Markets tumble as Treasury yields rise

Dow dropped 354, decliners over advancers a very big 6-1 & NAZ was off 70.  The MLP index was off 1+ to the 273s & the REIT index fell about 4 to the 359s on higher interest rates.  Junk bond funds edged lower & Treasuries were sold which raised yields.  Oil slid back jump change in the 79s after beginning the day higher & gold fell 14 to 2342.

Dow Jones Industrials 

After a brief pullback during much of May, mortgage rates began rising again last week.  That had an immediate impact on what had been several weeks of strengthening mortgage demand.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) increased to 7.05% from 7.01%, with points rising to 0.63 from 0.60 (including the origination fee) for loans with a 20% down payment.  That was the first increase in 4 weeks, & while it might not seem like a huge move, that is an average, & rates had fallen back into the high 6% range before shooting higher in the 2nd ½ of the week.  As a result, total mortgage application volume fell 5.7% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.  “Both purchase and refinance applications fell, pushing overall activity to the lowest level since early March,” wrote Joel Kan, an MBA economist.  “Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels.  Refinance demand, which had been in a small recovery phase, plunged 14% for the week but was still 12% higher than the same week 1 year ago.  Applications for a mortgage to purchase a home fell 1% for the week & were 10% lower than the same week 1 year ago.  “There continues to be limited levels of existing homes for sale and many buyers are struggling to find listings in their price range that meet their needs,” Kan added.  Mortgage rates jumped sharply to start this week, rising 12 basis points yesterday, according to a separate survey from Mortgage News Daily.  This followed comments yesterday on the direction of interest rates from Minneapolis Federal Reserve Pres Neel Kashkari.  He said that he needs to see, “Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back.”

Weekly mortgage demand drops to three-month low, as rates begin climbing again

American Airlines (AAL) will slash its capacity growth in the 2nd ½ of the year & consider a host of other changes, CEO Robert Isom said, after the carrier cut its revenue & profit forecast & said it is parting ways with its Chief Commercial Officer, Vasu Raja.  AAL will grow capacity about 3.5% in the 2nd ½ of the year compared with the year earlier, down from roughly 8% year-over-year growth in the first 6 months of 2024.  Shares tumbled while investors weighed the airline's missteps as the peak travel season gets underway, with some analysts questioning whether how the carrier could capitalize on what rivals expect to be a record summer.  Isom said AAL is weighing changes to a plan Raja led to drive direct bookings at the airline in lieu of 3rd-party sites & travel agencies, a strategy that included gutting the airline's sales dept.  The changes angered some travel agencies who weren't able to access some of the carrier's fares as before, & Raja said last month that the airline's corp booking growth was coming in behind its big rivals.  Raja will leave the company next month.  “We’ve use a lot of sticks. We’ve got to put some more carrots in place and make sure that our product is available wherever customers want to buy it,” Isom said.  AAL in Feb said it would limit some travel agency bookings from being eligible to earn AAdvantage frequent flyer miles.  Isom said today that the airline would reverse that decision.  “That’s off,” Isom said.  “We’re not doing that because it would create confusion and disruption for our end customer.”  After the market closed yesterday, AAL said its unit revenues could fall as much as 6% in the 2nd qtr from a year earlier, down from its forecast last month of a no more than 3% decline.  Airlines make the bulk of their money during the 2nd & 3rd qtrs, but some areas have fared better than others.  The stock was off 2.04 (15%).

American shares tumble 15% after sales strategy backfires; carrier cuts growth

Abercrombie & Fitch (ANF) reported its strongest first qtr in its history, continuing a winning streak that again exceeded expectations.  The retailer's sales jumped compared with last year, while profits were nearly 7 times higher & well ahead of estimates.  EPS was $2.14, compared with 32¢ a year earlier.  Sales rose to $1.02B, up about 22% from $836M a year earlier.  “We successfully navigated seasonal transitions with relevant assortments and compelling marketing, leveraging agile chase capabilities and inventory discipline, driving sales above our expectations,” CEO Fran Horowitz said.  “Growth was broad-based across regions and brands with Abercrombie brands registering 31% growth and Hollister brands delivering growth of 12%.”  ANF has been one of the biggest winners in retail.  As it stares down a tough year of comparisons, the company is building on the double-digit sales growth it saw in 2023.  Comparable sales grew 21%, on top of the 3% growth it saw in the year-ago period.  ANF is expecting sales to rise again in the current fiscal year & increased its revenue guidance.  For the full year, the retailer now expects sales to grow about 10%, compared with a previous outlook of between 4-6%.  Analysts had expected growth of about 7%.  For the current qtr, ANF anticipates sales will increase by a mid-teens percentage, ahead of estimates of up 9%.  The stock jumped 28 (19%).

Abercrombie & Fitch shares jump more than 10% as retailer’s torrid growth continues

The 10-year Treasury yield topped the key 4.5% level yesterday & today the benchmark yield inched up further to trade around 4.57%.  Investors are trying to puzzle out what yesterday's stronger-than-expected consumer confidence print means for Fed policymaking, but they are braced for a long wait for a pivot to rate cuts after a litany of warnings from its officials.  Dow is down 1500 in just the last couple of weeks.