Thursday, November 17, 2022

Markets fall as rising interest rates raise recession fears

Dow dropped 252, decliners over advancers about 3-1 & NAZ retreated 135.  The MLP index declined 2+ to the 221s & the REIT index retreated 5 to the 373s.  Junk bond funds fluctuated & Treasuries were heavily sold, raising yields.  Oil fell 2+ to the 82s & gold pulled back 13 to 1762 after its recent rally.

AMJ (Alerian MLP index tracking fund)

 

 

 




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St Louis Federal Reserve Pres James Bullard said the central bank still has a lot of work to do before it brings inflation under control.  A voting member on the rate-setting Federal Open Market Committee, Bullard delivered remarks centered on policymaking.  Using standards set by Stanford economics professor John Taylor, Bullard insisted that the moves the Fed has made so far are insufficient.  “Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he said.  Even using assumptions he characterized as “generous” regarding the progress the Fed has made so far in its inflation fight, he noted that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”  “To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he added.  There's little if any dissent on the Fed over whether rates need to continue to rise.  Most members have suggested a few more increases over the next several months that will take the central bank's benchmark overnight borrowing rate to around 5% from its current target of 3.75%-4%.  However, this presentation argued that 5% could serve as the low range for the where the funds rate needs to be & that upper bound could be closer to 7%.  That is well out of sync with current market pricing, which also sees the fed funds rate topping out around 5% by mid-2023.

Fed’s Bullard says rate hikes have had ‘only limited effects’ on inflation so far

The majority of Americans are delaying financial milestones & even abandoning certain events & activities because of the current state of the economy.  According to a new survey from Bankrate, 53% of Americans have had to delay milestones such as home improvements & renovations as well as buying or leasing a car.  Meanwhile, 58% of Americans have had to miss out on certain activities such as postponing vacations & opting out of dinners with family or friends.  The data revealed that 15% of respondents had to hold off on purchasing a home, while 10% have had to push off furthering their education.  9% have pushed off retiring, 7% pushed off career advancements & 7% even postponed getting married.  Additionally, another 7% pushed off having children.  The stress about the economy has even made people push off small activities, anything from going to amusement parks, the aquarium, the movie theater or attending a live arts or professional sports event.  "Whether it be inflation, rising interest rates, recession fears, market volatility, or something similar, concerns about the economy are high," Bankrate chief financial analyst Greg McBride said.

Economy forcing Americans to delay financial milestones

Kohl’s (KSS) withdrew its full-year outlook, pointing to volatility in the retail environment & significant macroeconomic headwinds, on top of its “unexpected CEO transition.”  KSS also reported 3rd-qtr earnings, with revenue dropping 7% to $4.3B.  The company warned investors of this decline in revenue earlier this month when it provided preliminary results for the qtr.  KSS also said it would not provide guidance for the holiday shopping qtr.  The stock rose 88¢.
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Kohl's pulls full-year outlook, citing retail volatility and economic headwinds 

Optimism around easing inflation & a Federal Reserve policy shift waned.  In addition, retailer earnings have been coming in mixed.  Recession fears are a worry for many investors.

Dow Jones Industrials

 






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