Markets fall after weaker-than-expected consumer sentiment

Dow dropped 356, decliners over decliners 3-2 & NAZ retreated 123.  The MLP index slid 1+ to the 325s & the REIT index fell 1+ to the 409s.  Junk bond funds inched higher & Treasuries were purchased which lowered yields.  Oil was off 1+ to 71 & gold pulled back 12 to 2943.

Dow Jones Industrials

The US housing market continues to weaken, as potential buyers face stubbornly high mortgage rates, high prices & limited supply of listings.  Sales of previously-owned homes fell 4.9% in Jan from the prior month to 4.08M units on a seasonally-adjusted, annualized basis, according to the National Association of Realtors (NAR).  The forecast was expecting a 2.6% decline.  Sales were 2% higher than Jan 2024, but are still running at a roughly 15-year low.  This read is based on closings, so contracts likely signed in Nov & Dec when mortgage rates came down from over 7% to the 6% range.  "Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve," said Lawrence Yun, chief economist for the NAR.  "When combined with elevated home prices, housing affordability remains a major challenge."  There were 1.18M homes for sale at the end of Jan, an increase of 3.5% from Dec & 17% from Jan 2024.  Although inventory is gaining, it is still at a 3.5-month supply at the current sales pace & a 6-month supply is considered balanced between buyer & seller.  The average home for sale last month spent 41 days on the market, the longest since Jan 2020, pre-Covid.  Tight supply continues to pressure prices.  The median price of a home sold in Jan was $397K, up 4.8% from the year before & the highest price ever for the month of Jan.  All 4 regions tracked by NAR saw price gains.  About 15% of homes sold above list price, virtually unchanged from 16% in both the pervious month & the year-earlier period.  "More housing supply allows strongly qualified buyers to enter the market," Yun added.  "But for many consumers, both increased inventory and lower mortgage rates are necessary for them to purchase a different home or become first-time homeowners."  All-cash offers made up 29% of sales, which is historically high but down from 32% the year before.  First-time buyers are still struggling, accounting for 28% of sales.  That share is unchanged from a year ago, but is well below historical averages of about 40%.

Home sales drop sharply as prices hit an all-time high for January

Inflation is picking up again & Pres Trump said this week it’s all his predecessor’s fault.  But no matter who Trump blames for inflation, America's economic mood is now souring, Trump is getting the heat for it.  The University of Michigan's latest survey showed that US consumer sentiment declined in Feb for the 2nd consecutive month, according to a final reading, down by a steep 10% from Jan.  That was double the decline initially reported earlier this month.  It's a stunning about-face after American consumers & businesses grew hopeful about the economy's future following Trump’s election in Nov.  The latest decline in consumer sentiment was driven by worries over Trump's tariffs potentially jacking up prices.  A new poll yesterday similarly showed pessimism on the rise because of prices: Nearly 2/3 of US adults nationwide, 62%, said they feel Trump’s isn't doing enough to address inflation.  The Michigan survey showed that Americans are now fearful of higher inflation on the horizon.  On the campaign trail, Trump promised to “bring down prices, starting on Day One.”  Clearly, that didn't happen.  In Jan, consumer prices climbed at the fastest monthly pace since Aug 2023, increasing 0.5% from Dec.  Joanne Hsu, the Michigan survey's director, said that the broad decline was “in large part due to fears that tariff-induced price increases are imminent.”  But changes in sentiment are beginning to diverge based on political affiliation.  “While sentiment fell for both Democrats and Independents, it was unchanged for Republicans, reflecting continued disagreements on the consequences of new economic policies,” she said.

US consumer sentiment plunges over tariff and inflation fears

A trio of Federal Reserve officials said that while they still think inflation will cool over time to pave the way for more interest rate cuts as the most likely scenario, uncertainty surrounding Pres Trump's trade, immigration & other policies could lead to a different outcome.  Atlanta Fed Pres Raphael Bostic said that his "baseline expectation" is that central bank policymakers will be able to proceed with two 25 basis point cuts later this year, but "the uncertainty around that is pretty significant… There's a lot that could happen that could influence that in both directions."  Bostic isn't a voting member of the Federal Reserve's monetary policy-setting committee this year but told reporters he didn't think the US economy is facing a new burst of inflation & noted that with the unemployment rate at 4%, the labor market is healthy.  However, he added there is both enthusiasm & "widespread apprehension" among businesses about how new import taxes, immigration rules & regulatory changes will impact the economic outlook.  Pres Trump has issued several tariff threats against key trading partners like China, Canada & Mexico since taking office, as well as on imported automobiles, pharmaceuticals & semiconductors.  "In a nutshell, contacts are concerned that tariffs could increase costs," Bostic said.  "Many feel confident that if that happens, then they can pass along higher costs in their prices."  Stubborn inflation has kept the pace of price growth above the Fed's 2% target rate.  Consumer prices were up 3% on an annual basis in Jan, which was the fastest pace since last Jun.  Amid the economic uncertainty, the Fed left its benchmark federal funds rate at 4.25% - 4.50% at its last policy meeting & is expected to do so again at its next meeting on Mar 18-19 as policymakers look for clarity about the economic impact of Trump's policies.  Chicago Fed Pres Austan Goolsbee said that before the uncertainty surrounding economic policy & geopolitics increased, the overall inflation outlook "looked pretty good" compared to its 2022 peak.  He noted that the tariffs imposed by Pres Trump during his first term didn't have a material impact on inflation, in part because they were narrowly tailored & included enough exemptions that supply networks weren't affected.  But with Trump currently developing more broad-based & higher tariffs, Goolsbee said the inflation impact "depends on how many countries they are going to apply to and how big they are going to be. And the more it looks like a COVID-sized shock, the more nervous you should be about that."

Fed officials flag rising inflation risks amid uncertainty over Trump policies, tariffs

Stocks were sold even as 2 of the major indices are booking record wins for the week.  Pres Trump's tariffs continue to leave retailers & consumers stumped by what will be impacted in the coming months.  Walmart's (WMT) warning on its 2025 outlook sparked a broad market downturn yesterday & the company cited tariff uncertainty as 1 factor.  Also comments on consumer sentiment & Fed officials (above) stocked inflation fears.