Markets climbed to new records led by tech stocks

Dow jumped 250, advancers over decliners 4-3 & NAZ soared 366.  The MLP index crawled higher in the 272s & the REIT index slid back to the 378s.  Junk bond funds were mixed & Treasuries saw a little buying, taking yields lower (more below).  Oil inched up to the 78s & gold was off 1 to 2033.

AMJ (Alerian MLP Index tracking fund)

Sales of previously owned homes rose 3.1% in Jan to 4M units on a seasonally adjusted annualized basis, according to the National Association of Realtors (NAR).  Sales were down 1.7% year over year.  The count is based on closings, so the contracts were likely signed in Nov & Dec, when mortgage interest rates backed off their Oct high of 8%.  By mid-Dec, the rates had hit a recent low of around 6.6%.  Today they are back over 7%, according to Mortgage News Daily.  “While home sales remain sizably lower than a couple of years ago, January’s monthly gain is the start of more supply and demand,” said Lawrence Yun, chief economist for the NAR.  “Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year.”  Inventory of homes for sale in Jan increased to 1.01M units, up 3.1% from Jan 2023, but still at a low 3-month supply.  A 6 months supply is considered a balanced market between buyer & seller.  That dynamic is why the market is still seeing pressure on home prices.  The median existing home price for all housing types in Jan was $379K, up 5.1% from a year earlier & an all-time high for the month of Jan.  All 4 regions saw price increases & 16% of homes were sold above list price.  “Multiple offers are common on mid-priced homes, and many homes were still sold within a month. The elevated share of cash deals – 32% – indicated a market full of multiple offers and propelled by record-high housing wealth,” Yun said.

Existing home sales rose last month, but higher mortgage rates now are hurting

The European Central Bank (ECB) reported its first annual loss since 2004, following hefty payouts due to higher interest rates.  It reported losses of €1.3B ($1.4B), which would have been steeper, had the bank not released €6.6 — its entire provision for financial risks, built up over a number of years.  The ECB said that it expected further losses for the following few years that would not impact “its ability to conduct effective monetary policy,” before returning to sustained profits.  The central bank hauled interest rates from negative territory to a record 4% between Jul 2022 & Sep 2023, in response to rising inflation in the wake of the Covid-19 pandemic & partially losing access to Russia's energy following its invasion of Ukraine.  The institution suffered increased interest expenses on key liabilities, while interest income on assets did not keep pace, because many are on fixed rates or have long maturities, it said.  It logged a net interest loss of €7.19B euros in 2023, following €900M income in 2022.  “The financial strength of the ECB is further underlined by its capital and its substantial revaluation accounts, which together amounted to €46 billion at the end of 2023,” the central bank added.  The central bank said it will carry forward the loss on its balance sheet to offset against future profits & will not make profit distributions to euro zone national central banks for 2023.  For 8 years, the ECB followed a policy of fiscal stimulus that swelled its balance sheet, but was seen as controversial in some qtrs.  The central bank began quantitative tightening in Mar 2023.

European Central Bank posts first annual loss in two decades

Treasury yields were mixed as investors considered the path ahead for interest rates after minutes from the Federal Reserve's latest meeting indicated caution about cutting rates too soon.  The yield on the 10-year Treasury was hovering around flat at 4.323% & the 2-year Treasury yield was last up by 5 basis points at 4.703%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Minutes from the Federal Reserve's Jan meeting suggested policymakers would be careful & not rush to cut rates.  Fed officials were concerned about the “risks of moving too quickly” & were still looking to be more confident in inflation easing before cutting rates.  “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent,” the minutes stated.  However, the minutes also suggested that policymakers were not expecting rates to be hiked any further.  The latest inflation insights suggested to many market participants that pressures from higher prices could be stickier than hoped, with the Jan consumer price index & producer price index coming in higher than expected.  Investors were initially hoping for rate cuts as soon as Mar but are now expecting the first one to take place in Jun.

2-year Treasury yield rises as investors fret over interest rate outlook

This rally which is taking the averages to new records levels is largely due to a few elite tech stocks.  Many of the mundane stocks have been left behind with the number of advancing stocks not showing strength.  At the same time, there are indications that rate cuts by the Fed will delayed & come more slowly than expected.  Already the auto & housing markets are struggling & getting by with only so-so years.  Safe haven gold remains not far from its recent record highs.

Dow Jones Industrials