Markets plummet as yields surge to 16 year highs

Dow sank 430 (near session lows), decliners over advancers about 6-1 & NAZ dropped 248.  The MLP index declined 3+ to the 239s & the REIT index tumbled 6+ to the 325s.  Junk bond funds continued to be weak & Treasuries saw very heavily selling, boosting yields sharply.  Oil finished fractionally higher in the 89s & gold lost another 6 to 1840 (more on both below).

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The average rate on the popular 30-year fixed mortgage rose to 7.72%, according to Mortgage News Daily.  Mortgage rates follow loosely the yield on the 10-year Treasury, which has been climbing this week following strong economic data.  Rates have not been this high since the end of 2000.  At the beginning of this year, the 30-year fixed rate dropped to about 6%, causing a brief burst of activity in the spring housing market.  But it began rising steadily again over the summer, causing sales to drop, despite strong demand.  The current trend appears to be even higher, with the possibility of rates crossing over 8%.  The Federal Reserve did not raise interest rates 2 weeks ago but indicated the possibility of another hike this year & fewer cuts than expected next year. Investors were waiting to see the results of economic data in the first week of Oct.  “It is now the first week of October, and data has been stronger,” wrote Matthew Graham, COO at Mortgage News Daily.  “This morning’s JOLTS job openings and labor turnover survey) is the biggest, baddest confirmation so far this week, and it’s pushing yields to fresh long-term highs. Pretty simple stuff, actually, even if unpleasant and unfortunate for fans of low rates.”  Higher rates have crushed affordability, hitting both the new & existing home sales markets.  While builders had been benefiting from the tight supply of existing homes for sale, higher mortgage rates are a major concern now.  Builder sentiment slipped into negative territory in Sep for the first time in 5 months.  To put rates in perspective, for a borrower purchasing a $400K home with a 20% down payment on a 30-year fixed loan, the monthly payment today is about $930 more than it was when rates were at 3% during the height of the Covid-19 pandemic.

Popular 30-year mortgage rate races toward 8%

Macy's (M) said that it's accelerating its small-format store expansion, opening dozens more locations nationwide starting next year.  The retail giant plans to open up to 30 small-format stores under the Macy's nameplate thru fall 2025.  The news builds on its Aug announcement when the company said it was opening 4 small-format locations, which range 30-50K square feet, about 1/5 the size of its traditional stores, within the Northeast & Western regions.  The company has been repositioning its portfolio to better adapt to the changing retail environment & compete with competitors which have been adding small-format stores over the past few years.  Its announcement  will bring the total number of small format locations to just over 40.  Macy's CFO Adrian Mitchell said the smaller-format stores will be more efficient to operate & help the company ensure long-term viability.  "Our small-format stores are efficient to operate, provide the customer with a shopping alternative within our omnichannel ecosystem and present a unique opportunity to target high-traffic shopping centers," Mitchell said, adding that the company will be able to "deliver sustainable, profitable sales growth for Macy's, Inc. beginning in 2024."  The stores are placed at off-mall shopping strips & carry a more limited & curated selection of merchandise including a mix of Macy's private brand labels.  By the end of 2023, there will be 12 Macy's small-format stores & 3 Bloomie's locations.   The stock fell 12¢.
If you would like to learn more about Macy's, click on this link:
club.ino.com/trend/analysis/stock/M _aid=CD3289&a_bid=6aeoso5b6f7

Macy's opening up to 30 small-format stores

An ongoing strike by the UAW union against the Detroit automakers had little to no direct effect on General Motors (GM) for the 3rd qtr US new vehicle sales.  The automaker reported a 21.4% increase in sales from Jul thru Sep compared to still subdued sales in the 3rd qtr of 2022, when the industry was still recovering from supply chain issues.  GM's increase significantly outpaced expectations for the overall industry of 15-16% for the 3rd qtr.  Sales of every one of the Detroit automaker's brands rose compared to a year earlier.  GM & other companies likely will face sales & supply chain problems if the UAW's strike, which began Sep 15 is expanded or prolonged.  Only 25K workers, roughly 17% of UAW members covered by the expired contracts with GM, Ford (F) & Stellantis (STLA), are part of the work stoppages.  UAW has been gradually increasing the strikes since the work stoppages began, after the sides failed to reach tentative agreements by Sep14.  The targeted, or “stand up,” strikes are taking place instead of national walkouts in which all plants simultaneously strike.  The impacts of the strikes will likely begin showing in Oct for certain vehicles such as the Chevrolet Colorado & GMC Canyon midsize pickups, where work stoppages have affected production, according to Cox Automotive chief economist Jonathan Smoke.  The stock fell 1.07.
If you would like to learn more about GM, click on this link:
club.ino.com/trend/analysis/stock/GM _aid=CD3289&a_bid=6aeoso5b6f7

GM’s third-quarter sales jump 21% as UAW strike slowly expands

Gold prices fell as the $ climbed & Treasury yields soared to 16-year high amid continued bets the Federal Reserve will hold interest rates higher for longer to tame inflation.  Fairly upbeat US economic data & disappointing data from several parts of the globe contributed as well to $'s uptick.  The $ climbed to an 11-month high today, reacting to hawkish remarks by Federal Reserve officials.  The $ index surged to 107.35 before paring some gains.  Still, at 107.08, the index was up nearly 0.2% from the previous close.  Gold futures for Dec ended lower by $5 at $1841 an ounce.

Gold Futures Settle Lower As Dollar, Bond Yields Rise

US crude futures manage to eke out a small 0.5% gain, ending at $89.23 a barrel & bringing to an end a 3-session streak of declines that had left prices at a 3-week low.  WTI crude hit a 13-month-high last week as US crude inventories fell to a 2023 low & stockpiles at the Cushing, Oklahoma storage hub fell to their lowest since Jul 2022.  But this week's data, first from trade group API & then the official EIA report tomorrow, may see rare week-on-week increases in US crude inventories that could remove some price support.  Expectations are mixed, though, & a survey forecasts a no-change result.

Oil Prices Rise Slightly, Ending 3-Day Skid

Investors got a reminder not to expect a Federal Reserve interest rate cut any time soon & they sold stocks.  Fed policymakers said that resilience in the US economy likely means borrowing costs will stay higher for longer.  Traders are now pricing in odds of 29% that policymakers will hike rates at their Nov meeting, compared with 16% a week ago, according to the CME's FedWatch tool.  That prospect helped 10-year & 30-year Treasury yields rise to 16-year highs.  The outlook for the stock market remains negative.

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