Markets rally on bets that the Fed could start cutting rates next year

Dow jumped 489 (with some profit taking into the close), there were only 250 decliners on the NYSE & NAZ advanced 326.  The MLP index rose 2+ to the 249s & the REIT index skyrocketed 17+ to the 353s.  Junk bond funds continued higher along with stocks & Treasuries saw very heavy buying after the inflation report which sharply reduced yields on Treasuries.  Oil was even in the 78s & gold gained 16 to 1967 (more on both below).

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The average rate on the 30-year mortgage fell 18 basis points to 7.40% today, according to Mortgage News Daily, as traders lowered expectations for future Federal Reserve hikes.  The drop was due to a sharp bond market rally, after the gov's monthly inflation report came in lower than had been predicted.  As bond yields dropped, so too did mortgage rates, which follow loosely the yield on the 10-year Treasury.  Mortgage rates had already been dropping from their recent highs.  A one-two punch of the Fed holding rates steady at its last meeting & a weaker-than-expected monthly employment report pointed to the end of interest rate hikes.  The 30-year fixed mortgage rate jumped over 8% on Oct 19, the highest level in more than 2 decades.  It then dropped more than 25 basis points in the first week of Nov to 7.38%, coming back slightly last week & starting this week at 7.58%.  “Even though today’s inflation data was extremely important in shaping the rate narrative, the bond market’s reaction is nonetheless impressive,” said Matthew Graham, COO at Mortgage News Daily.  “Mortgage lenders have done a great job of keeping pace with market movement considering mortgage rates are often accused of taking the elevator up and the stairs down.”  While the recent mortgage rate increases were all within 1 percentage point, the comparison to 2 years ago, when rates were near record lows around 3%, has made today's homebuyers exceptionally sensitive to rates.  Some can no longer either afford a home or qualify for a mortgage.  Home sales have been falling for several months, with some calling the market frozen even before the start of winter.  “The interest rate rises should be over, and the Fed will have to consider cutting interest rates seriously. In the meantime, the bond market is reacting as if the Fed will be cutting interest rates next year. Mortgage rates look to head towards 7% in a few months and into the 6% range by the spring of 2024,” said Lawrence Yun, chief economist for the National Association of Realtors.

Cooler monthly inflation report pushes mortgage rates even lower

Home Depot (HD), a Dow stock, beat quarterly profit estimates & posted a lower-than-expected drop in comparable sales, as the top US home-improvement retailer tapped into a switch by customers to small-scale projects & essential repair work.  US consumers have put big renovations & discretionary home-improvement projects on the back burner as they battle still-high food prices, lingering caution around the economy & higher interest rates.  "Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories," CEO Ted Decker said.  Customer transactions fell 2.4% in the 3rd qtr, declining for the 10th straight qtr, while average spending at stores also dipped slightly.  Meanwhile, comparable sales declined 3.1% for the 3 months ended Oct 29, while analysts had expected a 3.3% drop.  EPS of $3.81 topped estimates of $3.76.  Some investors, however, might be disappointed by the narrowing of full-year forecasts despite the slight results beat.  HD tightened its annual sales forecast to a decline of 3-4%, compared with its prior forecast for a 2-5% decrease.  It now expects annual EPS to fall 9-11%, compared with a 7-13% slump estimated previously.  The stock jumped 15.64 (5%).
If you would like to learn more about HD, click on this link:
club.ino.com/trend/analysis/stock/HD_aid=CD3289&a_bid=6aeoso5b6f7

Home Depot leans on demand for small projects to top estimates

The United Auto Workers achieved record contracts with the automakers following contentious talks & roughly 6 weeks of targeted labor strikes.  But not all of the union's members are satisfied with the tentative agreements.  The deals, which were recommended for ratification by UAW leaders, are each currently on pace to pass.  Yet they’ve received notable rejections at major Ford Motor (F) & General Motors (GM) plants in recent days.  Workers at Chrysler-owner Stellantis (STLA) are still in early voting but have so far largely backed the contract.  GM's Spring Hill Assembly plant in Tennessee yesterday became the most recent major facility to vote against the contract, with 67.5% of UAW members rejecting it.  That came after 52% of members at GM's Flint, Michigan, truck plant voted against the deal.  At Ford, the automaker’s Kentucky Truck Plant – its largest in terms of employment & revenue – had 54.5% of members vote against it.  Reasons behind the disapproval vary, according to industry experts & UAW members.  They range from veteran workers not receiving as much as newer employees under the terms of the deals, including retirement benefits.  They're also concerned about language in the tentative agreements.  There’s also lingering distrust in union leadership after past corruption scandals of former leaders.  Others cite inflated expectations from UAW President Shawn Fain regarding 40% pay increases, traditional pensions & retiree health care for all, the elimination of “tiers” & a 32-hour workweek.  “I don’t think the tentative agreement goes far enough. I think it’s divisive. It doesn’t get rid of the tiers, and it doesn’t meet all of our needs as a whole,” said Brian Keller, a former UAW presidential candidate in several past elections & an outspoken worker from Stellantis’ Mopar parts operations.  “You gotta remember, we were stagnant from the time of the bankruptcy to 2015. We didn’t get no wage increases.”  According to UAW voting trackers, Ford is closest to ratifying the pact, with roughly 65% approval, as most major plants have already voted.  GM has had 52% of workers voting so far in support of ratification.  STLA, which remains in early voting, currently has roughly 82% of members in support of the pact.  However, most of its major plants still need to vote.

Here’s why the UAW’s record deals with automakers aren’t getting full support from members

Gold closed with its 2nd-straight gain as US inflation rose less than expected last month, sending the $ & treasury yields tumbling.  Gold for Dec delivery closed up $16 to settle at $1966 per ounce.  US headline inflation rose 3.2% annualized in Oct, under expectations for a 3.3% rise, while core inflation, excluding volatile food & energy prices, rose 0.2% from Sep, again below the forecast for a 0.3% monthly rise.  The report is likely to ease worries the Federal Reserve will again raise interest rates, concerns that were heightened last week following hawkish comments from Fed chair Jerome Powell & other members of the central bank's policy committee.  The $ plunged following the report, making gold more affordable for intl buyers.  The ICE dollar index was last seen down 1.49 points to 104.14.  Treasury yields also fell sharply, bullish for the precious metal since it offers no interest.  The 2-year note was last seen paying 4.838%, down 20.7 basis points, while the yield on the 10-year note dropped 18.4 points to 4.452%.

Gold Closes Higher as the Dollar and Yields Plunge Following Rosy US Inflation Report

US oil futures settled unchanged, giving up earlier gains as traders awaited tomorrow's release of the Energy Information Administration's petroleum supply report.  The gov agency will release 2 weeks' worth of data, for the weeks ended Nov 3 & Nov 10, after a systems upgrade led to a delay in last week's data releases.  Analysts forecast a climb of 4.5M barrels in US commercial crude supplies for the 2 weeks ending Nov 10.  Dec West Texas Intermediate crude settled flat at $78.26 a barrel

U.S. oil prices settle unchanged ahead of weekly domestic supply data

Dow began the day with one solid gain & kept its advance for the rest of the trading session.  Even if the threat of more rate hikes is reduced sharply, a continuation of interest rates at very high levels will put strain on the economy.  Already home-building is in a serious slump & the auto industry has problems to deal with.  High interest rates are currently damaging the economy!

Dow Jones Industrials