Markets are slightly higher with the Fed decision on deck

Dow went up 189, advancers over decliners 4-3 & NAZ gained 58.  The MLP index was steady in the 293s & the REIT index fell 1 to the 411s.  Junk bond funds were mixed & Treasuries had a little selling, allowing yields to inch higher (more below).  Oil rose 1 to the low 71s with US crude supplies down a 4th straight week & gold pulled back 8 to 2653.

Dow Jones Industrials

US new vehicle sales are expected to rise next year to their highest level since 2019, led by lower interest rates & improving affordability, according to industry analysts.  Cox Automotive expects new light-duty vehicle sales to hit 16.3M in 2025, slightly higher than forecasts by S&P Global Mobility & Edmunds of roughly 16.2M sales next year.  Such sales would be up from expectations of 15.9 - 16M this year & mark the highest results since roughly 17M in 2019.  That would equate to a forecasted sales gain in new cars & trucks of 2.5% or less.  The increase is expected to be driven by a continuing “normalization” of vehicle inventories, incentives/discounts from automakers, & easing financing & loan rates.  “Consumers are still feeling the pinch, but the market has become a slightly friendlier place for car shoppers than it was at the start of the year,” Jessica Caldwell, Edmunds' head of insights, said.  One of the largest growth markets is expected to be entry-level & less expensive vehicles.  The industry has been dealing with years of elevated prices & lower inventories since the coronavirus pandemic.  Edmunds reports the average transaction price for new vehicles was $47K in 2024, a 0.8% decrease compared with $48K in 2023 & a 27.2% increase compared with $37K in 2019.  Another expected growth area remains electrified vehicles, including hybrids, plug-in hybrid & all-electric models.  All-electric vehicle sales in the US are forecast to set another record in 2024, with a total sales volume near 1.3M, according to Cox.  That would mark a roughly 8% market share, up from 7.6% compared with last year but lower than expectations of 10% earlier this year.  That’s despite a forecasted year-over-year decline in US EV leader Tesla's (TSLA) sales for the first time since 2014.

U.S. auto sales next year expected to be best since 2019

Mortgage rates moved markedly higher last week, causing overall mortgage demand to drop.  Total application volume fell 0.7% compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index (MBA), the first decline in 5 weeks.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) increased to 6.75% from 6.67%, with points remaining unchanged at 0.66 (including the origination fee) for loans with a 20% down payment.  That rate was just 8 basis points higher the same week 1 year ago.  The driver of the drop was refinance demand.  It fell 3% for the week but was still 41% higher than the same week one year ago.  While mortgage rates aren’t that much lower now than they were a year ago, it may be that refinance volume is so low in general that any slight move makes for a large comparison.  Applications for a mortgage to purchase a home increased 1% for the week & were 6% higher than the same week 1 year ago.  “Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis. Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market,” wrote Joel Kan, VP & deputy chief economist at the MBA.  Mortgage rates have been essentially flat to start this week, according to a separate survey from Mortgage News Daily, as the market awaits the Federal Reserve meeting today.  A rate cut is expected, but some analysts say it may be the last 1 for awhile.  “Markets know the Fed will cut and that the dot plot (aka rate outlook survey that’s updated 4 times per year and closely watched by bonds) will show a higher rate trajectory than September,” wrote Matthew Graham, COO at Mortgage News Daily.  “What we don’t know is how gloomy of a dot plot or how hawkish of a Powell the market is willing to accept.”

Mortgage demand drops for the first time in 5 weeks, after interest rates rise

Treasury yields were little changed, as investors awaited the Federal Reserve's latest interest rate decision & guidance on the outlook for the American economy & monetary policy from the central bank.  The yield on the 10-year Treasury was up by less than 1 basis points to 4.389% & the 2-year Treasury  yield was last roughly 3 basis points lower at 4.213%.  Yields & prices have an inverted relationship & 1 basis point is equivalent to 0.01%.  Investors are focusing on the next monetary policy move from the Federal Reserve, at 2 PM. ET.  Markets are widely anticipating the Fed to cut rates by a qtr point, in what would be its 3rd consecutive trim.  So far, the Fed has lowered rates by a combined 75 basis points after kicking the easing cycle off with a 50-basis-point cut in Sep & following up with a 25-basis-point reduction in Nov.  The Fed’s latest economic & interest rate projections are also set to be released & will give investors further hints about what could lie ahead in areas such as inflation, unemployment & the gross domestic product.  Traders are anticipating that the central bank will raise its inflation expectations & lower its projections for rate cuts next year.

Treasury yields are flat ahead of Fed rate decision

Stocks eyed a rebound, with the blue-chip Dow looking to snap its longest losing streak since 1978.  The Federal Reserve will take focus later with its latest interest rate decision.  The Dow's losing streak is its longest in nearly a ½-century (shown in the chart above), spoiling the mood of what has been a near-universal rip-roaring rally in 2024.  The blue-chip index has been left behind in a tech-focused bump lately.