Markets extend rally on the prospect of interest rate cuts

Dow climbed 251 to yet another record high, advancers over decliners 4-1 & NAZ was up 98.  The MLP index added 2 to the 254s & the REIT index rose 3+ to the 293s.  Junk bond funds continued in demand & Treasuries were purchased, lowering yields.  Oil added 1+ to the 73s & gold was up 12 to 2052 (more on both below).

AMJ (Alerian MLP Index tracking fund)

New US home construction roared back to life in Nov as falling mortgage rates helped draw consumers back into the housing market.  Housing starts surged 14.8% last month to an annual rate of 1.56M units, the highest level since May, according to new Commerce Dept, well above the forecast for a pace of 1.36M units.  However, applications to build, which measures future construction, fell in Nov, sliding 2.5% over the course of the month to an annualized rate of 1.46M units.  When compared with the same time last year, building permits are up about 4.1%.  The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index (NAHB), which measures the pulse of the single-family housing market, rose 3 points to 37.  The increase followed a 6-point drop in Nov.  Any reading below 50 is considered negative.  "With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look," said Alicia Huey, NAHB chair.  Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers.  However, borrowing costs have retreated over the past month as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign.  Rates on the popular 30-year fixed mortgage are currently hovering around 6.95%, according to Freddie Mac, down from a high of 7.79% at the end of Oct but well above the pre-pandemic average of 3.9%.  "Mortgage rates have continued to float down in the early weeks of December, so this momentum should continue through year end, welcomed news for buyers who have been unlocked by affordability to enter the market once again," said Nicole Bachaud, Zillow senior economist.

Housing starts unexpectedly surge in November as mortgage rates fall

After a 2-year slump below its pandemic high, online shopping made a comeback this holiday season.  The CNBC All-America Economic Survey finds 57% of Americans naming online shopping as their top 1 or 2 destinations for Christmas gifts.  In 2006, online shopping accounted for just 18% of responses.  It hit an all-time high in 2020, at the height of the pandemic, when 55% responded it was the top destination.  It scaled back to 51% last year, holding on to some but not all of its pandemic gains.  But this year, it hit yet another all-time high.  The survey of 1002 Americans throughout the country was conducted Dec 8-12 & has a margin of error of +/-3.1%.  The reason for the surge is unclear but a look at those spending more online this year suggests it could center around a search for bargains to combat inflation.  Among those groups spending more online are women 50 & older who as a group reported more frugal holiday spending plans than average & are more concerned about inflation & the overall condition of the economy.  Still, the group shops less online than younger women aged 18-49.  Also spending more online this year than last are those with incomes below $30K & those who plan to spend only $200 on gifts, far below the $1300 average.  “We know from the rest of the data that inflation is a major factor in why people are spending less and more,″ said Micah Roberts of Public Opinion Strategies, the Rep pollster for the survey.  “Everything costs more, so you’re going to have to spend more to buy it.”  While groups differ over how much they spend online, where they spend is fairly uniform: Amazon (AMZN).  Once again, & continuously since the question was first asked 6 years ago, AMZN is the #1 destination for online shopping & no one else is close.  Back in 2017, just 35% of the public said AMZN was their top online destination.  Today, that percentage has risen to a commanding 74%, unchanged from last year but below its 2019 high.  While groups differ over how much they spend online, where they spend is fairly uniform: AMZN.  

Online shopping for holidays exceeds 2020 pandemic high, CNBC survey shows

It looks like it’s going to be both a green & a blue Christmas.  The CNBC All-America Economic Survey finds American views on the economy in a continued slump, echoed in increasingly negative views on Pres Biden's job approval, & yet holiday spending plans are buoyant.  The survey shows intended holiday spending per person rocketed up to $1300 this year, 31% above last year.  While the number was driven by a small number of respondents saying they will spend large sums, the gains still amount to double digits when those answers are removed.  What’s more, 18% say they will spend more, up from just 11% last year & the highest since 2019.  Among those spending more, 32% say it's because they are being paid more or have higher incomes, up 2 points from last year; 24% say it's because of inflation, down 6 points.  Meanwhile, among those spending less this year, 37% say it's because of inflation, up from 15% last year.  The survey underscores the increasing divide between dour American economic sentiment & upbeat economic data.  Multiple surveys have found downbeat economic views but data continues to show robust consumer spending.  Recent reports show surging 3rd-qtr growth, a low unemployment rate & strong holiday spending.  The survey found modest improvements in views on the economy, but they remain mostly depressed.  80% view the economy as just fair or poor, down 3 points from the Oct & 19% say it's excellent or good, up 3 points.  But those levels are heavily depressed from the pre-pandemic levels in Dec 2019 when 53% of the public said the economy was good or excellent.  The outlook also improved a bit, with 24% of the public saying they expect the economy to improve, up from 19% in Oct, but still down from 30% in 2019.  For the full year, the 66% of Americans who are negative about the current state of the economy & the outlook represents an all-time high in the 17 years of the survey.  Inflation looks to be driving economic sentiment with 30% of respondents saying it's the #1 issue facing the nation, down just 2 points from the high last qtr despite a continued decline in the inflation numbers, a potential sign that Americans are less concerned that prices aren't rising as fast anymore as they are that prices have risen & remain high.  Inflation is followed by immigration & border security, chosen by 18% as the leading issue, & foreign policy & national security, which rose 4 points to 12%.  Biden's approval numbers do not fare well in any of the 3 categories surveyed.  His overall approval rate fell to 35%, the lowest the survey has recorded in his presidency, from 37% in the prior qtr, while his disapproval edged up a point to 59%.  At -24, the pres's approval is the most underwater it’s been during his term.  His economic approval numbers are worse.  Approval rose a point to 33% & disapproval declined a point to 62%.  But they remain more underwater at -29% than his overall approval numbers.  On foreign policy, the pres's 33%-63% approval & disapproval numbers leave him 34 points underwater, compared with -29 in Oct.

Holiday spending to be up big even as approval of Biden hits new low, CNBC economic survey shows

Gold moved higher for a 2nd day as the $ & treasury yields weakened.  Gold for Feb closed up $11 to settle at $2052 per ounce.  The metal is down from a record high of 2089 set at the start of the month & briefly fell back under the $2000 mark last week after Federal Reserve chair Jerome Powell said the central bank could begin rolling back interest rates next year, only to be contradicted by other members of the central bank's policy committee.  The $ weakened early, making gold more affordable for intl buyers.  The ICE dollar index was last seen down 0.39 points to 102.17.  Treasury yields were also lower, bullish for gold since it offers no interest.  The 2-year note was last seen paying 4.446%, down 2.2 basis points, while the yield on the 10-year note was down 2.3 basis points to 3.915%.

Gold Closes Higher on a Weaker Dollar and Lower Yields

West Texas Intermediate (WTI) crude oil closed higher for a 2nd day on supply concerns as ships rerouted from the Red Sea, while the US announced a multi-nation naval effort to protect ships moving in the area from drone and missile attacks from Houthi militants based in Yemen.  WTI crude for Jan closed up 97¢ to settle at 73.44 per barrel, while Feb Brent crude, the global benchmark, closed up $1.28 to $79.23.  Prices rose after BP & others suspended shipping thru the key waterway for ships transiting the Suez Canal because of the attacks from the Yemen group in support of Hamas in its war with Israel.  As much as 15% of global shipping passes thru the region, according to the Dept of Defense.  Secretary of Defense Lloyd Austin said a combined naval operation made up of ships from the US, the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles & Spain would ensure the safety of Red Sea shipping.

WTI Closes Higher on Red Sea Disruption as the US Recruits Allies to Fend Off Houthi Attacks

While the Dow is reaching new heights, demand for gold & Treasuries is strong with gold near its record.  Generally risky investments (stocks) & safe haven investments don't go up at the same time.  Now the Red Sea which handles a great deal of commerce could be caught up in the MidEast war & that would negatively impact the price of oil.  Nervous investors are buying safe haven gold & Treasuries.

Dow Jones Industrials