While US home buyers & renters don't have much optimism about the market right now, one real estate brokerage giant added another woe to this year's landscape.  "The market is at a standstill," Redfin CEO Glenn Kelman said.  "Sales volume is absolutely rock bottom. The people who need to sell won't do it because they don't want to give up their mortgage. The people who normally would buy can't afford it."  "So buyers and sellers are at a standoff," he continued, "and it means that the industry is just going to have a tough 2023."  A new Redfin report released this month found the share of million-dollar homes is on the rise, as nearly 1 in 10 US homes are worth at least $1M, close to Jun's all-time record high of 8.6%.  As home prices remain elevated, new home construction stays struggling as recent data from the National Association of Home Builders (NAHB) indicated builder sentiment dropped 6 points from Jul to Aug.  The combination of high home prices & mortgage rates puts "a real crimp" on the average homebuyer who typically moves into a bigger space.  "We didn't feel the effect immediately through 2020 to 2022 because so many Americans have moved to less expensive cities. But now, as there is more return-to-the-office, we are seeing more people trying to afford a Seattle, a Denver, a Portland to Dallas, even, and struggling to do it," the CEO explained.  "So what we need to do is just build more houses."

Here's why the real estate market will be tough for rest of the year

If the United Auto Workers (UAW) union decides to strike against Detroit’s Big Three automakers when current labor contracts expire next month, the economic effect would quickly tally into the Bs, according to a report released today.  A work stoppage by nearly 150K UAW workers at General Motors (GM), Ford (F) & Stellantis (STLA) would result in an economic loss of more than $5B after 10 days, according to Anderson Economic Group (AEG), a Michigan-based consulting firm that closely tracks such events.  AEG estimates the total economic loss by calculating potential losses to UAW workers, the manufacturers & to the auto industry more broadly if the sides cannot reach tentative agreements before the current contracts expire at 11:59 PM on Sep 14.  During the last round of bargaining in 2019, a breakdown in negotiations between the Detroit automakers & the UAW led to a national 40-day strike against GM.  The automaker said the strike cost it about $3.6B that year in earnings.  In past negotiating periods, the UAW has selected a lead company of the Big Three & targeted initial collective bargaining efforts, including the threat of striking, there.  But the new union leadership, already more aggressive than in recent history, hasn't promised to limit such efforts to one automaker, leaving all 3 more vulnerable.  “This is a different year than 2019,” AEG CEO Patrick Anderson said.  “It’s a different environment now.”  “This is a different year than 2019,” AEG CEO Patrick Anderson said.  “It’s a different environment now.”  UAW President Shawn Fain during a Facebook Live event Tues reaffirmed that the expirations of the contracts are deadlines, not suggestions.  He said the union has no plans to extend the current contracts to allow for bargaining to continue without a strike, which was previously common practice.  Effects for the companies would vary based on their US operations & employees.  GM losses would be $380M thru a 10-day strike, according to AEG.  That compares to estimates of $325M for Ford & $285M impact on STLA.  AEG's estimates do not include UAW strike pay or assessments for strike pay, unemployment benefits or unemployment taxes, income taxes on wages & other potential effects such as settlement bonuses.  The strike 4 years ago was only against one automaker, not all 3.  A simultaneous strike would likely cause ripple effects more quickly, especially for embattled suppliers that are still attempting to recover from lower production caused by supply chain issues.

Looming auto workers strike could cost $5 billion in just 10 days, new analysis says

Gold futures finished lower, following declines in each of the past 8 consecutive sessions, marking the longest daily losing streak in more than 6 years.  The precious metal has been under pressure due rising US bond yields & a strong $.  On top of that, there are concerns about demand from China where the economy is evidently at a standstill.  Gold for Dec fell $13 (0.7%) to settle at $1915 an ounce.

Gold prices tally a 9th straight session decline

US oil futures settled higher, recouping about ½ of the loss from a day earlier that pulled prices below $80 a barrel.  Crude-oil prices saw a modest rebound from recent lows as markets try to draw a line between how strong future Chinese demand is likely to be, against a backdrop of tighter supply.  West Texas Intermediate crude for Sep climbed by $1.01 (1.3%) to settle at $80.39 a barrel.

U.S. oil futures finish higher a day after slipping below $80 a barrel

Dow has fallen about 1100 already in Aug & more selling lies ahead.  High interest rates are a major burden for the US economy.  Then there is the Chinese economy which looks to be stumbling.  Effects from that can damage economies around the globe.

Dow Jones Industrials