Markets slide but tech shares are higher

Dow fell 286, decliners over advancers 2-1 & NAZ rebounded 194.  The MLP index added 1+ to the 287s & the REIT index retreated 5+ to the 273s.  Junk bond funds were mixed & Treasuries had very limited selling which lifted yields only slightly (more below).  Oil slid back pennies in the 81s following recent strength & gold was up 6 to 2338.

Dow Jones Industrials 

Federal Reserve Governor Michelle Bowman said the time is not right yet to start lowering interest rates, adding she would be open to raising if inflation doesn't pull back.  “Should the incoming data indicate that inflation is moving sustainably toward our 2 percent goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” Bowman said.  “However, we are still not yet at the point where it is appropriate to lower the policy rate.”  Those comments reflect a prevailing sentiment at the central bank, in which most policymakers have said in recent weeks that, while they still expect inflation to get back to the Fed's 2% target, they need more evidence.  Recent readings have shown moderating inflation, with the Fed's preferred indicator running just under 3%.  However, the rate-setting Federal Open Market Committee noted after its last meeting that there has been only “modest further progress.”  Bowman noted that there are “a number of upside risks” prevailing that could accelerate her outlook, which is among the most hawkish of all policymakers.  “I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse,” she continued.  “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy.”  Bowman said she still expects the Fed to hold its key overnight borrowing rate at 5.25%-5.50% “for some time.”  Moreover, she indicated she is not being swayed by rate reductions from the Fed's global counterparts such as the ECB, which recently lowered its key rates by a qtr percentage point.  Bowman said “it is possible over the coming months that the path of monetary policy in the U.S. will diverge from that of other advanced economies.”

Fed Governor Bowman says she’s still open to raising rates if inflation doesn’t improve

Home prices reached a new record in Apr amid an ongoing housing shortage, even as high mortgage rates pushed affordability out of reach for more Americans.  Prices increased 6.3% nationally in Apr when compared with the previous year, the S&P CoreLogic Case-Shiller index showed, down from the 8.3% pace recorded the previous month.  On a monthly basis, prices climbed 0.3%, according to the index.  "For the second consecutive month, we've seen our national index jump at least 1% over its previous all-time high," said Brian Luke, head of commodities, real & digital assets at S&P DJI, in a release.  "Heading into summer, the market is at an all-time high, once again testing its resilience against the historically more active time of the year."  "Last month’s all-time high came with all 20 markets accelerating price gains," Luke said.  "This month, just over half of our markets are seeing prices accelerate on a monthly basis."  The largest price gain once again took place in San Diego, which recorded a year-over-year increase of 10.3%, followed by New York & Chicago, with respective gains of 9.4% & 8.7%.  The Case-Shiller index reports with a 2-month delay, meaning it may not capture the latest ongoings in the market.   There are a number of driving forces behind the affordability crisis.  Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates & expensive construction materials.  Higher mortgage rates over the past 3 years have also created a "golden handcuff" effect in the housing market.  Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further & leaving few options for eager would-be buyers.  Economists predict that mortgage rates will remain elevated in 2024 & that they will only begin to fall once the Federal Reserve starts cutting rates.  Even then, rates are unlikely to return to the lows seen during the pandemic.

US home prices smashed another record high in April

Cisco (CSCO), a Dow stock, is “very optimistic” about its growing business with Chinese electric car companies as they expand overseas, the company's Greater China head said.  The EV segment is the US tech giant's 2nd-largest for the region, CSCO generates most of its revenue in Greater China from manufacturing companies, & within that, electric cars form the largest category, said Ming Wong, VP & CEO of Cisco Greater China.  Chinese EV-makers have ramped up their global expansion in the last year as domestic competition intensified.  However, trade tensions have escalated, with the US & likely the EU, increasing tariffs on imports of Chinese electric cars.  That doesn’t necessarily restrict their growth.  Chinese automakers, such as BYD, are investing in local factories.  CSCO, which provides networking equipment & software for businesses, is working with at least 10 electric car customers as they build factories, offices & research & development centers overseas, according to Wong.  “At least as of now, we don’t hear anything from the [EV] customers saying that, ‘Oh, because of this, we need to stop investing, or we need to slow down,’” he added.  “It’s actually the other way around. A lot of things happening. They will keep pushing, going forward, and we’ll see how this will evolve.”  The stock rose 33¢.

Cisco is ‘very optimistic’ about its growing business with China EVs

Investors were taking profits scored in AI-linked names as a stellar qtr draws to a close, raising the question of whether recent losses have further to go.  Bowman's comments above were not helpful to the bulls.  They were another reminder that high interest rates could persist for some time.