Markets struggle to advance while Treasury yields continue to rise

Dow recovered a meager 15 (session lows), decliners over advancers less than 3-2 & NAZ lost another 19.  The MLP index added 1+ to 288 & the REIT index was off another 3+ to the 392s.  Junk bond funds continued mixed & Treasuries saw more selling which brought higher yields.  Oil slid to just under 70 & gold dropped 40 to 2612 (more on both below).

Dow Jones Industrials 

House Rep leaders are running out of time to avoid a partial gov shutdown tomorrow night, after Pres-elect Trump & his allies sunk a compromise bill to fund the gov thru Mar.  The continuing resolution unveiled last night appeared early on as though it would need Dem votes to pass the narrowly divided House, after hard-line conservatives balked at the price tag & several provisions of the bill, which included a pay bump for members of Congress.  But Trump's formal opposition to the bill late yesterday came only after billionaire GOP megadonor Elon Musk spent the day railing against the bill, gradually making it politically impossible for much of the House Rep conference to support it.  The very public collapse of the massive, negotiated bill has also put House Speaker Mike Johnson's standing among his conference in jeopardy.  The Louisiana Rep insisted on including several major spending initiatives in the bill, designed in part to win the necessary Dem support in the Senate the bill will need to become law.  Rather than simply demanding a lower price tag, Trump surprised many Reps yesterday by demanding that any bill to fund the gov must also raise the debt ceiling.  The debt ceiling has become a recurring, bitter debate every few years & 1 that Trump is eager to avoid during the start of his 2nd term.  “Increasing the debt ceiling is not great but we’d rather do it on Biden’s watch,” Trump said announcing his opposition to Johnson's continuing resolution.  “If Democrats won’t cooperate on the debt ceiling now, what makes anyone think they would do it in June during our administration? Let’s have this debate now. And we should pass a streamlined spending bill that doesn’t give Chuck Schumer and the Democrats everything they want.”

House Republicans race to find a Trump-backed path to avoid government shutdow

Mortgage rates climbed this week, sending overall demand lower as more Americans balked at refinancing.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage jumped to 6.72%, up from last week's reading of 6.6%.  The average rate on a 30-year loan was 6.67% a year ago.  "This week, mortgage rates crept up to a similar average as this time in 2023," said Sam Khater, Freddie Mac's chief economist.  "For the most part, mortgage rates have moved between 6 and 7 percent over the last 12 months. Homebuyers are slowly digesting these higher rates and are gradually willing to move forward with buying a home, resulting in additional purchase activity."  The average rate on the 15-year fixed mortgage climbed to 5.92% from 5.84% last week.  1 year ago, the rate on the 15-year fixed note averaged 5.95%.  The Mortgage Bankers Association (MBA) yesterday reported that mortgage applications fell 0.7% overall on a seasonally adjusted basis from a week earlier thanks to the increase in rates, which caused a 3% drop in refinancing applications.

Mortgage rates rise, hitting demand

VIX, the fear gauge, spiked by the 2nd biggest percentage in its history yesterday, after the Federal Reserve jolted the stock market by saying it would dial back its rate-cutting campaign.  The CBOE Volatility Index surged 74% to close at 27.62, up from around 15 earlier in the day.  That surge is the 2nd-greatest in history, behind a 115% leap to above the 37 handle back in Feb 2018 when there was a blow-up in funds tracking the volatility index.  Yesterday's move comes after the central bank said it will likely lower interest rates just twice next year, down from the 4 cuts it projected back in Sep, alarming investors who wanted low rates to keep fueling the bull market.  The Dow tumbled by 1100 points to its 10th straight loss.  Typically, a value greater than 20 in the VIX indicates a higher level of fear in the market.  However, for most of this year, the VIX had been suppressed below that level, worrying investors who believed the market had gotten overly complacent.  The VIX is calculated based on the prices of put & call options on the S&P 500.  A spike could indicate a rush by investors to purchase put options for protection in a decline.  Still, there has been 1 other significant surge in the VIX in 2024.  The 3rd-biggest surge in the VIX in history occurred in Aug 5, 2024, when fears of a US recession & a major unwind in the ¥ carry trade, spurred a roughly 65% increase in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day.  Today, the VIX was last floating just above the 20 handle, down more than 25% from the prior day.

Wall Street’s fear gauge, the VIX, saw second-biggest spike ever Wednesday

Gold prices traded around flat, erasing earlier gains after US data reinforced market expectations the Federal Reserve will take a cautious approach to policy easing in the year ahead.  Spot gold edged up 0.1% at $2589 per ounce & US gold futures fell 1.9% to $2603.  Data earlier showed the US economy growing faster than expected in the 3rd qtr, while jobless claims also fell more than anticipated.  The GDP information & the jobless claims are showing that the data is fairly firm.  A solid economy & inflationary risks, including tariffs & spending cuts, reaffirm the Fed has little reason to be aggressive, which historically has not been good for non-yielding gold.  Gold slipped more than 2% to a 1-month low earlier in the session after Fed officials dialed back projections for future easing given stubborn inflation.  The drop attracted investors to buy, sending prices as much as 1.5% higher earlier in the session.  Pres-elect Trump's pre-inauguration push to sway Congress threatens to complicate efforts to avoid a gov shutdown, potentially disrupting services such as air travel & law enforcement ahead of the holidays.  Gold is considered a safe investment option during economic & geopolitical turmoil, & tends to thrive in a low-interest-rate environment.

Gold erases gains after U.S. data cements Fed's hawkish stance

Oil futures held on to the previous day's gains with attempts at a move lower held back by increased geopolitical risk premium on reports that Ukraine fired US-supplied long-range missiles into Russia days after the US authorized their use, raising concerns of an escalation in the conflict.  Bearish views of the global supply & demand situation continue to cap rallies.  With China finding it difficult to get back on a growth trajectory north of 5% & the US & Europe undergoing a cyclical slowdown, crude oil demand in 2024 & 2025 is set to grow at barely ½ of the 2M b/d pace seen over the 2022-2023 post-pandemic period.  WTI settled up 0.3% at $69.39 a barrel & Brent is flat at $70.31 a barrel.

Oil Futures Hold Gains in Volatile Session

Stocks rebounded from the previous day's sell-off that was fueled by a hawkish outlook from the Federal Reserve on its path for interest rates.  Markets are bouncing back after that harsh reaction, which was prompted by the Fed scaling back the number of rate cuts it expects next year & Chair Jerome Powell saying the decision, cutting rates by a qtr point, was a "closer call."  That was interpreted the Fed's moves as a "hawkish cut" & reacted accordingly, sending stocks to the worst day in years.  Today's recovery was very weak while the advance decline measure was negative.  Yields are rising & that is troubling for investors.