Markets rise led by tech stocks in demand and yields fall

Dow climbed 216, advancers over decliners about 3-1 & NAZ advanced 319.  The MLP index was fractionally lower to the 256s & the REIT index was up 5+ to the 394s.  Junk bond funds fluctuated & Treasuries continued to see buying which lowered yields.  Oil sank 2+ to 71 after Saudi Arabia cut the price of oil & gold dropped 15 to 2034 (more below).

AMJ (Alerian MLP Index tracking fund)

Americans are feeling more optimistic about the outlook of high inflation, according to a key Federal Reserve Bank of New York survey.  The median expectation among consumers is that the inflation rate will be up 3% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, down from a high of 7.1% recorded in Jun 2022.  It marks the lowest reading since Jan 2021.  Consumers also anticipate that price growth will slow in the longer term, according to the survey.  They projected that inflation will hover around 2.6% 3 years from now & at 2.5% 5 years from now.  Still, that remains above the Fed's 2% target, indicating that sticky inflation could be here to stay.  By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2.2% by 2025 & eventually drop to 2% in 2026.  Americans expect the cost of things like food & rent to fall over the next year, but they think the cost of a college education will rise.  The survey, which is based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis.  That is because actual inflation depends, at least in part, on what consumers think it will be.  It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed's 2% target goal.

Americans' inflation expectations drop to lowest level in 3 years, NY Fed survey shows

Shares of Boeing (BA), a Dow stock, tanked after the Federal Aviation regulators grounded certain Boeing 737 MAX 9 jets for further inspection after a piece of fuselage tore off the left side of an Alaska Airlines-operated aircraft on Fri, causing the airliner to make an emergency landing after the cabin depressurized.  The aircraft was approaching 16K feet of altitude when it experienced rapid depressurization after a panel that serves as a plug for an emergency exit door used on some variations of the Boeing 737 MAX 9 was torn off.  The pilot immediately signaled the plane would have to land, & it safely returned to Portland, Oregon, with all 171 passengers & 6 crew members aboard.  No serious injuries were reported in the incident & nobody was sitting in the seats adjacent to where the door plug blew out, according to the airline.  Parts of the seat next to the fuselage, including the headrest, were missing.  CEO Dave Calhoun called an all-employee safety meeting following the incident.  The stock tumbled 20+.

Boeing shares tank after plane door blows off mid-flight

A sharp drop in mortgage interest rates in Dec may have kickstarted this year's spring housing market early.  Rates are about a full percentage point lower than they were in Oct & consumers expect they will fall even more.  Optimism about mortgage rates increased sharply in Dec, according to a monthly consumer survey by Fannie Mae.  For the first time since the survey was launched in 2010, more homeowners on net believe rates will go down rather than up, according to Mark Palim, deputy chief economist at Fannie Mae.  “This significant shift in consumer expectations comes on the heels of the recent bond market rally,” said Palim.  “Notably, homeowners and higher-income groups reported greater rate optimism than renters.”  The average rate on the 30-year fixed has been on a wild ride since the start of the Covid pandemic.  It hit more than a dozen record lows in 2020 & 2021, below 3%, causing a historic run on homebuying & a sharp rise in prices, only to then more than double in 2022.  Rates hit a more than 20-year high last Oct, hovering around 8% before falling back below 7% in Dec. Rates, however, are still twice what they were 3 years ago.  Buyers are coming back. DC-area real estate agent Paul Legere hosted 2 open houses over the weekend, homes in the $1.1-1.2M price range & said they were the busiest he's experienced in the last year.  “Similar report from my co-worker,” he added.  “Even on Saturday, during torrential rain, we both had over 10 groups of active shoppers. These were people that had been in the market and had slowed or put their search on hold and are coming back, earnestly looking for a new property.”  Legere said he expects to see “an infusion” of inventory in the next week or 2.  Tight inventory has helped keep prices higher, another hurdle for potential homebuyers. “Homeowners have told us repeatedly of late that high mortgage rates are the top reason why it’s both a bad time to buy and sell a home, and so a more positive mortgage rate outlook may [incentivize] some to list their homes for sale, helping increase the supply of existing homes in the new year,” said Palim.  A recent report from Redfin, a national real estate brokerage, found demand starting to pick up in Dec as rates fell.  Redfin's Homebuyer Demand Index, a seasonally adjusted measure of requests for tours & other homebuying services from Redfin agents, was up 10% from a month ago to its highest level since Aug.  Pending sales, which measure signed contracts on existing homes, were down 3% from Dec 2022, but that was the smallest decline in 2 years.  The average rate on the 30-year fixed mortgage hit a recent low of 6.61% at the end of Dec, but is up slightly this month to 6.76%, according to Mortgage News Daily.

Mortgage rate decline pulls buyers back into the housing market

Gold closed lower for a 2nd-straight session despite a weaker $ & lower treasury yields.  Gold for Feb closed down $16 to $2033 per ounce. The drop comes as investors take profits as the price of the precious metal remains robust, touching a record $2093 per ounce on Dec 27.  The drop also comes despite a weaker $ with the ICE dollar index last seen down 0.13 points to 102.28.  Treasury yields were also lower, normally a bullish sign for gold since it offers now interest.  The 2-year note was last seen paying 4.341%, down 6.3 basis points, while the yield on the 10-year note was down 5.2 basis points to 3.994%.

Gold Closes Lower Again Despite a Weaker Dollar and Lower Yields

Oil declined after Saudi Arabia cut official selling prices for all regions, the latest sign that fundamentals are worsening.  West Texas Intermediate tumbled 4.1%, the biggest drop in almost 2 months, to settle below $71 a barrel.  State producer Saudi Aramco lowered its flagship Arab Light price to Asia by $2 a barrel, more than expected, due to persistent weakness in the global market. Its pricing is the lowest since Nov 2021.  Prices were also pressured by a report that some shipping firms made a deal with Houthi militants to get their vessels safely thru the Red Sea. Such a pact would affect a broad swathe of commodity markets as the attacks have caused shippers to re-route everything from container vessels to gas carriers.  However, the existence of a deal was immediately denied by 2 large firms.  Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range & threatening a much bigger slide.

Oil Slumps as Saudi Price Cuts Underscore Softer Market Ouotlook

Stocks began trading in the red, but bulls rallied investors & finished with one solid gain for the Dow (400 above early lows) while tech stocks on NAZ had an outstanding day.  Background data (like consumer expectations for low inflation above) are encouraging, but the oil story is important since that market indicates all is not well in the global economy.

Dow Jones Industrials