Friday, December 22, 2023

Markets waver as Dow ekes out its 8th weekly advance

Dow slid back 18, advancers over decliners better than 2-1 & NAZ rose 29.  The MLP index stayed in the 255s & the REIT index crawled fractionally to the 393s.  Junk bond funds ran into a little selling & Treasuries continued flattish keeping yields around breakeven.  Oil slid back pennies in the 73s & gold climbed 13 to 2064 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Housing affordability plummeted this year to the lowest level on record amid the astronomical rise in mortgage rates, which put ownership out of reach for Ms of Americans, according to a new report published by Redfin.  Just 15.5% of homes for sale in 2023 were considered affordable for the typical US household, the lowest level on record since Redfin began tracking the data in 2013.  It marks a steep drop from the typical 40% seen before the COVID-19 pandemic home-buying boom began & the 20.7% figure recorded in 2022.  The decline in affordability is partially due to a drop in listings, which fell 21.2% over the course of the year, but is largely a result of the spike in mortgage rates & subsequent rise in home prices this year.  Combined, the 2 have helped to push the typical portion of average wages nationwide required for major homeownership expenses up to 35%, according to a separate report published by real estate data provider ATTOM.  The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly 2 decades last year.  Rates notched a new 23-year high in Oct, though they have started to slowly retreat since then as many investors believe the Fed is done raising interest rates.  The average rate for a 30-year fixed loan fell to 6.67% this week, Freddie Mac reported, but that remains well above both the 6.27% rate recorded one year ago & the pandemic-era lows of 3%.  The typical monthly mortgage payment costs about $250 more than it was 1 year ago.  Even though mortgage rates are more than double what they were three years ago, home prices have hardly budged.  That is largely due to a lack of available homes for sale.  Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.  The number of available homes on the market at the end of Nov was down by more than 4% from the same time last year & down a stunning 34% from the typical amount before the pandemic began in early 2020.  The good news, however, is that housing affordability is finally beginning to improve, could continue to get better in 2024.  "Many of the factors that made 2023 the least affordable year for homebuying on record are easing," said Elijah de la Campa, Redfin senior economist.  "Mortgage rates are under 7% for the first time in months, home price growth is slowing as lower rates prompt more people to list their homes, and overall inflation continues to cool."

Housing affordability plummeted to lowest level on record in 2023

Bristol Myers (BMY) announced it agreed to buy biopharmaceutical company Karuna Therapeutics (KRTX) for $14B in cash, or $330 per share.  The deal will help expand BMY's’ drug pipeline after competition from a generic offering caused demand for the company's blood cancer drug Revlimid to tumble in its 3rd qtr.  The boards of directors at both companies unanimously approved the acquisition, & it is expected to close in H1 of 2024.  KRTX develops medications for patients living with neurological & psychiatric conditions.  The company's lead asset is an antipsychotic called KarXT, which is expected to serve as a treatment for adults with schizophrenia beginning in late 2024.  “There are tremendous opportunities in neuroscience, and Karuna strengthens our position and accelerates the expansion and diversification of our portfolio in the space. We expect KarXT to enhance our growth through the late 2020s and into the next decade,” BMY CEO Christopher Boerner said.  BMY went up 1.04 & KRTX surged 102.66 after the buyout was announced for 316.64.

Karuna Therapeutics surges 47% after Bristol Myers Squibb announces $14B deal

Boeing (BA), a Dow stock, handed over a 787 Dreamliner directly to a Chinese airline for the first time since Nov 2019, a milestone that could open up the possibility of deliveries of the manufacturer's cash cow, the 737 Max.  The Boeing 787-9 for privately owned Juneyao Airlines departed from outside of BA's Everett, Washington, factory for Shanghai.  The last new delivery of a new Boeing 787 to a Chinese airline was in 2021 thru a leasing company.  BA sent the aircraft as China's pause on scores of pending deliveries of the BA 737 Max, the company's bestselling jet, nears its 5th year.  China grounded that jet in Mar 2019 in the wake of the 2nd fatal crash of the plane in about 5 months & other countries followed.  The US lifted its ban in 2020 & others later followed suit.  BA has been scrambling to increase production & deliveries of new jets, when manufacturers receive the bulk of an airplane's price.  Just over a 3rd of BA's inventory of about 250 Max planes are dedicated to Chinese airlines.  BA had remarketed some of the other Maxes to other carriers.  The stock fell 1.52.

Boeing hands over first 787 Dreamliner to China since 2019

Gold prices closed higher for a 2nd-straight day as a key US inflation measure fell more than expected, pushing down the $.  Gold for Feb closed up $17 to settle at $2069 per ounce, the highest since the precious metal rose to a record $2089 on Dec 1.  The rise comes as the Bureau of Economic Analysis reported the Nov Personal Consumption Index (PCI), the Federal Reserve's preferred inflation measure, rose by 2.6% annualized, under expectations for a 2.8% rise & down from 2.9% in Oct.  Core PCI, excluding food & energy, rose 3.2%, down from 3.4% in Oct & under the expectation of a 3.3% rise.  The lower than expected reading is raising hopes the Federal Reserve will quickly move to cut interest rates in 2024, pushing the $ lower.  The ICE dollar index was last seen down 0.13 points to 101.71.  Treasury yields were mixed following the data, with the 2-year note last seen down 0.3 basis points to 4.336%, while the yield on the 10-year note was 1.0 basis points to 3.897%.

Gold Closes Higher as the Dollar Weakens After a Key US Inflation Measure Fell More than Expected in November

West Texas Intermediate (WTI) crude oil on record US oil production & slowing demand even as key US inflation measure fell more than expected last month & attacks on Red Sea shipping continue.  WTI crude oil for Feb closed down 33¢ to settle at $73.56 per barrel, while Feb Brent crude, the global benchmark, was last seen down 22¢ to $79.17.  The Bureau of Economic Analysis reported the Nov Personal Consumption Index (PCI), the Federal Reserve's preferred inflation measure, rose by 2.6% annualized, under expectations for a 2.8% rise & down from 2.9% in Oct.  Core PCI, excluding food & energy, rose 3.2%, down from 3.4% in Oct & under the expectation of a 3.3% rise.  Oil prices have been supported by ongoing attacks on shipping in the Red Sea by the Houthis, who are supporting Hamas in its war against Israel, disrupting 8% of seaborne crude shipments.  However the risks to Middle East shipping have been offset by record US oil production, rising inventories & Angola's withdrawal from OPEC.

WTI Crude Oil Closes Lower as Higher US Output Tops as Red Sea Shipping Disruptions

This was essentially an even week for the Dow, after its long rally.  Trading should slow next week, barring exciting developments around the world, as many will take a long holiday.  Dow finished the week up a meager 80.  Meanwhile, safe haven gold continues to flirt with its record with demand coming from nervous investors.

Dow Jones Industrials 

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