Dow plunged 494 with bargain hunting in the last hour which trimmed losses, decliners over advancers a relatively mild 2-1 & NAZ sank 405. The MLP index dropped 2+ to the 286s & the REIT index went up 5+ to the 411s as yields fall. Junk bond funds slid a tad lower & Treasuries were very heavily purchased, sharply reducing yields. Oil was off 1+ to the 76s following recent strength & gold gained 9 to 2480 (more on both below).
Dow Jones Industrials
Meta (META) shares jumped after the company reported 2nd-qtr earnings that beat expectations & offered a rosy revenue forecast. Revenue
in the period increased 22% to $39.1B from $32B a year
earlier. The forecast expected revenue of
$38.3B. EPS soared to $5.16 from $2.98 in the same period last year, reflecting
hefty cost-cutting initiatives that started in late 2022. The company
was expected to report EPS of $4.73. For the 3rd
qtr, META expects revenue of $38.5 - $41B, or $39.75B at the middle of the range, topping the estimate of $39B. CEO Mark Zuckerberg & CFO Susan Li said that the company’s heavy spending on artificial intelligence is already paying off. “The
ways that it’s improving recommendations and helping people find better
content, as well as making the advertising experiences more effective, I
think there’s a lot of upside there,” Zuckerberg said. “Those are already products that are at scale. The AI work that
we’re doing is going to improve that.” META said capital expenditures for the year will be $37-40B. The low end of the range had previously been $35B. The stock jumped 22+ to 497.
Meta shares pop 6% on earnings beat, rosy revenue forecast
Mortgage rates decreased a bit this week, remaining uncomfortably high for many would-be buyers but hitting their lowest point in months. Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage fell to 6.73% this week from 6.78% last week. The average rate on a 30-year loan was 6.90% a year ago. "Mortgage rates declined to their lowest level since early February," said Sam Khater, Freddie Mac's chief economist. "Expectations of a Fed rate cut coupled with signs of cooling inflation bode well for the market, but apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind." The average rate on the 15-year fixed mortgage dropped to 5.99% from 6.07% last week. One year ago, the rate on the 15-year fixed note averaged 6.25%.
2 separate data releases highlighted signs of softening in the economy as the Federal Reserve mulls over when to cut interest rates. Weekly jobless claims once again rose more than expected last week in the latest sign of a cooling labor market. New data from the Dept of Labor showed 249K initial jobless claims were filed last week, up from 235K the week prior and the highest level since Aug 2023. Meanwhile, the latest reading on activity in US manufacturing showed the sector sank further into contraction during Jul. The ISM's manufacturing PMI registered a reading of 46.8 in Jul, down from Jun's reading of 48.5 & the lowest reading since Nov 2023. “Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions," Institute for Supply Management chair Timothy Fiore said. The weaker-than-expected economic data sent the 10-year Treasury yield down about 12 basis points to 3.98%. This marked the first time the 10-year yield has fallen below 4% since Feb. Meanwhile, all 3 of the major stock indices turned lower. The data comes less than 24 hours after the Fed held interest rates steady at the conclusion of its latest policy meeting. Chair Jerome Powell noted the central bank is still seeking further confidence in inflation's path lower but also acknowledged a Sep interest rate cut "could be on the table." Powell noted the Fed is now more attentive to not only the risk of inflation not falling, but also the risk of unemployment continuing to tick higher. For now, Powell said the Fed still believes the labor market is in the process of a "gradual normalization." "If we start to see something that looks to be more than that, then we're well positioned to respond," Powell added. The concern among economists remains that there are already signs of slowing in the labor market that warrant a closer look from the Fed. In the ISM report, the employment index tumbled to a reading of 43.4 in Jul, down from 49.3 in Jun. Capital Economics North America economist Thomas Ryan wrote that the decline in the employment index will likely "raise some eyebrows." He added, "It suggests there is a risk that the labour market softens beyond the normalisation we have already seen." Investors appeared to agree with Simons, as markets are now pricing in a 20% chance of a 50-basis-point interest rate cut in Sep, nearly double the odds seen just a day prior, per the CME FedWatch Tool.
New data exposes flaws in economy as Fed weighs rate cut
Gold prices have rallied to fresh record highs 3 times in less than 3 weeks, topping $2500 an ounce at their peak, with the potential to rise even further as the precious metal's distinction as a "protective asset" continues to take hold. Gold for Dec climbed $7 to settle at $2480 an ounce after trading as high as $2506 during the session to touch a new record intraday high. Prices had previously climbed to intraday records on Jul 17 & Jul 31. Geopolitical uncertainties surrounding the conflicts in Europe & the Middle East, coupled with continuing belligerence from China toward Taiwan & an increasingly ugly US presidential election, still encourage investors to seek to increase exposure to protective assets such as gold.
Gold keeps hitting fresh record highs
West Texas Intermediate (WTI) crude oil closed lower, as concerns over flagging China demand more than offset worries over rising Middle East tensions following the assassination of a leader of the Hamas militant group in Tehran a day earlier. WTI crude for Sep closed down $1.60 to $76.31 per barrel, after earlier touching $78.88. Oct Brent crude, the global benchmark, was last seen down $1.13 to $79.71. Weak demand from China, the #1 importer, is keeping oil prices in check, as the country's economy continues to sputter while the ruling Communist Party offers limited stimulus measures.
WTI Crude Oil Closes Lower as China Demand Worries Top as the Threat of a Spreading Middle East War
Investors are nervous because high interest rates may be pinching the economy. The reason for high interest rates is to slow the economy & that may what is happening now. To cope anxious investors are investing in gold & Treasuries, classical safe haven investments. Aug may be a difficult time for for investors.
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