Dow dropped 410, decliners over advancers better than 3-1 & NAZ retreated 436. The MLP index fell 2+ to the 279s & the REIT index was off about 1 to the 426s. Junk bond funds were mixed & Treasuries had limited buying which brought lower yields. Oil was down 1+ to the 67s & gold dropped 18 to 2525 (more on both below).
Dow Jones Industrials
Federal Reserve Governor Christopher Waller backed an interest rate cut at the upcoming central bank policy meeting in less than 2 weeks & indicated he'd be open to a substantial reduction if necessary. “Considering the achieved and continuing progress on inflation and moderation in the labor market, I believe the time has come to lower the target range for the federal funds rate at our upcoming meeting,” Waller said. Other policymakers recently have advocated easing policy soon, but this is 1 of the clearest indications it will happen at the Sep 17-18 Federal Open Market Committee meeting. Waller repeated verbiage that Fed Chair Jerome Powell used in late Aug, that the “time has come” for adjustments to monetary policy. “Determining the pace of rate cuts and ultimately the total reduction in the policy rate are decisions that lie in the future,” Waller added. He noted that he is “open-minded about the size and pace of cuts” & said, “If the data suggests the need for larger cuts, then I will support that as well.” His remarks followed a weaker-than-expected nonfarm payrolls report today that added to the belief that the pace of hiring is weakening. The Labor Dept reported job growth of 142K, higher than Jul but still below the 161K forecast. Waller did not specify how much he thinks the Fed should cut or how frequently. But he said he is open to the possibility that it may need to be aggressive in keeping the labor market afloat as inflation moderates toward the central bank’s 2% goal. He noted that if the labor market deteriorates more quickly than expected, the Fed should react with larger cuts, which he said would lead to “a greater likelihood of achieving a soft landing.” “Furthermore, I do not expect this first cut to be the last. With inflation and employment near our longer-run goals and the labor market moderating, it is likely that a series of reductions will be appropriate,” he added.
Fed Governor Waller backs interest rate cut at September meeting, open to larger move
The supply of homes for sale is still low by historical standards, but it is rising quickly. Nationwide, active listings in Aug were up 36% compared with the same month last year, according to a new report from Realtor.com. That was the 10th straight month of annual growth. Supply is still, however, 26% lower than in Aug 2019, pre-pandemic. As inventory grows, sellers are pulling back. There were fewer new listings in Aug (-1%) than there were the year before. The growth in supply is due to the fact that homes are sitting on the market longer. “This August, as the number of homes on the market continues to climb, price cuts are more common, asking prices are moderating, and homes are taking longer to sell,” wrote Danielle Hale, chief economist at Realtor.com, in a release. “The widely anticipated Fed rate cut has already ushered in lower mortgage rates, but it seems that some buyers and sellers are waiting for additional declines.” That can be seen in weekly mortgage data. Applications for loans to buy a home are down about 4% compared with this time last year, according to the Mortgage Bankers Association. This, even though the average rate on the 30-year fixed mortgage is about 75 basis points lower now than it was then. While supply is increasing in most cities, some are seeing huge gains. Tampa, Florida’s inventory is up more than 90% compared with a year ago. San Diego is up 80%, Miami is up 72%, Seattle is up 69% & Denver is up 67%. More supply is causing homes to sit for sale longer. The typical home spent 53 days on the market in Aug, an increase of 7 days from a year ago & the slowest Aug pace in 5 years. “We have found that the market slows by about one day for every 5.5 percentage point increase in the year-over-year number of active listings,” said Ralph McLaughlin, senior economist at Realtor.com. “Given the rapid growth in inventory we’re seeing now, that can mean changes in some markets of up to 15-20 more days on the market than last year.” More supply & longer selling times are finally translating into lower prices. The share of homes with price reductions rose in Aug to 19%, up 3 percentage points from the prior Aug. The median list price was down 1.3% year over year. Part of that is due to the mix of homes on the market, as more smaller homes are being listed. Prices are still 36% higher than Aug 2019.
Home listings are up more than 60% in some cities
Broadcom's (AVGO) shares sold off, after
the chipmaker's tepid revenue forecast spooked investors betting on
robust demand for AI chips to drive strong growth. Chipmakers
are bearing the brunt of lofty expectations after a
months-long rally in the shares of semiconductor firms, as investors bet
heavily on the hardware that supports generative AI technology. AVGO
posted big declines in revenues from its broadband & non-AI
networking divisions, while a hike in its forecast for AI
chip sales failed to impress growth-hungry investors who have driven a
more than 35% increase in its shares so far this year. The
company increased its sales forecast for AI chips by $1B for the
fiscal year ending Oct to $12B, in line with
widespread expectations. Artificial
intelligence-linked chips are still a bright spot for the company, as Big
Tech invests in the datacenter infrastructure necessary to move around
the hoards of data used by AI models. However, its custom
AI chip business could see lumpy growth due to its dependence on a
limited number of customers spending large amounts of capital. Revenue from its semiconductor segment, which supplies products
for data centers & networking, grew 5% year-on-year in the qtr
ending Jul, but just 1% from the previous qtr. The stock sank 15.83 (10%).
Broadcom shares slump as revenue target disappoints investors hoping for big AI boost
Gold prices eased, retreating from near-record levels reached earlier in the session, after mixed US jobs data cast doubts on the scale of interest-rate cut from the Federal Reserve later this month. Spot gold fell 0.8% to $2495 per ounce, having hit its highest since Aug 20, when gold last scaled a record peak. US gold futures settled 0.7% lower at $2524. A Labor Dept report showed non-farm payrolls rose by 142K in Aug, compared with estimates of 160K. Jul numbers were also revised down to 89K. However, the unemployment rate stood at 4.2%, in line with expectations, but down from 4.3% a month earlier. Traders currently see a 73% chance of a 25-basis-point reduction by the central bank this month & a 27% chance of a 50-bp cut, according to the CME FedWatch tool. Fed New York Pres John Williams said lowering rates soon will be about helping keep the job market balanced. Federal Reserve Governor Christopher Waller also said "the time has come" for the central bank to begin a series of interest rate cuts, adding that he is open-minded about the size & pace of those reductions. Lower interest rates reduce the opportunity cost of holding the zero-yield bullion.
Gold Drops from Near-Record Level as US Jobs Data Blurs Rate Outlook
Oil posted its biggest weekly drop in 11 months as a weak US jobs report added to concerns about tepid demand in the world's largest consumer of crude. West Texas Intermediate fell 2.1% to settle at $67.67 a barrel, cementing the biggest weekly plunge since Oct 2023. While the US jobs data increased speculation that the Fed may make a super-sized interest rate cut, it also bolstered the narrative of flagging oil consumption that has weighed on crude prices for weeks. Recent moves to restrict supplies have failed to arrest crude's decline. While the OPEC+ coalition this week scrapped a plan to boost output by 180K barrels a day in Oct & Nov, a longer-term plan to revive 2.2M barrels a day over the course of a year remained in place, with the completion date pushed back 2 months to Dec 2025. Brent futures have trended lower since early Jul, with weakness in the economies of China & the US, the top 2 oil consumers, stoking fears about demand. Crude production in the world's largest economy has also steadily risen in recent years, adding supply pressure to global balances. The upshot is that even the OPEC+ delay & an almost 7M-barrel weekly drop in US crude inventories have failed to significantly push up oil prices. Next week's monthly market outlooks from OPEC, the Energy Information Administration & the Intl Energy Agency will be closely watched. WTI for Oct fell 2.1% to settle at $67.67 a barrel & Brent for Nov slid 2.2% to settle at $71.06.
Oil Sinks as Weak US Jobs Report Adds to Concerns About Demand
The stock market began the month with a very ugly week with the Dow dropping a big 1218. Tech stocks after leading the rally this year, also led the decline when AI stocks lost their sex appeal in recent weeks. When Fed officials talk about interest rate cuts is being ignored, stocks (risk investments) are in trouble. The Fed meeting will take on major importance in a couple of weeks.
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