Dow slipped back 108, decliners over advancers better than 2-1 & NAZ was off 15. The MLP index stayed in the 251s & the REIT index fell another 3+ to the 331s as interest rates rise. Junk bond funds fluctuated & Treasuries saw more selling, bringing the yield on the 10 year Treasury up 5 basis points to 4.95%. Oil slid back to the 87s (still in high territory) & gold fell 6 to 1961 after yesterday's big advance.
AMJ (Alerian MLP Index tracking fund)
Net worth surged for the typical family during the pandemic era, largely on the back on higher home & stock prices & gov stimulus measures, the Federal Reserve reported in its triennial Survey of Consumer Finances. Net worth is a measure of household assets after accounting for liabilities. After accounting for inflation, median net worth jumped to $193K, a 37% increase from 2019-22, the Fed found. That percentage growth was the largest since the Fed started its modern survey in 1989. It was also more than double the next-largest increase on record. Between 2004 & 2007, right before the last recession, real median net worth rose 18%. Increases in net worth were “near universal across different types of families,” the Fed said. “Americans got a lot wealthier during the pandemic,” said Mark Zandi, chief economist of Moody’s Analytics. In large part, that was due to the Federal Reserve lowering interest rates to rock bottom at the onset of the pandemic, easing borrowing costs for consumers, Zandi said. An expanded social safety net made it less likely people had to take on debt. And when became clear the US economy would recover quickly from the early pandemic shocks, due to gov support & vaccines, asset prices like stocks & homes “took off,” Zandi added. Of course, not everyone benefited equally. Assets like homes & stocks are generally not held by families in the bottom 20% by income, for example, the Fed said. And wealth gaps are still big: Families in the bottom 25% by wealth had a median net worth of $3500 in 2022 & the top 10% had $3.8M. The pandemic saw an unprecedented scale of federal relief funds, like stimulus checks, & enhanced unemployment benefits & child tax credits, issued to prop up households. The gov also took measures that alleviated debt burdens, like a pause on student loan payments & interest. The typical family's “transaction account” balances (checking, savings & money market accounts) jumped 30% to $8000 from 2019 to 2022, according to Fed data. At the same time, the values of financial assets like homes & stocks increased significantly.
Net worth surged 37% in pandemic era for the typical family, Fed finds
Sales of previously owned homes dropped 2% in Sep from Aug to a seasonally adjusted, annualized rate of 3.96M units, according to the National Association of Realtors (NAR). Sales were down 15.4% compared with Sep 2022. This is the slowest sales pace since 2010, during the last recession, when the market was in the midst of a foreclosure crisis. As a comparison, just 2 years ago, when mortgage rates hovered around 3%, home sales were running at a 6.6M pace. The average rate on the 30-year fixed today is right around 8%, according to Mortgage News Daily. “As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” said Lawrence Yun, NAR's chief economist. “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains.” There were 1.13M homes for sale at the end of Sep, down more than 8% from a year ago. Inventory is now at a 3.4-month supply, which is slightly better than last year, but only because sales have dropped so much. Supply is based on the current sales pace. Adding to higher mortgage rates, the median price of a home sold in Sep was $394K, up 2.8% year over year. Roughly 26% of home sold above list price, due to the lack of supply which is resulting in bidding wars. First-time buyers made up just 27% of sales. Historically, they make up about 40%. While sales were lower across all price points, they fell the least on the higher end. That’s because there is more supply at the higher price points & because higher-end buyers can often use cash. Mortgage demand is now at the lowest level since 1995, according to the Mortgage Bankers Association. All-cash sales made up 29% of all Sep transactions, up from 27% in Aug & up from 22% in Sep of last year. “Although affordability is a headwind, the renewed upward energy that followed the Fed’s September projections might have prompted some shoppers to rush to the closing table, lest they face higher mortgage rates and even worse affordability in the months ahead. If so, this could mean a bigger lull in sales activity in the coming months,” said Danielle Hale, chief economist for Realtor.com.
September home sales drop to the lowest level since the foreclosure crisis
Treasury yields rose, with the 10-year rate pushing closer to the key 5% level as investors awaited remarks from Federal Reserve Chair Jerome Powell. The yield on the 10-year Treasury jumped 4 basis points to 4.94%. It had touched as high as 4.98% earlier in the session, trading at levels last seen in 2007 after first crossing the 4.9% mark yesterday. The benchmark rate has climbed 4 days in a row, bringing Oct gains to about 40 basis points. The 2-year Treasury yield traded flat at 5.20%, after rising to hover at levels last seen in 2006 earlier in the session. Yields & prices have an inverted relationship & 1 basis point equals 0.01%. Strategists cite a number of reasons for rising yields: Concern that the Fed will keep benchmark rates high to fight inflation; an economy & labor market that consistently outperform expectations; swelling gov deficits requiring more supply to hit the market as the Fed has pulled back as a buyer; & the increase in the term premium, which is the extra yield investors demand as they worry that rates could change over the term they have to hold the bond. A New York Fed calculation indicates that the term premium is around its highest level since May 2021. All eyes will be on Fed Chair Powell, who is expected to echo comments from other Fed officials who have indicated that rates will likely remain elevated for longer. Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation & clarification. A few Fed speakers have suggested that rates may not need to be hiked further & keeping them at their current level would be sufficient to achieve the Fed's goals of easing inflation & cooling the economy. Some policymakers have cited tighter financial conditions brought on by surging Treasury yields as a contributing factor.
10-year Treasury yield reaches 4.98% on signs of still strong jobs market
Dow Jones Industrials
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