Dow sank 360, decliners over advancers 4-1 & NAZ dropped 207. The MLP index was off 1+ to the 234s & the REIT index dropped 5 to the 369s. Junk bond funds crawled higher & Treasuries had more buying, taking yields lower. Oil slid back almost 1 to 81 & gold was off 9 to 1960.
AMJ (Alerian MLP Index tracking fund)
Americans are drowning in credit card debt as stubborn inflation makes the cost of everyday necessities more expensive. The New York Federal Reserve Bank's Quarterly Report on Household Debt and Credit showed that credit
card debt soared to a historic $1T in the 3-month period
from Apr-Jun, according to LendingTree. That will smash the previous high of $986B. The $1T figure would mark a major reversal from just 3 years
ago when households were rapidly paying off credit card debt with the
stimulus payments they received during the COVID-19 pandemic. "Even though the Fed
seems to be taking their foot off the gas with interest rates, the
unfortunate reality is credit card holders shouldn’t expect things to
get a ton better anytime terribly soon, just because interest rates
aren’t going down anytime soon." "I think it’s fairly clear that what we’re seeing now is becoming
more and more about people struggling in the face of ongoing inflation
and seemingly constant rising interest rates," Matt Schulz, the chief
LendingTree credit analyst said. "It's been a really rough year for credit card holders," Schulz added. The rise in credit card usage & debt is particularly
concerning because interest rates are astronomically high right now. The
average credit card annual percentage rate (APR), hit a new record of
20.5% last week, according to Bankrate. The previous record was 19% in 1991. If people are carrying debt to compensate for steeper prices, they could
end up paying more for items in the long run. For instance, if you owe
$5000 in debt, which the average American does, current APR levels
would mean it would take about 309 months & $21K in interest to pay
off the debt making the minimum payments.
Credit card debt set to hit eye-popping level as inflation squeezes Americans
Philadelphia Federal Reserve Pres Patrick Harker indicated that the central bank could be at the end of its current rate-hiking cycle. A voter this year on the rate-setting Federal Open Market Committee, the central bank official noted progress in the fight against inflation & confidence in the economy. “Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work,” Harker said. That statement comes after the FOMC in Jul approved its 11th hike since Mar 2022, taking the Fed's key interest rate from near zero to 5.25-5.50%, the highest in more than 22 years. While projections committee members made in Jun pointed to an additional quarter-point increase this year, there are differences of opinion on where to go from here. New York Fed Pres John Williams also indicated that the rate rises could be over. Fed Governor Michelle Bowman said yesterday that she thinks additional hikes are probably warranted. Markets are pricing in more than an 85% probability that the central bank holds steady at its Sep 19-20 meeting, according to CME Group data. Pricing action indicates the first decrease could some as soon as next Mar. Harker indicated there are unlikely to be rate cuts anytime soon. “Allow me to be clear about one thing, however. Should we be at that point where we can hold steady, we will need to be there for a while,” he said. “The pandemic taught us to never say never, but I do not foresee any likely circumstance for an immediate easing of the policy rate.” “In sum, I expect only a modest slowdown in economic activity to go along with a slow but sure disinflation,” he added. “In other words, I do see us on the flight path to the soft landing we all hope for and that has proved quite elusive in the past.”
Philadelphia Fed President Patrick Harker suggests interest rate hikes are at an end
Moody's cut the credit ratings of a host of small & mid-sized US banks & placed several big big names on negative review. The firm lowered the ratings of 10 banks by one rung, while some major lenders are now under review for a potential downgrade. Moody's also changed its outlook to negative for 11 banks. “U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody's analysts said in the accompanying research note. “Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.” Regional US banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank & Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe & resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS. Though authorities went to great lengths to restore confidence, Moody's warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment. “We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody's said. “Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.” “We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency added.
Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch
Stocks sank on anxieties after a warning from Moody's about US bank health (see above) & surprisingly weak Chinese trade data. Investors are growing nervous after the recent rally. Dow rose about 2500 in 2 months (see below). Now stocks are taking a rest.
Dow Jones Industrials
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