Wednesday, December 21, 2022

Markets rally as traders fight after recent selling

Dow jumped 561, advancers over decliners better than 5-1 & NAZ recovered 170.  The MLP index was up 1+ to the 212s & the REIT index bounced back 6+ to the 377s, helped by lower yields.  Junk bond funds crawled higher following recent selling & Treasuries were purchased bringing lower yields, after yesterday's yield rally (more below).  Oil gained 1+ to the high 77s & gold added 6 to 1832.

AMJ (Alerian MLP index tracking fund)

 

 

 




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Sales of existing home fell 7.7% in Nov compared with Oct, according to the National Association of Realtors (NAR).  The seasonally adjusted annualized pace was 4.09M units.  That is weaker than the 4.17M units that had predicted & it was a much deeper fall than usual monthly declines.  Sales were down 35.4% year over year, marking the 10th straight month of declines.  That was the weakest pace since 2010, with the exception of May 2020, when sales fell sharply, albeit briefly, during the early days of the Covid pandemic.  In 2010, the nation was mired in the great recession as well as a foreclosure crisis.  These counts are based on closings, so the contracts were likely signed in Sep & Oct, when mortgage rates last peaked before coming down slightly last month.  Rates are now about one percentage point lower than they were at the end of Oct, but still a little more than twice what they were at the start of this year.  “In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the Covid-19 economic lockdowns in 2020,” said Lawrence Yun, NAR's chief economist.  “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”  At the end of Nov there were 1.14M homes for sale, which is an increase of 2.7% from Nov of last year, but at the current sales pace it represents a still-low 3.3 month supply.  “We have seen home prices come down from their summer peaks over the past five months. At the same time, we have also seen rent growth retreat for 10 consecutive months,” wrote George Ratiu, senior economist at Realtor.com.  “However, the cost of real estate remains challenging for many households looking for a place to call home, especially as high inflation and still-elevated interest rates have been eroding purchasing power.”

Home sales tumbled more than 7% in November, the 10th straight month of declines

Ukrainian Pres Volodymyr Zelenskyy will meet with Pres Biden later today & then deliver an address to a joint session of Congress in the evening, his first known wartime trip outside Ukraine since the start of Russia's invasion last Feb.  The 2 leaders will hold a bilateral meeting & then a joint press conference later today.  “I hope you’re having a good flight, Volodymyr. I’m thrilled to have you here. Much to discuss,” Biden tweeted today.  Zelenskyy's visit comes as the Senate prepares to vote on an omnibus spending bill that includes approximately $45B of both military & economic aid to Ukraine in the coming year, Bs more than Biden initially requested in Nov.  The aid is primarily military, with more than $20B to supply weapons & equipment to Ukraine's armed forces, who are waging a bitter fight in freezing temperatures to recapture territories occupied by Russian troops.  This figure also includes funding to replenish Defense Dept stockpiles that have been depleted after nearly a year of providing materiel to Ukraine.  Another $6.2B is earmarked for the thousands of American troops that Biden ordered to deploy to Eastern Europe shortly after Russia’s invasion.  They are largely stationed in Romania & Poland.  In addition to the money in the omnibus bill, Biden intends to announce a package of nearly $2B in security assistance during Zelenskyy's visit.  This latest tranche will include the Patriot missile system, an advanced American air defense system that is capable of locating & destroying incoming artillery fire.

Zelenskyy to meet with Biden, address Congress on his first known wartime trip outside Ukraine

Treasury yields dipped as global bond markets stabilized following the previous session's sell-off on the back of a surprise policy shift from the Bank of Japan.  The yield on the benchmark 10-year Treasury note was last down 3 basis points at 3.653%, while the yield on the 2-year Treasury bond fell nearly 5 basis points to 4.219%.  Yields move inversely to prices.  Global bond markets sold off yesterday after the Bank of Japan tweaked its yield curve controls to allow the yield on its 10-year JGB to move 0.5% either side of its 0% target, up from 0.25% previously, in a move aimed at cushioning the effects of protracted monetary stimulus measures.

Treasury yields dip as calm returns to bond markets after sell-off

Bargain hunters are back to buy stocks which were heavily oversold.  But fundamental problems remain.  The southern border is an utter disaster, inflation remains in high territory & there are signs that strong employment data may not last.  Additionally, the housing market, a major part of the US economy. is in a serous slump.

Dow Jones Industrials

 






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