Monday, November 6, 2023

Markets try to edge higher as bulls attempt to extend last week's gains

Dow went up 23 after a strong opening, decliners over advancers 5-2 & NAZ gained 40.  The MLP index is staying in the 253s & the REIT index dropped 4+ to the 343s after last week's recovery.  Junk bond funds hardly budged following last weeks buying & Treasuries were heavily sold, raising yields (more below).  Oil added 1+ to the high 81s & gold lost 8, falling to 1990.

AMJ (Alerian MLP Index tracking fund)


 

 




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As holiday shopping season begins, lack of big orders from retailers is the rule amid fears that consumer spending will be weak, according to a new CNBC Supply Chain Survey.  At CH Robinson, which serves 7500 retailers, customers are generally being cautious, said Noah Hoffman, VP for North American Surface Transportation, with inflation still an issue & ongoing uncertainty about the US economy & risk of recession.  “The largest retailers are past working through their excess inventories, but careful not to over-order,” Hoffman said, while some of the small- to medium-sized retailers are still destocking.  The national inventory-to-sales ratio, which on the surface appears to have returned to a pre-pandemic level, is skewed by the largest retailers, he said, adding that, “further upstream in the retail supply chain, many wholesalers are also still carrying excess inventory.”  CH Robinson's economics team believes that the economy is approaching an inflection point in consumer spending as Americans deplete savings they built up from pandemic stimulus.  “We’re already seeing this emerge in some leading indicators like loan and credit-card delinquencies,” Hoffman said.  During earnings season, major US banks have presented a picture of the consumer that is more resilient.  “Where am I seeing softness in [consumer] credit?” said JPMorgan CFO Jeremy Barnum, repeating a question on the bank's earnings call.  “I think the answer to that is actually nowhere.”  A majority of logistics firms (67%) say that products being moved into stores this holiday season are more promotional, lower-cost items into the store.  An even larger majority (83%) indicated that they are not moving more higher-priced items.  Products experiencing the biggest pullback, ranked in order: appliances, furniture, household goods, luxury items & aspirational luxury.  “Retailers are finding that the items they rely on to bring people into the store and boost sales are costing them more,” Hoffman said.  “That’s limiting how much they can discount so we’re working with them to find savings elsewhere in their supply chains.”

Holiday spending outlook is sluggish across thousands of retailers: CNBC Survey

Small businesses are increasingly turning to credit cards as a key source of funding as they continue to grapple with still-high inflation & rising borrowing costs.  A new Small Business Index published by Intuit shows that, unlike large firms, a "significant number" of small businesses have relied on credit cards over the past 12 months.  In the US, 30% of small businesses have used credit cards as the primary or secondary source of funding.  Another 22% relied on a loan or line of credit to cover their expenses.  Credit card usage among small business owners spiked in 2021, when inflation began to rise, & has been steadily increasing since then.  In total, monthly credit card spending by small businesses is 20% higher on average than it was before the COVID-19 pandemic.  That amounts to about $3000 per business.  "Inflation and interest rates are creating unique challenges for small businesses," the study said.  "Small businesses are feeling the strain and increasingly relying on credit cards."  The Federal Reserve has raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation & cooling the economy.  In the span of just 16 months, interest rates surged from near zero to 5.25-5.50%, the fastest pace of tightening since the 1980s.  Hiking interest rates tends to create higher rates on consumer & business loans, which then slows the economy by forcing employers to cut back on spending.  The Intuit report suggests that higher interest rates are disproportionately affecting small businesses, because those firms in particular rely on credit availability in order to function.

Small businesses are driving credit card debt higher

Treasury yields marched higher as investors assessed the outlook for interest rates after Fri's jobs report & prepared for a week of light economic data.  The yield on the 10-year Treasury was up nearly 7 basis points at 4.624% & the 2-year Treasury was last trading up about 7 basis points at 4.899%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Treasury yields made up some ground after the yield on the 10-year & 2-year Treasury note fell by as much as 9 & 13 basis points, respectively, on Fri.  That came as Oct's nonfarm payrolls figures came in lower than expected at 150K.  Oct's reading also marked a significant decline from Sep's 297K & showed a slight increase in the unemployment rate to 3.9%.  The data suggested to investors that the labor market could be easing, raising hopes that the Federal Reserve may be done hiking interest rates.  Cooling the jobs market has been one of the central bank's key aims throughout the rate-hiking cycle that began in Mar 2022, alongside easing the overall economy & bringing down inflation.

Treasury yields rise as investors consider interest rate outlook

Last week's excitement about a possibility that the Fed will not hike rates is receding.  The truth of the matter is that nobody knows.  Also, early signals on holiday retail sales is not encouraging.  Next week will bring inflation reports for Oct.

Dow Jones Industrials

 






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