Dow went up 75, advancers modestly ahead of decliners & NAZ dropped 24. The MLP index stayed in the 216s & the REIT index fell 3+ to the 397s. Junk bond funds slid lower & Treasuries had more selling, raising yields (more below). Oil slid back to the 84s & gold was flattish in 1683.
AMJ (Alerian MLP index tracking fund)
Treasury yields climbed as traders anticipated the Federal Reserve's next moves in the face of persistently high inflation. The benchmark 10-year Treasury yield gained 6 basis points to 3.518%, hitting its highest level since 2011 & the yield on the 2-year Treasury bond rose 8 basis points to trade at 3.94%, trading around levels not seen since 2007. Yields move opposite to prices. One basis point is equivalent to 0.01%. The Fed's 2-day meeting will begin tomorrow, with most market participants expecting another 75-basis-point hike by the central bank. Some have, however, argued the Fed could increase interest rates by a full point, or 100 basis points. It comes after inflation rose more than expected in Aug. The consumer price index increased 0.1% for the month & 8.3% over the past year — higher than economists expected. The data has led investors to expect the Fed to double down on higher interest rates for longer, until prices fall.
10-year Treasury yield jumps to 3.51%, the highest level since 2011
Confidence among builders in the US housing market plunged more than expected in Sep to the lowest level since the beginning of the COVID-19 pandemic as painfully high inflation & rising borrowing costs forced potential buyers to pull back. The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the 9th consecutive month to 46, marking the worst stretch for the housing market since the 2008 financial crisis. Any reading above 50 is considered positive; prior to this year, the gauge has not entered negative territory since a brief – but steep – drop in May 2020. The index has fallen considerably from just one year ago, when it stood at 76. It peaked at a 35-year high of 90 in Nov 2020, buoyed by record-low interest rates at the same time that American homebuyers – flush with cash & eager for more space during the pandemic – started flocking to the suburbs. "Builder sentiment has declined every month in 2022," NAHB chief economist Robert Dietz said. "And the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy f9om the Federal Reserve." Aug's reading was below expectations for a decline to 47 from last month's recording of 48.
Homebuilder sentiment tumbles for ninth consecutive month
Recent extreme temperatures in California & years of prolonged drought has created a bone-dry landscape in states across the country, ravaging crops & causing them to die off. Some farmers & economists are now warning that consumers are going to soon see price hikes for certain items & less food on store shelves. With nearly ½ of the western region of the US experiencing severe drought conditions, according to the National Drought Mitigation Center & almost every area now classified as abnormally dry, some farmers are planting less while some ranchers are having to sell off cattle early & purchase less. "You can’t all of a sudden cut your income in half, especially when most of your costs continue to stay there and continue to do that year over year," rancher Stan Van Vleck said. Soaring prices are also impacting farmers across the country, forcing some to fold & sell their farms. For farmers like Van Vleck, he’s having to scale back his operation. "After a few years, people will end up having to sadly sell their business and go out of business, and that’s just not good for the consumer," he said. For several years in a row because of the rising costs of raising cattle & drought conditions, he has purchased about 30% less cattle to raise. "Two to three years ahead of time, we’re going to have a much smaller beef cattle herd to work off of. For any beef we see in the grocery store, and that’s going to push prices up," American Farm Bureau Association Economist Daniel Munch said. The latest cattle report from the Dept of Agriculture shows the market has contracted to levels not seen in years, with total inventory dropping 2% to 98.8M head since Jul 2021. In some places like Texas, where cattle heard are produced, the drought has significantly worsened over the past year. Just this time last year, none of the state was in a severe drought. Now, more than 30% of land in Texas is considered to be in a severe drought.
Drought forces farmers to scale back and others to fold as economists warn of price hike
Trading is listless while traders wait for the Fed to speak on Wed. Expectations are for another big jump in interest rates. Comments by the Fed about future interest rates will be a major driver for stocks.
Dow Jones Industrials
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