VerySmartInvesting: Markets were lower after US job openings fall to 28-month low

Tuesday, December 5, 2023

Markets were lower after US job openings fall to 28-month low

Dow slid back 79, decliners over advancers better than 2-1 & NAZ gained 44. The MLP index fell 2 to 258 & the REIT index slid back 2+ to the 374s. Junk bond funds fluctuated & Treasuries continued to be heavily bought, driving yields sharply lower. Oil ran into selling & eased back to the 72s while gold was off 4 to 2037 (more on both below).

AMJ (Alerian MLP Index tracking fund)

High interest rates have pushed many would-be home sellers & buyers to the sidelines in 2023. Yet, there are signs both sides may be more willing to take on a high-rate mortgage if other key factors aligned. More than ½, 54%, of homeowners said they would move if they found a more affordable area to live in, even if it meant paying a higher interest rate on their mortgage, a new survey from Bank of America found. Meanwhile, ½ said they would sell if they found their dream home. “Americans still believe in the dream of homeownership,” said Matt Vernon, head of consumer lending at Bank of America. “They still believe that it’s a key component of financial success. They still believe that it’s a measuring stick of accomplishment.” Last week, the average interest rate for certain 30-year fixed-rate mortgages decreased to 7.37% from 7.41% the prior week, in the 4th successive week of declines. Lower mortgage rates have prompted mortgage applications to pick up. Yet, about 80% of outstanding US mortgages have interest rates below 5%, according to Bank of America’s research. Even the recent decline in mortgage rates may not provide incentive for homeowners to move. “The story for 2023 has been one of homeowners staying put,” said Daryl Fairweather, chief economist at Redfin. Factors that have contributed to that immobility have recently started to ease, though it remains to be seen whether that will last. The median monthly mortgage payment is down more than $150 from the peak, marking the lowest level in 3 months, Redfin's Nov 30 research found. Monthly payments are falling as mortgage rates come down from their peak. The weekly average 30-year mortgage rate fell to 7.29% in late Nov, down from a 7.79% high in Oct, according to Redfin. Those declining rates have offset rising home prices, with the median sale price up 4%. The number of new listings, which is up 6%, has had the biggest year-over-year increase since 2021.

High mortgage rates have limited opportunities for homebuyers and sellers

Lilly (LLY) said its recently approved weight loss treatment Zepbound is now available at pharmacies across the US, serving as an alternative to rival obesity drugs such as Wegovy that are facing supply issues. Zepbound is the latest entrant to the budding weight loss drug market, which is expected to grow to about $100B by the end of the decade. High demand for the treatments has resulted in widespread shortages of Novo Nordisk 's (NVO) Wegovy & diabetes drug Ozempic as well as LLY's diabetes treatment Mounjaro, pushing companies to ramp up production. Those ongoing supply issues give Zepbound, which contains the same active ingredient as Mounjaro, an opportunity to capture market share. LLY also said that its commercial savings card program, which aims to expand access to Zepbound, is now available to patients with a prescription. Under the program, patients whose health insurance covers Zepbound may pay as low as $25 for a 1- or 3-month prescription of the weekly injection. Those whose insurance does not cover Zepbound may pay as low as $550 for a one-month prescription, about ½ the drug’s list price. “The availability of Zepbound in U.S. pharmacies is the first step, but we have to work hand-in-hand with employers, government and healthcare industry partners to remove barriers and make Zepbound available to those who need it,” said Rhonda Pacheco, LLY's group VP for diabetes & obesity. Zepbound is an injection administered once weekly. The dosage must be increased over a period of 4-20 weeks to achieve the target dose sizes of 5, 10 or 15 milligrams per week. LLY stock went up 2.78 & NVO stock fell 1.27.

Eli Lilly weight loss drug Zepbound now available at U.S. pharmacies

Wells Fargo (WFC) CEO Charlie Scharf said that low staff turnover means the company will likely book a large severance expense in the 4th qtr. “We’re looking at something like $750 million to a little less than a billion dollars of severance in the fourth quarter that we weren’t anticipating, just because we want to continue to focus on efficiency,” Scharf said. That expense is an accrual for worker layoffs that WEC to make next year, according to a bank spokeswoman. WFC needs to get “more aggressive” managing headcount because employee attrition has slowed this year, Scharf added. Others have said that unusually low attrition among their workers has left them bloated. The industry has been cutting jobs in the past year as it deals with rising funding costs, a prolonged slump in financial deals & concern over loan losses. WFC, the 4th-biggest US bank by assets, was already among the most active in laying off workers this year, thanks in part to its retrenchment from the mortgage arena. The bank has cut about 11K jobs so far in 2023 4.7% of its workforce, & had 227K employees as of Sep. Scharf spoke of needing to both get more efficient, while continuing to invest in revenue-generating areas including credit cards & capital markets. The bank is “is not even close” to where it should be on efficiency, Scharf added. The stock fell 61¢.

Wells Fargo CEO warns of severance costs of nearly $1 billion as layoffs loom

Gold futures fell as the $ rose, with the metal remaining below the record high set on Fri. Gold for Feb closed down $5 to settle at $2036. The price of the precious metal closed at a record $2089 on Fri. The rise comes as the $ rose, while treasury yields weakened as traders expect the Federal Reserve to begin cutting interest rates in the new year despite little sign from the central bank it intends to begin reversing its rate hikes until inflation reaches its 2% target. The ICE dollar index was last seen up 0.32 points to 104.04, while the 2-year note was last seen paying 4.604%, down 4.6 basis points, while the yield on the 10-year note was down 8.0 basis points to 4.178%.

Gold Closes Lower as the Dollar Strengthens While Treasury Yields Move Down

Oil futures stretched their losses into a 4th consecutive session, pulling US prices to their lowest settlement since early Jul. The OPEC+ decision was a clear disappointment last week due to both the underwhelming amount of additional oil output curbs & the voluntary nature of the 2024 policy cuts. Jan West Texas Intermediate crude fell 72¢ (1%) to settle at $72.32 a barrel. Prices based on the front-month contract settled at their lowest since Jul 6