Wednesday, October 30, 2024

Markets struggle to advance while gold is bid higher to new records

Dow was off 91 (session lows), advancers over decliners about 5-4 & NAZ fell 104.  The MLP index remained in the 282s & the REIT index added 1+ to the 429s.  Junk bond funds were flat & Treasuries had only a small amount of buying which kept yields little changed.  Oil was up 1+ to the 68s & gold surged 18 to 2799 for another record close (more on both below).

Dow Jones Industrials 

Signed contracts to buy existing homes in Sep jumped a surprising 7.4% compared with Aug, according to the National Association of Realtors.  The forecast had been expecting about a 1% gain.  These pending sales were at the highest level since Mar & 2.6% higher than Sep of last year.  Since pending sales are based on signed contracts, representing people out shopping during the month, it is the most current indicator of buyer demand.  It also shows just how sensitive today's buyers are to mortgage rates.  The average rate on the 30-year fixed mortgage was coming down all through Aug & touched its most recent low of 6.11% on Sep 11, according to Mortgage News Daily.  It stayed around that level for the rest of the month before shooting higher in Oct & is now just over 7%.  “Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” said Lawrence Yun, chief economist for the Realtors.  “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”  Regionally pending sales were higher year over year in the Northeast & West & flat in the Midwest & South.  Overall, the gains were biggest in the West, where home prices are the highest & buyers would benefit most from even a small drop in rates.  With higher rates, affordability is taking a hit once again.  Mortgage demand from homebuyers, however, still saw gains last week & was 10% higher compared with the same week 1 year ago, according to the Mortgage Bankers Association.  The levels of mortgage demand are still historically low, & sales, while higher, are as well.

Pending home sales took an unexpected leap higher last month

Eli Lilly (LLY) fell short of profit & revenue expectations for the 3rd qtr, weighed down by disappointing sales of its blockbuster weight loss drug Zepbound & diabetes treatment Mounjaro, & slashed its full-year adjusted profit guidance.  LLY expects full-year adjusted earnings of $13.02 - $13.52 per share, down from previous guidance of $16.10 - $16.60 per share.  The drugmaker cited a $2.8B charge recorded during the 3rd qtr & related to its acquisition of bowel disease drugmaker Morphic Holding as denting its results.  The company also lowered the high end of its revenue outlook for the year & now expects sales of between $45.4- 46B.  Its previous guidance called for revenue of as much as $46.6B.  The Sep period was Zepbound's 3rd full qtr on the US market after winning approval from regulators nearly a year ago.  The weekly injection raked in $1.26B in sales for the period, below the $1.76B that was expected.  Meanwhile, Mounjaro posted $3.1B in revenue for the 3rd qtr, more than double what it booked in the same period a year ago.  But the forecast expected $3.77B.  CEO David Ricks said the 3rd-qtr performance of Zepbound & Mounjaro “is not a function of supply.”  The company said 3rd-qtr sales of the drugs were negatively impacted by inventory decreases among wholesalers.  Supply increases allowed LLY to fulfill back orders for wholesalers in the 2nd qtr, which led to increased inventory of Zepbound & Mounjaro during the period.  Those wholesalers tapped into some of that existing stock in the 3rd qtr instead of buying more from the company, which dampened revenue from both treatments.  Demand in the US has far outpaced supply for its incretin drugs, such as Zepbound & Mounjaro, over the last year.  Both treatments mimic certain gut hormones to tamp down a person's appetite & regulate their blood sugar.  The stock tumbled 56+ to 846.

Eli Lilly stock tumbles after drug giant misses estimates and slashes profit guidance

Super Micro Computer stock (SMCI) cratered after a filing revealed accounting firm Ernst & Young (EY) has resigned from its relationship with the tech company.  In the resignation letter, EY said: “We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations.”  EY quit while conducting the audit for SMCI's fiscal year that ended on Jun 30, 2024.  In the 8-K SEC filing, SMCI said it "disagrees" with EY's decision & is "working diligently to select new auditors."  "The Company does not expect that a resolution of the matters raised by E&Y or those under consideration by the previously announced Special Committee of the Board will result in any restatements of its quarterly financial results for the fiscal year ended June 30, 2024, or for prior fiscal years," Super Micro added.  SMCI stock plunged 16 (33%).

Super Micro stock plunges after auditor resigns

Gold topped $2800 an ounce for the first time, but 1 analyst warned that the upward movement for prices may be "limited" going forward as strength in Treasury bond yields is a reminder to investors of the high opportunity cost of the non-yielding precious metal.  The precious metal's "allure is further evidenced by the resumption of net inflows" into bullion-backed exchange-traded funds & record global demand, citing a report from the World Gold Council (WGC).  The report said total gold demand, including over-the-counter, or OTC, investments that are not made on a central exchange, climbed by 5% year over year to 1313 metric tons in the Jul-Sep period.  That's a record for the 3rd qtr.  It also said global gold demand based on value topped $100B for the first time.  Gold prices tend to decline when the $ & Treasury yields strengthen, but it has actually climbed along with them in recent weeks, bucking its usually inverse relationship.  A stronger $ can be a negative for gold, which is priced in the unit, making it more expensive to users of other currencies.  Higher Treasury yields, meanwhile, raise the opportunity cost of holding assets, such as gold, that don't pay interest.  Today, the most-active Dec futures contract touched a high of $2801 before settling at an all-time high of $2800, up $19 (0.7%) for the session.  This settlement & intraday high topped the previous records set just a day earlier.

Gold prices break a new record, but may be near a peak

Oil prices rebounded, rising more than 2% after data showed US crude.  Gasoline inventories fell unexpectedly last week & a report that OPEC+ may delay a planned oil output increase.  After falling more than 6% earlier in the week on the reduced risk of wider Middle East war, Brent crude futures settled up $1.43 (2.0%) at $72.55 a barrel & West Texas Intermediate crude rose $1.40 (2.1%) to $68.61.  US gasoline stockpiles fell unexpectedly last week to a 2-year low on strengthened demand, the Energy Information Administration (EIA) said, while crude inventories also posted a surprise drawdown as imports slipped.  US imports of crude oil from Saudi Arabia fell to their lowest point last week since Jan 2021, at just 13K bpd, down from 150K bpd the previous week.  Crude imports from Canada, Iraq, Colombia, Brazil all slipped on the week, the EIA said.  The most supportive element was gasoline inventories drawing amid higher implied demand week-on-week.  OPEC+, which groups the Organization of the Petroleum Exporting Countries & allies such as Russia, could delay a planned oil production increase in Dec by a month or more because of concern over soft oil demand & rising supply.

Oil rises as sources say OPEC+ may delay planned drawdown

Stocks were mixed as earnings boosted optimism for Big Tech results.  Meanwhile, crucial GDP & labor market data continued to add data pieces to the Federal Reserve's puzzle ahead of its next interest rate decision next week.  Amid all the news coming out, gold soared to another record, reaching 2800.  Some investors remain nervous about the future of the sock market's rally.

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