Markets zoomed as optimism grows that Fed is done with rate hikes

Dow jumped 564 (session highs), advancers over decliners a hefty 8-1 & NAZ gained 232.  The MLP index soared 5+ to the 251s & the REIT index rocketed ahead 11 to 341.  Junk bond funds climbed higher & Treasuries continued to see heavy buying, sharply reducing yields.  Oil rebounded 2+ to the 82s & gold was up 5 to 1993 (more on both below).

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Mortgage rates stopped their unrelenting upward climb last week, but continued to hover near the highest level in more than 2 decades.  Mortgage buyer Freddie Mac said that the average rate on the 30-year loan dipped slightly to 7.76%, down 0.03% from the previous week.  The rate remains well above the 7.08% recorded just one year ago & the pandemic-era lows of 3%.  The average rate on a 15-year mortgage, which is more popular among homeowners who choose to refinance, is unchanged at 7.03%.  The astronomical rise in mortgage rates over the past year came as the Federal Reserve waged an aggressive campaign to crush high inflation.  In the span of just 16 months, the central bank approved 11 rate increases, the fastest pace of tightening since the 1980s.  High mortgage rates have throttled consumer demand, with the Mortgage Bankers Association's (MBA) index of mortgage applications plummeting last week to the lowest level since 1995.  They are also weighing heavily on supply.  That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a 2-decade high, leaving few options for eager would-be buyers.  "Today’s buyers face scarce for-sale inventory, still-high listing prices, and multi-decade high mortgage rates, so any potential relief from climbing housing costs is welcomed," said Hannah Jones, an economic research analyst at Realtor.com.  A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in Sep, compared with the same time a year ago.  Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.

Mortgage rates continue to hover near highest level since 2000

The number of Americans filing new claims for unemployment benefits increased moderately last week as the labor market continued to show few signs of a significant slowdown.  While the weekly jobless claims report from the Labor Dept also showed unemployment rolls rising to a 6-month high, economists were divided on whether this suggested a material change in the underlying trend.  The continuing claims have been rising since mid-Sep.  Some economists shrugged off the increase, which they blamed on difficulties adjusting the data for seasonal fluctuations.  They noted a similar pattern last year over the same period, which was not accompanied by an uptick in the unemployment rate.  Others believed this was a sign that laid-off workers were experiencing longer spells of unemployment.  Initial claims for state unemployment benefits rose 5K to a seasonally adjusted 217K last week.  The forecast called for 210K claims.  Though the labor market is gradually cooling, conditions remain tight, highlighting the economy's enduring strength.  The gov reported yesterday that there were 1.5 job openings for every unemployed person in Sep.  Unadjusted claims rose 3K to 197K last week.  There were notable increases in California, Michigan & North Carolina, which more than offset a sharp decline in New York.  The rise in claims in Michigan likely reflected recently ended strikes in the automobile industry.  The number of people receiving benefits after an initial week of aid, a proxy for hiring, advanced 35K to 1.8M in the latest week ending Oct, the highest level for continuing claims since mid-Apr.

US weekly jobless claims rise moderately

Holiday shoppers are expected to spend more this year, but their eagerness for value & hunger for deals is likely to push that growth back down to pre-pandemic levels, according to the National Retail Federation (NRF).  The major trade group expects sales in Nov & Dec to rise by 3-4% year over year.  That would translate to $957-966B in spending during the shopping season.  The NRF's forecast excludes spending at automobile dealers, gasoline stations & restaurants.  Over the past decade, holiday sales have grown roughly 5% year over year on average, according to the NRF.  They spiked during the Covid pandemic, with sales surging by 9.3% in 2020 & 13.5% in 2021.  Before the pandemic-related spending boom, average sales growth between 2010 & 2019 was 3.6%, according to the NRF's chief economist, Jack Kleinhenz.  The closely watched holiday spending forecast marks the latest prediction about how the crucial season may play out as contradictory factors, including low unemployment, cooling inflation, dwindling savings accounts, & the higher costs of mortgages & credit cards, shape US consumers' spending.  Even as inflation cools, many gift-giving items & food cost more.  As of Sep, inflation is up 3.7% compared with a year ago, according to the Bureau of Labor Statistic’s consumer price index.  Elevated prices are driving the reported sales growth, too.  The NRF’s holiday forecast is not adjusted for inflation, which means the actual sales gains may not be as large as they seem.  Kleinhenz, however, said the forecast still calls for true growth.  He said based on the personal consumption expenditures price index, another gov metric, inflation for retail & food services was up only 1.3% year over year.  When gas & food services are taken out, prices are 0.5-1.0% higher than a year ago.  That dynamic, combined with higher wages & job security could give shoppers confidence to spring for gifts & decorations, NRF Chief Exec Matt Shay said.  Still, Shay acknowledged the challenges of still elevated prices, higher interest rates & geopolitical threats, such as the risk of a gov shutdown.  “Our sense is that the cumulative effect of all of these things is going to show some moderation in consumer behavior relative to the last several years of holiday spending,” he said.  In the year-ago holiday season, retail sales rose 5.3% compared with 2021 & reached $936B, according to the NRF.  That fell short of its forecast for 6-8% growth, as inflation & higher interest rates dampened spending.  The holiday total was not adjusted for inflation, so it included increases from many groceries, decorations & gifts costing more than the year prior.

Deal-hungry shoppers will squeeze holiday sales growth to pre-pandemic levels, retail group says

Gold steadied following a 3-day decline, as investors cut bets on further monetary tightening following a Federal Reserve meeting.  European stocks & US futures rallied as traders reacted to the possible end of the central bank's campaign of interest-rate hikes.  Gold traded little changed despite a plunge in the $ & bond yields.  Gold is still near $2000 an ounce after jumping 7.3% in Oct on fears the Israel-Hamas war would morph into a regional conflict that disrupts the world's energy supply.  While the war has so far remained contained, bullion has retained most of its earlier gains.  Data yesterday showed US productivity rising the most in 3 years, while labor costs decreased, a welcome side for the Fed ahead of nonfarm payrolls tomorrow.  Economists see the headline report indicating a slowdown in labor demand.  Spot gold rose 2 to $1983 an ounce.  The Bloomberg Dollar Spot Index fell 0.6%.

Gold Steady as Risk Assets Surge on Hopes Fed Hiking Cycle Over

Oil futures finished higher, marking their first gain in 4 sessions.  Prices have erased the premium that was added since the Hamas attack on Israel.  However, the conflict continues to escalate, as troops press towards Gaza City today & are met with resistance from Hamas militants.  Iran continues to threaten the west, if Israel does not pull out of Gaza, that the war will escalate & other militant groups will get involved.  Dec West Texas Intermediate crude rose $2.02 (2.5%) to settle at $82.46 a barrel.

Oil Futures Mark First Gain in 4 Sessions

Traders are pricing in an 85% chance there will be no more Fed hikes this year, compared with 59% odds the day before its policymakers' meeting.  That's what's driving this rally.  However headwinds remain, starting with 2 major wars & high inflation that looks like it will be here for awhile.  The last 3 months for the Dow have been rough on the Dow (see below).  High volatility can be expected to continue.

Dow Jones Industrials