Dow slid back 30, advancers over decliners 2-1 & NAZ dropped 196. The MLP index was up 3+ to the 309s & the REIT index rose 4+ to 441. Junk bond funds edged higher & Treasuries had more buying which lowered yields. Oil crawled higher taking it into the 69s & gold bounced back 23 to 2669.
Dow Jones Industrials
An inflation gauge closely watched by Federal Reserve policymakers ticked higher in Oct, though it remains near the Fed's inflation target. The Commerce Dept reported that the personal consumption expenditures (PCE) index rose 0.2% in Oct & 2.3% year over year. Those figures were in line with the estimates. Core PCE, which excludes volatile food & energy prices, rose 0.3% for the month & increased 2.8% from a year ago, in line with estimates. The Federal Reserve is focusing on the PCE headline figure as it tries to bring back the pace of price increases back to 2%, although policymakers view the core data as a better indicator of inflation. Headline PCE was up from 2.1% in Sep & equaled the 2.3% reading from Aug, suggesting that inflation ticked slightly higher, while the core PCE was little changed from last month. The headline PCE data showed that prices for goods were down 1% from a year ago, while prices for services were up 3.9% in that timeframe. Food prices were up 1% while energy prices decreased 5.9% compared with last Oct. Wages & salaries were up 0.5% in Oct compared with last month, a slightly higher growth rate than the 0.4% reading in Sep. That follows monthly wage & salary growth of 0.5% in Aug & 0.4% in Jul, which were notably higher than the preceding 3 months, which were close to zero. The personal savings rate as a percentage of disposable income was 4.4% in Oct, up slightly from the 4.1% measurement last month, though it's down from the roughly 5% level it was at this spring.
Fed's favored inflation gauge showed price growth picked up in October
Treasury yields slid as a key inflation reading met expectations. The yield on the 10-year Treasury fell more than 3 basis points to 4.27% & the 2-year Treasury yield dipped 2 basis points to 4.23%. 1 basis point is equal to 0.01% & yields & prices move in opposite directions. On the data front, initial US jobless claims fell 2K to 213K last week, a sign that the US labor market remains tight. The forecast expected claims to come in at 215K. A summary of the Fed's meeting minutes from Nov, with Fed officials expressing confidence that inflation is easing & that further interest rate cuts will happen at a gradual pace. “In discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time,” the minutes said. Traders are pricing in a 66% chance that the Fed will cut rates by a qtr point in its next meeting, in Dec, with 33% expecting no change.
10-year Treasury yield slides as key inflation report is as expected
Mortgage rates dropped last week & homebuyers jumped off the fence. They drove total mortgage demand up 6.3% compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) decreased to 6.86% from 6.90%, with points remaining unchanged at 0.70, including the origination fee, for loans with a 20% down payment. While the drop in rates wasn't huge, there was a fair amount of pent-up demand among homebuyers. Some were waiting until after the election, some for lower rates & some for more supply. All of those are now done. Applications for a mortgage to purchase a home increased 12% from the previous week & were 52% higher than the same week 1 year ago. Last year at this time mortgage rates were higher, but falling. The supply of homes for sale, however, was extremely tight. It has improved markedly this year. “With the growth in for-sale inventory and signs that the economy remains strong, buyers have remained in the market even though rates have increased recently. The increase in conventional purchase applications helped push the average purchase loan size to $439,200, its highest level in almost a month,” Joel Kan, an MBA economist, said. Applications to refinance a home loan dropped 3% for the week but were 119% higher than the same week one year ago. Those annual comparisons, though, have a glitch. “The decline in refinance activity was driven by pullbacks in FHA & VA refinances. Applications were significantly higher than a year ago by most measures, but this was compared to the week of Thanksgiving 2023, which was a week earlier than this year’s holiday,” noted Kan.
Homebuyer demand for mortgages jumps 12% after first interest rate drop in over 2 months
Stocks diverged as investors digested fresh data that showed inflation made little progress toward the Fed's 2% target in Oct. The mood is muted in the wind-down to the Thanksgiving holiday, which
will see markets shut tomorrow & close early on Fri. Not getting a lot of attention, Dow is up a staggering 3K in Nov, i.e. the Trump rally.
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