Markets slide ahead of Fed decision

Dow went up 71, advancers barely ahead of decliners & NAZ was off 112.  The MLP index added 2+ to the 322s & the REIT index fell 2+ to 401.  Junk bond funds hardly budged & Treasuries had limited buying, letting yields slip lower (more below).  Oil slid lower in the 73s & gold was steady at 2767.

Dow Jones Industrials

Treasury yields were lower as investors awaited the Federal Reserve's first interest rate decision of 2025.  The 10-year Treasury yield declined by 2 basis points to 4.53%, while the 2-year Treasury was marginally lower to 4.203%.  One basis point is equal to 0.01%, & yields & prices move in opposite directions.  Investors are keenly anticipating the Fed's interest rate decision following the central bank's meeting which took place yesterday & today, & the results of which will be released later.  Expectations for an interest rate cut remain low, with traders pricing in a nearly 100% chance that the Fed will keep rates steady at a target of 4.25% - 4.5%.  Pres Trump, who Powell has a contentious relationship with, dating back to Trump's first term has already said that he will “demand that interest rates drop immediately,” during a speech at the World Economic Forum in Davos, Switzerland last week.  “The Fed must follow its legislative mandate,” former Kansas City Fed Pres Esther George said.  “Congress has told us it is to bring prices to a low and stable level. In the long run, this institution has to think about those objectives rather than be swayed by outside commentary and political pressure that will come its way, as it has for its entire existence.”

Treasury yields fall as investors await Fed’s interest rate decision

US railroad operator Norfolk Southern (NSC) posted a quarterly profit that beat estimates, helped by cost cuts implemented to improve margins & better-than-expected insurance recoveries related to a costly derailment.  NSC had taken a hit of about $1.4B in last 2 years due to a derailment in Eastern Ohio in 2023 that released over 1M gallons of hazardous materials & pollutants near the state's border.  NSC implemented voluntary & involuntary job cuts last year that helped offset some of that impact.  Insurance recoveries related to the accident exceeded expenses by $43M in the 4th qtr.  The company reported operating revenue of $2.8B for the qtr ended Dec 31, up 2% from a year earlier.  It reported an adjusted operating ratio of 64.9%, representing a 390-basis-point improvement from a year ago.  The ratio is a keenly watched metric that indicates operating expenses as a percentage of revenue.  A higher operating ratio reflects an increase in costs, suggesting lower profitability.  EPS was $3.04 for the qtr, above estimates of $2.95.  Total revenue fell 2% to $3B & analysts expected revenue of $3.02B.  The stock rose 8.41 (3%).

Norfolk Southern beats profit estimates helped by cost cuts, insurance recovery

Mortgage rates didn't move last week, but demand for new home loans continued to weaken.  Both homebuyers & current homeowners are hampered by today's higher interest rates.  Total mortgage application volume decreased 2% from 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) remained unchanged at 7.02%, with points increasing to 0.63 from 0.62 (including the origination fee) for loans with a 20% down payment.  Applications to refinance a home loan dropped 7% for the week & were 5% higher than the same week 1 year ago.  Interest rates are now 24 basis points higher than they were a year ago, so there are precious few who can benefit.  The vast majority of homeowners have mortgages with rates well below what is being offered today.  Applications for a mortgage to purchase a home fell 0.4% from 1 week earlier & were 7% lower than the same week 1 year ago.  “Purchase activity decreased slightly, but applications for FHA purchase loans were a bright spot, increasing by 2 percent,” said Joel Kan, VP & deputy chief economist at the MBA.  “New and existing-home sales ended 2024 on a strong note, and if mortgage rates continue to stabilize and for-sale inventory loosens, we expect a gradual pick up in purchase activity in the coming months.”  Mortgage rates have not moved much to start this week either, & today's Federal Reserve meeting is not expected to bring any surprises or tradeable news.  “Even [Fed Chair Jerome] Powell would be hard pressed to shake things up too much considering the mildly positive cue from inflation data and the ongoing policy uncertainty as a counterbalance,” wrote Matthew Graham, COO at Mortgage News Daily.  “That said, one can never truly rule out a volatile reaction to a Powell presser, but the odds are certainly lower this time around.”

Mortgage demand drops further, even as interest rates settle

Tech led stocks lower as the broader mood stayed muted ahead of the first Big Tech earnings & the Federal Reserve's interest rate decision.  The looming Fed policy verdict is providing reason for markets to tread carefully, even though the central bank is expected to stand pat on interest rates.  Investors will listen for answers to 2 key questions at Fed Chair Jerome Powell's press conference: How much further will the Fed cut rates & has the central bank changed its stance in light of Pres Trump's early tariff moves?