Dow slid back 39, advancers over decliners 4-3 & NAZ advanced 152. The MLP index stayed in the 254s & the REIT index fell 2 to the 379s. Junk bond funds were mixed & Treasuries had very limited buying, taking yields slightly higher (more below). Oil was fractionally higher to 73 & gold added 8 to 2015.
AMJ (Alerian MLP Index tracking fund)
The labor market continued to show surprising resiliency in the early days of 2024, with initial jobless claims posting an unexpected drop last week. Initial filings for unemployment insurance totaled 187K last week, the lowest level since Sep 2022, the Labor Dept reported. The total marked a 16K decline from the previous week & came in below the estimate of 208K. Labor strength has persisted despite attempts by the Federal Reserve to slow the economy, & the jobs market in particular, thru a series of interest rate hikes. Central bank policymakers have linked the supply-demand mismatch between companies & the available labor pool as an ingredient that had sent inflation to its highest level in more than 40 years. Along with the drop in weekly claims came an unexpected decline of 26K in continuing claims, which run a week behind. The total for continuing claims hit 1.806M, below the estimate for 1.83M. “Employers may be adding fewer workers monthly, but they are holding onto the ones they have and paying higher wages given the competitive labor market,” said Robert Frick, corp economist at Navy Federal Credit Union. In other economic news, the Philadelphia Fed reported that its manufacturing index registered a reading of -10.6 for Jan, representing the difference between companies reporting growth against contraction. While the number marked an increase from the -12.8 posted in Dec, it was still below the estimate of -7. The Philadelphia Fed gauge showed a decline in unfilled orders, delivery times & inventories. The employment index improved somewhat but was still negative at -1.8 while the prices paid & received measures both eased from Dec.
Weekly jobless claims post lowest reading since September 2022
Treasury yields edged higher as the latest jobs data came in stronger than expected. The yield on the 10-year Treasury note rose by 1 basis points to 4.117%, after trading as high as 4.123% earlier, the highest level since Dec 13. The 2-year Treasury yield was last up around 2 basis points to trade at 4.369%. Yields & prices move in opposite directions & 1 basis point equals 0.01%. The claims data (above) follows more strong US figures that put into question how soon the Fed could start cutting interest rates. Yesterday, Dec's retail sales data indicated strong consumer demand at the holidays. Retail sales increased 0.6% for the month, above estimates of 0.4%. Excluding autos, sales rose 0.4%, which also topped a 0.2% estimate. Earlier in the week, yields jumped after comments from Federal Reserve Governor Christopher Waller, who suggested that while the central bank will likely cut rates this year, it may take its time to do so.
10-year Treasury yield stays near 4.10% on more strong jobs data
New US home construction fell in Dec for the first time in 4 months, despite a sharp drop in mortgage rates. Housing starts decreased 4.3% last month to an annual rate of 1.46M units, according to new Commerce Dept data. That compares with a projection at a pace of 1.42M units. The decline stemmed from a substantial drop in single-family home construction, which fell by the most since Jul 2022. However, applications to build, which measures future construction, rose in Dec, increasing 1.9% over the course of the month to an annualized rate of 1.49M units. When compared with the same time last year, building permits are up about 6.1%. 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 5 points to 44. The increase followed a 3-point increase in Dec. Any reading below 50 is considered negative. "Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs," 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. But borrowing costs have retreated over the past 2 months as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign & will soon pivot to cutting rates. Rates on the popular 30-year fixed mortgage are currently hovering around 6.66%, 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%. The recent decline has prompted a burst of optimism among homebuilders that the worst may be over. However, the housing market is facing new headwinds heading into 2024, including higher prices & shortages of labor & lumber.
Housing starts fall in December despite sharp drop in mortgage rates
Traders continue to watch for earnings & are getting anxious about the path for rate cuts this year. They are looking to fresh quarterly earnings for inspiration amid dwindling hopes for an early 2024 interest rate cut.Dow Jones Industrials
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