Markets edge higher as earnings season winds down

Dow rose 120 (but off early highs), advancers over decliners 3-2 & NAZ was off 24.  The MLP index added 2+ to the 275s (see the chart below) & the REIT index was fractionally lower to 381.  Junk bond funds fluctuated & Treasuries were purchased, reducing yields (more below).  Oil fell 1+ to the 77s & gold gained 11 to 2042.

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Governor Christopher Waller said he will need to see more evidence that inflation is cooling before he is willing to support interest rate cuts.  In a policy speech with the question, “What’s the rush?” on cutting rates, the central bank official said higher-than-expected inflation readings for Jan raised questions on where prices are heading and how the Fed should respond.  “Last week’s high reading on CPI inflation may just be a bump in the road, but it also may be a warning that the considerable progress on inflation over the past year may be stalling,” Waller said.  While he said he still expects the Federal Open Market Committee to begin lowering rates at some point this year, Waller said he sees “predominately upside risks” to his expectation that inflation will fall to the Fed's 2% goal.  He added that there are few signs inflation will fall below 2% anytime soon based on strong 3.3% annualized growth in GDP & employment, with few signs of a potential recession in sight.  Waller is a permanent voting member on the FOMC.  “That makes the decision to be patient on beginning to ease policy simpler than it might be,” Waller added.  “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.”  The remarks are consistent with a general sentiment at the central bank that while further rate hikes are unlikely, the timing & pace of cuts is uncertain.  The inflation data Waller referenced showed the consumer price index (CPI) rose 0.3% in Jan & was up 3.1% from the same period a year ago, both higher than expected.  Excluding food & energy, core CPI ran at a 3.9% annual pace, having risen 0.4% on the month.  Reading thru the data, Waller said it's likely that core personal consumption expenditures prices, the Fed's preferred inflation gauge, will reflect a 2.8% 12-month gain when released later this month.  Such elevated readings make the case stronger for waiting, he said, noting that he will be watching data on consumer spending, employment, & wages & compensation for further clues on inflation.  Retail sales fell an unexpected 0.8% in Jan while payroll growth surged by 353K for the month, well above expectations.  “I still expect it will be appropriate sometime this year to begin easing monetary policy, but the start of policy easing and number of rate cuts will depend on the incoming data,” Waller continued.  “The upshot is that I believe the Committee can wait a little longer to ease monetary policy.”

Fed’s Waller wants more evidence inflation is cooling before cutting interest rates

Treasury yields were higher as investors considered the path ahead for interest rates after fresh comments from Federal Reserve speakers.  The yield on the 10-year Treasury was up 1.4 basis points at 4.333% & the 2-year Treasury  yield was last 2.7 basis points higher at 4.728%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors considered the uncertain outlook for interest rates, especially when & how often they would be cut this year.  Fed Governor Christopher Waller said that he was looking for more evidence that inflation was cooling before cutting interest rates.  “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole,” he said.  Jan's consumer price index & producer price index readings had both come in hotter than expected, raising concerns about whether inflation is more persistent than many had hoped for.  Waller's comments were also echoed by Fed Governor Lisa Cook, who said that while she expects rates to be cut this year, she also wanted more confidence in inflation easing.  Their comments were in line with the general sentiment presented by the Fed in recent weeks, including by the minutes from the central bank's Jan policy meeting which were released earlier this week.  They showed that policymakers were keen to not rush any decisions around rate cuts & instead make them cautiously, depending on data, but also highlighted that central bankers were not expecting any further interest rate hikes.

Treasury yields rise as investors consider monetary policy path

Home foreclosures saw a "notable" increase in Jan as Americans continue to grapple with the ongoing cost-of-living crisis.  That is according to a new report published by real estate data provider ATTOM, which found that lenders repossessed 3954 US properties in Jan, a 13% increase from the previous month.  It marked the first monthly increase in completed foreclosures since Jul 2023.  Foreclosures are up just 1% from the same time one year ago.  "We observed a slight uptick in foreclosure filings, which may be partially attributed to the typical post-holiday progression of filings through the legal system," said ATTOM CEO Rob Barber.  "However, other external factors may be at play such as escalating interest rates, inflation, employment shifts and other market dynamics."  The report also indicated that there were 37K properties with foreclosure filings, which includes default notices, scheduled auctions& bank repossessions, in Jan, up 10% from the previous month & up 5% from 2023.  Although foreclosures are on the rise, they remain well below the levels recorded during the 2008 financial crisis.  But the problem could soon get worse as high home prices, mortgage rates & property taxes bite Americans.  Housing affordability is the worst it's been in decades, thanks to a spike in home prices & mortgage rates. Combined, the 2 have helped to push the typical portion of average wages nationwide required for major homeownership expenses up to 33%.  There are several reasons to blame for the affordability crisis.  The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 8% for the first time in nearly 2 decades last year.  Rates have been slow to retreat, hovering near 7% as hotter-than-expected inflation data dashed investors' hopes for immediate rate cuts.  The average rate for a 30-year fixed loan rose to 6.9% this week, Freddie Mac reported, well above the pandemic-era lows of 3%.  Even though mortgage rates are nearly double what they were 3 years ago, home prices have hardly budged.  That is largely due to a lack of available homes for sale.  Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.

Home foreclosures see a 'notable' increase amid ongoing cost-of-living crisis

Fed officials pretty much agree that while inflation is down in the last couple of years, the path for rate cuts is unclear.  Worries continue about reaching the goal of 2% in the near future.  Nervous investors keep buying gold which remains only about 50 below its record high.

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