Dow slid back 16, advancers over decliners better tan 2-1& NAZ was essentially even. The MLP index was fractionally higher to the 244s & the REIT index recovered 4+ to the 326s. Junk bond funds were higher & Treasuries had limited buying which lowered yields already at high levels (more below). Oil crawled higher in the 82s after recent weakness & gold rose 3 to 2008.
AMJ (Alerian MLP Index tracking fund)
While respondents to the CNBC Fed Survey expect no additional rate
hikes from the Federal Reserve, they have fully embraced its
“higher-for-longer” mantra to the point where no rate cuts are expected
until the 3rd qtr of 2024. The 31 respondents, including economists, strategists & analysts, believe the Fed is now on hold
into Sep of next year, when 57% expect a rate cut. As recently as
the summer, respondents had forecast rate cuts in the beginning of next
year. The outlook for the fed funds rate, the central bank's benchmark for short-term lending costs forecasts to end 2024 at 4.6%, assuming about 75 basis
points of rate cuts. In Jun, the year-end 2024 funds rate was forecast
at 3.8%, which assumed 125 basis points of cuts. A basis point equals
0.01%. The outlook for a more hawkish Fed comes with roughly equal probabilities for a recession & a soft landing. Respondents
on average see a 49% probability of a recession in the next 12 months
& a 42% probability of a soft landing. While they have driven up their
2023 GDP forecast from under 1% in Jun to 2.4% now, they have slashed
the outlook for growth roughly in ½ for 2024 to 0.73%. “The
Fed is too focused on a soft landing and has relegated hitting its
target on inflation to a distant ‘eventually,’” wrote Robert Brusca,
chief economist at Fact and& Opinion Economics. He calls for the Fed to
push harder now to bring down inflation & boost unemployment. 60% of respondents see the Fed hitting its inflation target in 2025 or
sometime after that & 19% don't believe the Fed will ever get there. The unemployment rate is forecast to go up from the current level of
3.8% to 4.5% next year. All respondents say they are concerned about the growth rate of the
federal deficit & 87% are concerned about the size of the debt. A plurality of 45% say the gov should both raise revenue & cut
spending, while 42% advocate only spending cuts. Respondents place a 39%
probability on a gov shutdown, with 61% saying it will be
“somewhat negative” for the economy.
Markets are on board with the Fed’s ‘higher for longer’ policy, CNBC survey shows
Home prices surged to a new record high in Aug as the affordability crisis continues to deepen. Prices increased 0.4% nationally in the period from Jul to Aug on a non-seasonally adjusted basis, the S&P CoreLogic Case-Shiller index showed. On an annual basis, prices are up 2.6% from their peak the same time last year, markeding the highest level for the index since 1987. The 10-city composite, which encompasses Los Angeles, Miami & New York, rose 3% annually, compared with a 1% increase in Jul. The 20-city composite, which also tracks housing prices in Dallas & Seattle, jumped 2.2% in Aug, which is also higher than the 0.2% uptick recorded the previous month. There was a major discrepancy in the price gains in the 20 cities: Chicago saw a 5% annual gain, making it the best-performing city for the 4th straight month. New York, meanwhile, posted a 4.98% gain, followed by Detroit with an increase of 4.8%. On the other end of the spectrum, cities in the West posted some of the biggest declines. Las Vegas home prices plummeted 4.9%, edging out Phoenix with its 3.9% decline. "Regional differences are substantial," said Craig Lazzara, managing director at S&P DJI, in a release. The Case-Shiller index reports with a 2-month delay, meaning it may not capture the latest ongoings in the market. The interest-rate-sensitive housing market entered a deep freeze last year in the wake of the Federal Reserve's aggressive interest-rate hike campaign. But prices have quickly recovered as buyers adjust to higher mortgage rates & compete for a limited supply of homes. "Home prices remained strong through August, despite the high cost of a mortgage payment," said Nicole Bachaud, Zillow senior economist. "But as August faded into the fall, we saw mortgage rates surpass 20-year highs. These stubbornly high mortgage rates are continuing to put pressure on affordability which is cooling the market as more buyers get pushed to the sidelines this fall." The number of available homes on the market at the end of Jul was down by more than 9% from the same time last year & down a stunning 46% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com.
Home prices jump for seventh straight month in August
The US 10-year Treasury yield fell as traders turned their eyes to DC with the Federal Reserve set to kick off its policy meeting. The yield on the 10-year Treasury was down by more than 2 basis points at 4.85% & the 2-year Treasury yield was trading more than 2 basis points higher at 5.067%. Yields & prices move in opposite directions & 1 basis point equals 0.01%. The Fed's latest monetary policy meeting begins today & end with its latest interest rate decision tomorrow. Markets are widely expecting the Fed to keep rates unchanged & are hoping for hints about whether it's likely done raising rates from guidance released alongside the rate decision & Fed Chair Jerome Powell's post-meeting press conference. Several policymakers have said they believe rates won't have to go any higher in recent weeks, often citing tighter financial conditions brought on by higher Treasury yields as a key factor. Higher yields are often associated with an easing economy. Investors also assessed the state of the economy after the Treasury shared its borrowing plans for the final 3 months of 2023. The Treasury is aiming to borrow $776B, which is below the previously expected amount.
10-year Treasury yield falls as traders look to Fed meeting
Dow Jones Industrials
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