Markets fall after 5 consecutive days of record closes for the Dow

Dow sank 475 with heavy selling in the last hour, decliners over advancers better than about 3-2 & NAZ gave back 225.  The MLP index was steady in the 254s & the REIT index fell 4+ to the 388s.  Junk bond funds were dragged lower along with stocks & Treasuries saw more buying which lowered yields.  Oil was flattish, a little under 74, & gold slid back 6 to 20245 (more on both below).

AMJ (Alerian MLP Index tracking fund)

US existing home sales rebounded in Nov from the lowest level in 13 years as easing mortgage rates lured would-be homebuyers back into the market.  Sales of previously owned homes rose 0.8% in Nov from the previous month to an annual rate of 3.8M units, snapping a 5-month losing streak, according to new data from the National Association of Realtors (NAR).  It marked the slowest pace of sales since 2010.  On an annual basis, existing home sales remain down 7.3% when compared with Nov 2022.  "The latest weakness in existing home sales still reflects the buyer bidding process in most of October when mortgage rates were at a two-decade high before the actual closings in November," said Lawrence Yun, NAR's chief economist.  "A marked turn can be expected as mortgage rates have plunged in recent weeks."  There were about 1.13M homes for sale at the end of Nov, down 1.7% from the previous month but up 0.9% from the same time one year ago.  The decline in inventory helped to drive prices higher last month.  The median price of an existing home sold in Oct was about $387K, up 4% from one year ago.  "Home prices keep marching higher," Yun said.  "Only a dramatic rise in supply will dampen price appreciation."  Homes sold on average in just 25 days last month.  While that is down slightly from the 14 days recorded in Jul 2022, it marks a major increase from prior years.  Before the COVID-19 pandemic, homes typically sat on the market for about a month before being sold.  At the current pace of sales, it would take roughly 3.5 months to exhaust the inventory of existing homes.  Experts view a pace of 6-7 months as a healthy level.  The supply crunch is largely being driven by the astronomical rise in mortgage rates over the past year.  Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell with rates so high, leaving few options for eager would-be buyers.  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%.  "Rates have retreated some since mid-November, but they are likely still not at a level which will result in a significant increase in home listings," said Daniel Vielhaber, Nationwide economist.  "We don’t expect to see that until the second half of 2024."

Existing home sales rebound from 13-year low amid cooling mortgage rates

General Mills (GIS) said tepid demand & pricing pressures are compounding problems for the Dunkaroos & Bisquick maker.  GIS trimmed its full-year sales outlook.  With 2 qtrs remaining in the its fiscal year, the company now sees revenue down 1% to flat, compared with previous guidance of a 3-4% increase.  GIS is also cutting the high end of its earnings guidance due to the lower demand forecast.  It expects “a slower volume recovery in fiscal 2024, reflecting a more cautious consumer economic outlook.”  While GIS reported its 8th consecutive quarterly earnings beat, revenue came up well short of estimates: $5.14B vs $5.35B expected.  It was its biggest revenue miss in 8 years.  CEO Jeff Harmening said the company saw “a slower-than-expected volume recovery in the second quarter amid a continued challenging consumer landscape.”  Organic sales growth was an eyesore, unexpectedly contracting 2% versus estimates of 3.1% growth.  Every business segment saw disappointing sales, from consumer food to pet food, from domestic to intl.  Volumes fell 4% overall, led by a 5% drop in North America retail volumes.  Pricing increases continued to decelerate, contributing just 3 percentage points to sales in the latest qtr.  The company has also been boosting promotions.  “We’re seeing consumers continue to display stronger-than-anticipated value-seeking behaviors across our key markets, and this dynamic is delaying volume recovery in our categories,” Harmening said.  The stock fell 2.40 (4%).

General Mills echoes FedEx with a warning about weaker demand

A strong job market & a sturdy business climate have left Americans feeling quite jolly this Dec.  US consumer confidence improved for the 3rd consecutive month, leaping to its highest level since Jul, while recession worries abated, according to new data released yesterday by the Conference Board.  The business group's Consumer Confidence Index, a leading economic indicator of households' future spending & saving patterns, jumped to a reading of 110.7 this month from a downwardly revised 101 in Nov.  Additionally, consumers’ “perceived likelihood of a US recession” during the next 12 months fell to its lowest level seen all year.  Dec's preliminary reading far exceeded expectations of 104.5.  “December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” Dana Peterson, chief economist at The Conference Board, said.  The Dec headline index was buoyed by an improvement in consumers' outlooks for 6 months from now, particularly for their job prospects, overall business conditions & their incomes.  The Conference Board's Expectations Index shot up to 85.6 from a downwardly revised reading of 77.4 in Nov.  In assessing the future, consumers were more confident that interest rates wouldn't rise as much, that the stock market would remain strong & that their financial picture would improve.

US consumers’ confidence levels are at their highest level since July

Gold closed lower on a higher $ despite lower treasury yields as investors take profits following 2 days of gains.  Gold for Feb closed down $4 to settle at $2047 per ounce.  The metal is down from a record high of $2809 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 drop comes as the $ rose, making gold more expensive for intl buyers.  The ICE dollar index was last seen up 0.11 points to 102.27.  Treasury yields were also lower, bullish for gold since it offers no interest.  The 2-year note was last seen paying 4.382%, down 6.0 basis points, while the yield on the 10-year note was down 5.0 basis points to 3.883%.

Gold Falls on Profit Taking as the Dollar Rises and Treasury Yields Weaken

West Texas Intermediate (WTI) crude oil rose for a 3rd-straight session as threats to Red Sea shipping from Yemen's Houthi militant group adds a geopolitical-risk premium even as US oil inventories rose & US oil production rose to a record.  WTI crude oil for Feb closed up 20¢ to settle at $74.22 per barrel, while Feb Brent crude, the global benchmark, closed up 47¢ to $79.70.  The rise comes as threats to Red Sea shipping continue as the Houthi said they will continue carrying out drone & missile attacks on Red Sea shipping in support of Hamas' war with Israel.  The attacks have forced shippers to reroute away from the Red Sea, which normally accounts for up to 15% of global shipping, &, instead go around Africa, while the US forms an intl naval response to counter the threat.  The rise also comes after the Energy Information Administration said US oil inventories rose by 2.9M barrels last week, while the consensus estimate predicted a 2.3M barrel drop.  Gasoline & distillate inventories also rose, while US oil production climbed to a record 13.3M barrels per day.

WTI Oil Rises as Threat to Red Sea Shipping From Houthi Attacks Continues While US Inventories Rise

Dow traded around breakeven for most of session until the last 1+ hours when there was very heavy selling.  Red Sea shipping disruptions are getting more attention with all the saber rattling by the Houthi rebels in Yemen.  Tomorrow has the makings of an exciting time for stocks.

Dow Jones Industrials