Markets waver while looking for direction

Dow gained 130, advancers over decliners 2-1 & NAZ lost 82 after its recent rally.  The MLP index was up 1+ to 281 & the REIT index inched higher in the 389s.  Junk bond funds crawled higher & Treasuries had limited selling which raised yields (more below).  Oil rebounded 1+ to the 79s after a decline in inventories & gold added 7 to 2174.

AMJ (Alerian MLP Index tracking fund)

A key measure of home-purchase applications surged last week as mortgage rates dipped below 7% for the first time in more than a month.  The Mortgage Bankers Association's (MBA) index of mortgage applications jumped 7.1% for the week ended Mar 8, compared with a 9.7% increase the previous week.  The data also showed that the average rate on the popular 30-year loan dropped to 6.87% last week. "Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months," said Mike Fratantoni, MBA's chief economist.  Housing demand had ground to a halt earlier this year as rates moved higher, but it is stirring back to life as rates start to fall.  Applications for a mortgage to purchase a home rose 5% from the previous week.  Application volume is down 11% compared with the same time last year.  Demand for refinancing also climbed higher last week, rising 12% from the previous week.  Compared with the same time last year, refinance applications are up 5%.  "While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years," Fratantoni said.  Central bank officials have opened the door to cutting interest rates this year but indicated they will not do so until they are confident that inflation is conquered.  "The committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," Fed Chair Jerome Powell testifying on Capitol Hill.  Now, most economists expect the cuts to begin in Jun amid signs that inflation remains abnormally high.  Higher mortgage rates have not only weighed on consumer demand, they have limited inventory.  That is because sellers who locked in a low mortgage rate before the COVID-19 pandemic have been reluctant to sell with rates continuing to hover near a 2-decade high, leaving few options for eager would-be buyers.  Available home supply remains down a stunning 34.3% from the typical amount before the pandemic began in early 2020, according to a separate report published by Realtor.com.

Mortgage demand roars back to life as interest rates dip below 7%

Chief financial officers at large companies see a US economy & equities market that can continue to grow, even as fears about sticky inflation & a potentially overextended, & concentrated, bull run in stocks weigh on investors.  That’s according to the CNBC CFO Council Survey for the first qtr of 2024, which shows a dramatic year-over-year change in the view from CFOs about the Federal Reserve's inflation battle.  The percentage of CFOs who think the Fed will be able to achieve a soft landing has reached a 5-qtr high, at 48%.  It's a marked change from where CFOs were a year ago in Q1 2023, with expectations of a soft landing tripling since the first qtr of last year.  For the first time in 5 qtrs, not a single CFO rated the Fed's efforts to bring inflation down as “poor,” while those who described the central bank’s policy as “good” edged higher again qtr over qtr to 55%.  The latest forecast of long-term inflation expectations came in higher than expected this week, but the market reacted positively to yesterday's CPI reading, & stocks closed at a new record after some days of selling.  This bullishness despite continued jitters on inflation lines up with the view from CFOs on the council.  CFOs have been consistent across our surveying in their view that inflation will not return to 2% any time soon, & that's the case again in the Q1 survey, with nearly 80% of CFOs saying inflation won't hit the Fed’s 2% target before 2025 at the earliest.  This view of inflation remaining above the Fed's target for considerably longer plays into a CFO outlook that the Fed will not move as quickly as the market thinks to cut interest rates.  In recent months, the market has gotten the Fed's message that Mar is out of the picture for the start of rate cuts, but CFOs remain more cautious on the Fed.  According to the Q1 survey, the largest percentage of CFO respondents (44%) do not expect a rate cut until Sep.  The CME FedWatch tool shows a majority of traders still betting on Jun as a likely target.  In the Q1 CFO survey, equal groups of just under 25% of CFO respondents think the cuts will begin in Jun or Jul.

Top CFOs are as bullish on the Dow and the Fed as they’ve been in a long time

Treasury yields climbed as investors considered the latest inflation data & weighed the state of the economy.  The yield on the 10-year Treasury was up 4 basis points at 4.191% & the 2-year Treasury yield was last at 4.62% after also rising by less than 1.7 basis point.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors digested consumer price index (CPI) data, which came in just above expectations.  Prices rose 0.4% on a monthly basis & 3.2% on an annual basis in Feb.  The forecast had been looking for increases of 0.4% & 3.1%, respectively.  CPI, which excludes volatile food & energy prices, was 0.4% higher than in Jan & up 3.8% from a year earlier, which was also slightly higher than anticipated.  While inflation has eased from its 2022 highs, it remains higher than the Federal Reserve's 2% target range.  Fed officials have frequently indicated that they are looking to economic data for evidence that inflation is moving back toward this target before making decisions about interest rate cuts.  They have given few indications about a potential timeline for rate cuts, though Fed Chair Jerome Powell last week indicated that the first cut may not be far off.

Treasury yields rise as investors weigh inflation outlook

Dow has been trending sideways for 3 weeks as expectations for the first rate cut have been reduced.  Interest rates continue at very high levels & could stay elevated for several months.  The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in Q1 of 2024 is 3.0%.  That is a mild reading.

Dow Jones Industrials