Markets wobble as stock buyers hesitate

Dow was up 71, but decliners over advancers 4-3 & NAZ lost 10.  The MLP index slid back 1 to 282 & the REIT index fell 2+ to the 364s.  Junk bond funds drifted lower & Treasuries had limited selling, so yields rose a little.  Oil added pennies in the 78s & gold held steady at 2324.

AMJ (Alerian MLP Index tracking fund)

Minneapolis Federal Reserve President Neel Kashkari said that the central bank will need to hold interest rates steady for an "extended period" that may last thru the rest of the year.  Kashkari made the remarks at a Milken Institute conference where he outlined what he would need to see in the inflation data before he can support interest rate cuts.  "I would need to see multiple positive inflation readings suggesting that the disinflation process is on track," Kashkari said.  His remarks come as decreases in inflation have largely stalled in recent months, with year-over-year inflation at 2.7% in the most recent reading.  That level is well above the Fed's 2% target rate and leaves policymakers in limbo with inflation elevated, but not to such a degree that further rate hikes are clearly needed.  Kashkari also said that he will be monitoring developments in the labor market where a "marked" shift to weaker job creation could also justify an interest rate cut.  He added that in Mar that he thought the Fed would need to deliver 2 interest rate cuts in 2024, but that he may mark that down to just one cut or even no cuts, depending on the data, when the central bank meets next month when fresh projections will be released by policymakers.  The Fed raised the benchmark federal funds rate to a 23-year high of 5.25%- 5.5% in an effort to tamp down inflation, which peaked at a 40-year high of 9.1% in Jun 2022.  While recent progress in reducing inflation has slowed & some data has indicated that inflation could be on the verge of reaccelerating, Kashkari echoed Fed Chair Jerome Powell in signaling that further interest rate hikes are unlikely.  He explained that the bar for a rate hike is "quite high, but it's not infinite" & that keeping rates elevated until inflation ebbs may be the ultimate course of action. "There is a limit when we say, 'OK, we need to do more.' I think it's much more likely we would just sit here for longer than we expect, or the public expects right now, until we see what effect our monetary policies have," Kashkari said.

Federal reserve president makes grim prediction about rate cuts in 2024

Mortgage rates are significantly higher than they were at the start of this year, but they pulled back slightly last week after several weeks of straight increases.  That was enough to spark some new demand, especially for refinances.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) decreased to 7.18% from 7.29%, with points unchanged at 0.65 (including the origination fee) for loans with a 20% down payment.  “Treasury rates and mortgage rates fell last week on the news of a slowing job market, with wage growth at the slowest pace since 2021, and the Federal Reserve's announced plans to ease quantitative tightening in June and to maintain its view that another rate hike is unlikely,” said Mike Fratantoni, MBA's senior VP & chief economist.  The rate for Federal Housing Administration loans fell below 7% for the first time in 3 weeks, which is a welcome sign for first-time buyers, who tend to use FHA loans.  “First-time homebuyers account for roughly half of purchase loans, and the government lending programs are an important source of financing for these homebuyers. The gain in FHA activity is a sign that this segment of the market is active,” Fratantoni added.  The dip in rates caused refinance demand to increase 5% for the week, although it was still 6% lower than the year-earlier week.  Rates are 70 basis points higher than they were a year ago, so there are very few borrowers who can benefit from a refinance.  A basis point is one-hundredth of a percentage point.  Applications for a mortgage to purchase a home rose 2% for the week but were still 17% lower than the same week a year earlier.  Affordability is hitting potential buyers hard, as home prices continue to climb.  Tight supply is keeping the competition high, resulting in very few bargains.

Weekly mortgage refinance demand rose 5% after a slight dip in mortgage rates

Uber (UBER) results came in slightly above estimates for revenue, but the ride-hailing company posted an unexpected net loss.  Revenue grew 15% in its first qtr from $8.8B a year prior.  The company reported $37.6B in gross bookings for the period, which is short of the $37.9B expected.  Its net loss widened to $654M for a 32¢ loss per share, from a loss of $157M, for an 8¢ loss per share, in the same qtr last year.  UBER said its net loss includes a $721M net headwind from unrealized losses related to the reevaluation of its equity investments.  CEO Dara Khosrowshahi said the company's move to a loss had “nothing to do with the operating business.”  “We did have to mark down those equity stakes that resulted in a loss,” he said. “We don’t expect that to keep happening going forward.”  However, UBER cannot predict the markets, Khosrowshahi added.  UBER reported adjusted EBITDA of $1.38B, up 82% year over year & slightly above the $1.31B expected.  For its 2nd qtr, UBER expects to report gross bookings of $38.75 - $40.25B, compared with estimates of $40B.  UBER anticipates adjusted EBITDA of $1.45 - $1.53B, compared with the $1.49B expected.  The number of monthly active platform consumers reached 149M in its first qtr, up 15% year over year from 130M.  There were 2.6B trips completed on the platform during the period, up 21% year over year.  “Demand for Uber remains robust across our platform, supported by our improving marketplace experience, the continued shift of consumer spending from goods to services, and the secular trend towards on-demand transportation and delivery,” Khosrowshahi added.  The stock dropped 5.85 (8%).

Uber reports first-quarter results that beat expectations for revenue, but posts net loss

Kashkari's comments (above) did not warm the hearts of stock buyers.  Interest rates, starting with mortgage rates, continue at very high levels.  Earnings reports keep coming, & these tend to be the weaker ones.  As shown in the chart below, Dow is where it was 3 months ago.  Not good!

Dow Jones Industrials