Dow rose 78, decliners barley ahead of advancers & NAZ went up 128. The MLP index fell 2+ to the 248s & the REIT index was off 2+ to 241. Junk bond funds crawled higher & Treasuries saw more buying which reduced yields (more below). Oil dropped 2+ to the 78s & gold dropped 18 to 1969.
AMJ (Alerian MLP Index tracking fund)
A growing number of Americans are making emergency withdrawals from their 401(k) retirement plans to cover a financial emergency amid chronically high inflation, according to new data from Bank of America. About 18K workers taking part in employer-sponsored 401(k) plans made a "hardship" withdrawal during the 3-month period in Jul-Sep 2023, according to Bank of America's analysis of clients' employee benefits programs, which tracks 4M accounts. That marks an increase of about 13% from the end of Jun & 27% from the beginning of the year. Hardship withdrawals allow workers to tap their 401(k) for an "immediate and heavy financial need." Individuals who make these types of withdrawals owe income tax on the money & could be hit with a 10% early withdrawal fee if they are under the age of 59½. However, the penalty can be waived if workers provide adequate evidence that the money is being used for a qualified hardship, such as a medical expense. Someone who takes a hardship withdrawal also cannot pay it back to their 401(k) & can not roll that money into another retirement savings account. Americans are pulling out on average about $5K, which is comparable to hardship withdrawals in both the 2nd & first qtrs. "More participants took a hardship distribution compared to last quarter and compared to this time last year," the report said. "And we saw an increase in health savings account contributions being used to pay for current health care expenses, as opposed to saving for future expenses." The increase in workers tapping their 401(k)s for emergency purposes comes as they confront stubbornly high inflation that has rapidly eroded their purchasing power. There are other signs of underlying inflationary pressures within the economy, with core prices running at a pace more than twice the Fed's 2% target. Americans are increasingly relying on their savings & racking up credit card debt to pay for necessities.
High inflation is forcing more Americans to tap their 401(k) plans at an alarming rate
Treasury yields fell as investors assessed the outlook for the economy & monetary policy as they awaited economic data & comments from Federal Reserve officials. The yield on the 10-year Treasury was last trading 7 basis points lower at 4.593% & the 2-year Treasury yield was little changed at 4.934%. Yields & prices move in opposite directions & 1 basis point equals 0.01%. The Fed last week left interest rates unchanged while noting resilience from the economy despite rates being elevated for some time now. Powell did not rule out the potential for further interest rate increases & said cuts were not being discussed yet. Jobs data published since has indicated that the labor market is cooling, giving some investors hope that the central bank has reached the end of the rate-hiking cycle started in Mar 2022. Easing the jobs market alongside the overall economy has been a central policy aim for the Fed. Investors will be scanning this week's comments from officials about whether the recent figures have affected their expectations for the policy path ahead.
10-year Treasury yield falls as investors consider state of U.S. economy
Americans are racking up more credit card debt as still-high inflation & steep interest rates continue to make the cost of everyday necessities more expensive. The New York Federal Reserve Bank's Quarterly Report on Household Debt and Credit is expected to show that credit card debt marched incrementally higher during the 3-month period from Jul thru Sep, smashing a previous high of $1T, according to Matt Schulz, the chief credit analyst LendingTree. That would mark a major reversal from just 3 years ago when households were rapidly paying off credit card debt with the stimulus payments they received during the COVID-19 pandemic. "We’ve seen pretty sizable jumps in credit card debt in most of the last year and a half," Schulz said. "I don’t know that we’ll see quite that big of a jump this time around. But I would also be surprised if we saw a decline." The rise in credit card usage & debt is particularly concerning because interest rates are astronomically high right now. The average credit card annual percentage rate, or APR, hit a new record of 20.7% last week, according to a Bankrate database that goes back to 1985. The previous record was 19% in 1991. If people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if you owe $5K in debt, which the average American does, current APR levels would mean it would take about 279 months & $8124 in interest to pay off the debt making the minimum payments. "It’s been a really rough year and a half for folks with credit card debt, watching interest rates rise," Schulz added. "When you combine rising interest rates and lingering inflation, it makes it really tough on folks with credit card debt and for folks who are living paycheck to paycheck who may need to use their credit card to make ends meet. It’s a difficult time." The inflation spike has created severe financial pressures for most households, which are forced to pay more for everyday necessities like food & rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations. Although inflation has cooled considerably in recent months, it remains up 3.7% compared with the same time one year ago, according to the most recent Labor Dept data. A rise in credit card debt can sometimes be a sign that Americans are confident in the economy, using it as a way to pay for a vacation, remodel their home or start a small business. But in this case, Schulz said he believes it's likely evidence that individuals are struggling under the constant pressure of high inflation. "I would suspect that currently and for the last few quarters, a lot of the growth has been on the side of people needing to take on that debt, versus people feeling confident," he said.
Credit card debt set to hit a fresh record
While the economy has had a fairly strong recovery from its mini recession, many consumers are still struggling to pay off debts. This could bring only a mediocre holiday season for retailers. Also, even if the Fed has ended raising rates, thoughts that the present levels of current high rates could last for some time is sobering for investors.
Dow Jones Industrials
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