Dow rose 429 (session high), advancers over decliners 5-2 & NAZ gained 218 to yet another record. The MLP index was off 1 to 290 & the REIT index crawled up 1+ to 380. Junk bond funds continued to be mixed & Treasuries saw more buying which reduced yields. Oil added almost 1 to the low 82s & gold gained 11 to 2379 (more on both below).
Dow Jones Industrials
Federal Reserve Chair Jerome Powell said the central bank would make decisions on interest rates "when and as they need to be made" with no consideration to the coming presidential election. In response to a lawmaker's question about the possibility of the Fed cutting interest rates at its meeting in mid-Sep, less than 2 months before Election Day, Powell said: "Our undertaking is to make decisions when and as they need to be made, based on the data, the incoming data, the evolving outlook and the balance of risks, and not in consideration of other factors, and that would include political factors." "We'll make those decisions," Powell continued. "We have a long history of doing that, including during election years, and that is the undertaking we will make. Anything we do will be very well grounded. It's just not appropriate for us to get into the business of thinking about election cycles at all, one way or the other."
Fed's Powell: Will act 'when and as' needed, regardless of election
Signs of a “stagnant late-spring housing market“ emerged in Jun as US home prices declined for the first time this year & purchase mortgage locks fell by 8% year over year. That's a key takeaway from the Jun 2024 Market Advantage report released by Optimal Blue. The report, which covers the 20 largest US metro areas, shows that the average home purchase price of $479K in Jun was down about $1500 compared to May. The volume of locked loans (including purchases & refinances) rose 2% from the prior month when accounting for fewer days of production in Jun. “Despite an improvement in interest rates, purchase activity was subdued in June,” Brennan O’Connell, director of data solutions at Optimal Blue, said. However, many homeowners with higher rates — particularly those who closed on their mortgage in the last 12 to 18 months — jumped at the opportunity to refinance, even for a small reduction in monthly payments. “This behavior speaks to the ongoing inventory and affordability challenges consumers are experiencing. As we look toward the back half of 2024 and the potential for rate relief from the Fed, purchase lock counts will provide insight into if and when production will turn the corner.” Optimal Blue noted that a pullback in mortgage rates, which ended Jun at 6.938% for 30-year conforming loans, drove a significant increase in refinances. Rate-&-term refis jumped 39% from May to Jun, while cash-out refi activity was up 11% during the month. The average loan size in Jun was down slightly to $374K.
Tepid housing market conditions persist: Optimal Blue
1 area of outsized growth for Tesla (TSLA) beyond its car business could be energy. In its 2nd qtr production & delivery report,
TSLA said that it deployed 9.4 GWh (gigawatt hours) of battery energy
storage, its highest quarterly amount ever & more than double the
amount of battery storage the company deployed in the first qtr. TSLA's energy storage business, part of Tesla Energy, includes installations as small as Powerwall batteries for the home to massive Megapack storage facilities meant for utilities & municipalities to store large amounts of energy for deployment at peak energy usage times. While a Powerwall typically holds around 12.2 kilowatt-hours of
usable energy, or enough to power a small home for a day, 1 Megapack
installation can hold 3.9 megawatt-hours of energy, enough to power
3600 homes for 1 hour, TSLA said. Though TSLA only booked
$1.6B in revenue from its energy storage business in the first
qtr, the company reported a healthy $403M in gross profit
from the business, good for a gross margin of 24.6%. TSLA's
overall gross profit was $3.7B in Q1, with a gross margin of
17.4%, which was down from 19.3% a year ago. The drop in gross margin
was due to TSLA's EV price cuts, which were meant to spur demand &
have been eating into profits over the past year. TSLA stock rose 93¢.
Tesla's energy business could be its next big growth driver
Gold edged higher as Federal Reserve Chair Jerome Powell told US lawmakers that he can see inflation headed lower, sustaining hopes for a pivot on interest-rates this year. The precious metal traded near $2380 an ounce after eking out a small gain in the previous session. Powell again addressed lawmakers today on Capitol Hill, saying that he has some confidence that inflation is headed downward & that the Fed doesn’t need price gains to dip below 2% before cutting rates. Still, he also stressed that the central bank has more work to do & needs to be more confident about inflation. Traders will get more data on inflation later this week, with a reading of the consumer price index for Jun to be released tomorrow. Lower borrowing costs are generally supportive for non-interest bearing bullion. Gold-backed exchange-traded funds saw inflows for a 2nd consecutive month in Jun, with buying in European & Asian markets offsetting outflows from North America, according to a report from the World Gold Council. Spot gold traded 0.7% higher at $2379 an ounce, while the Bloomberg Dollar Spot Index was little changed.
Gold Edges Higher as Powell Sees Progress on Inflation Fight
West Texas Intermediate (WTI) crude oil rose following 3-losing sessions as OPEC kept a bullish demand forecast in place & a report showing a larger than expected drop in US inventories last week. WTI crude for Aug closed up 69¢ to settle $82.10 per barrel, while Sep Brent crude, the global benchmark, was last seen up 48 to $85.14. In its weekly survey, the Energy Information Administration reported US oil inventories fell by 3.4M barrels per day last week, well more than the consensus estimate for a 1.3M-barrel draw. Gasoline stocks fell by 2M barrels while distillate inventories rose by 4.9M barrels. OPEC left its 2024 demand forecast in place in its Jul Monthly Oil Market Report, calling for a rise of 2.2M barrels per day over 2023 levels. The forecast remains above the expectations of other agencies, with the Energy Information Administration yesterday reiterating its demand-growth outlook of 1.1M bpd this year in its Jul Short-Term Energy Outlook. Weak growth in China, the #1 oil importer, is checking prices. The country yesterday reported inflation fell to 0.2% in Jun, under the expectation for a rise of 0.4% poll, showing the country's economy continues to slow.
WTI Oil Closes Higher as U.S. Inventories Dropped Last Week While China's Inflation Slowed in June
The bulls were cheered by Powell's comments & bid stocks higher after his testimony. Bets on interest rate cuts have helped stocks eke out fresh gains. Powell hinted the stage is almost set for lowering interest rates from 2-decade highs, pointing to a cooling in inflation & in the jobs market. He also cautioned that keeping rates elevated for too long could weaken the economy, giving hope to rate-cut-hungry investors. Meanwhile, Dow has lagged behind other indices recently & it is only back to where it was in late Mar.
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