Friday, July 28, 2023

Markets rally again on more favorable inflation data

Dow advanced 210, advancers over decliners about 4-1 & NAZ gained 247.  The MLP index barely budged in the 238s & the REIT fell 2+ to the 368s, still feeling the effects of higher interest rates.  Junk bond funds rose along with the stock market & Treasuries saw more buying, raising yields.  Oil slid back chump change in the 79s & gold was up 13 to 1999.

AMJ (Alerian MLP Index tracking fund)


 

 




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Inflation showed further signs of cooling in Jun, according to a gauge the Federal Reserve follows closely.  The personal consumption expenditures price index excluding food & energy increased just 0.2% from the previous month, in line with the estimate, the Commerce Dept said.  Core PCE rose 4.1% from a year ago, compared with the estimate for 4.2%.  The annual rate was the lowest since Sep 2021 & marked a decrease from the 4.6% pace in May.  Headline PCE inflation including food & energy costs also increased 0.2% on the month & rose 3% on an annual basis.  The yearly rate was the lowest since Mar 2021 & moved down from 3.8% in May.  Goods prices actually decreased 0.1% for the month while services rose 0.3%.  Food prices also fell 0.1%, while energy increased 0.6%.  The data reinforces other recent releases showing that, at least compared with the soaring inflation from a year ago, prices have begun to ease.  Readings such as the consumer price index are showing a slower rise in inflation, while consumer expectations also are also coming back in line with longer-term trends.  Fed officials follow the PCE index closely as it adjusts for changing behavior from consumers and provides a different look at price trends than the more widely cited CPI.  Along with the inflation data, the Commerce Dept said personal income rose 0.3% while spending increased 0.5%.  Income came in slightly below expectations, while spending was in line.

Key Fed inflation rate falls to lowest annual level in nearly 2 years

The average 30-year fixed-rate mortgage rate increased to 6.81% for last week, up from 6.78% last week, according to the latest data by Freddie Mac.  At the same time, the average 15-year fixed-rate mortgage jumped to 6.11%, up from 6.06%.  The data followed the Federal Reserve's anticipated interest rate increase.   But despite a tense interest rate environment, consumers have been confident about spending capabilities, according to Freddie Mac.  "Mortgage rates inched up slightly after a significant decline last week," Freddie Mac Chief Economist Sam Khater said.  "Higher interest rates continue to dampen activity in interest rate-sensitive sectors, such as housing. However, overall U.S. consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023. Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market."  Still, housing affordability & scarce availability have presented challenges to homebuyers in 2023.  At this time last year, the average rate for a 30-year fixed rate mortgage stood at 5.30%.  Despite overall higher mortgage rates, annual home price growth slowed for the 12th straight month in May, according to the latest databy CoreLogic.  Home prices increased by 1.4% year-over-year in May.  "After peaking in the spring of 2022, annual home price deceleration continued in May," CoreLogic Chief Economist Selma Hepp said.  "Despite slowing year-over-year price growth, the recent momentum in monthly price gains continues in the face of recent mortgage rates increases."  "Nevertheless, following a cumulative increase of almost 4% in home prices between February and April of 2023, elevated mortgage rates and high home prices are putting pressure on potential buyers," Hepp continued.  "These dynamics are cooling recent month-over-month home price growth, which began to taper and is returning to the pre-pandemic average, with a 0.9% increase from April to May."

Mortgage rates increase as home price growth slows

Intel (INTC), a Dow stock, reported 2nd-qtr earnings, including a return to profitability after 2 straight qtrs of losses & a stronger-than-expected forecast.  For the 3rd qtr, INTC expects EPS of 20¢ adjusted, on revenue of $13.4B at the midpoint, versus expectations of 16¢ on $13.23B in sales.  EPS was 35¢, versus a net loss of $454M (11¢ per share) in the same qtr last year.  CFO David Zinsner said that part of the reason that INTC's report was stronger than expected was because of the progress it has made towards slashing $3B in costs this year.  Earlier this year, INTC slashed its div & announced plans to save $10B per year by 2025, including thru layoffs.  Revenue fell to $12.9B from $15.3B a year ago, marking the 6th consecutive qtr of declining sales for the company.  CEO Pat Gelsinger said the company still sees “persistent weakness” in all segments of its business thru the end of the year, & that server chip sales won't recover until Q4.  He also said that cloud companies were focusing more on securing graphics processors for AI instead of INTCs central processors.  INTC said that it remained on track to hit those technological goals.  The stock rose 2.23.
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click on this link:
club.ino.com/trend/analysis/stock/INTC_aid=CD3289&a_bid=6aeoso5b6f7

Intel jumps 6% as it returns to profitability after two quarters of losses

The bulls are back, bidding stock prices higher.  But today's inflation data is now history.  Going forward, higher interest rates will be working their way into economic data for the economy.  The stock markets remain greatly overbought!  A rest (pause) is needed.

Dow Jones Industrials

 






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