Markets edge higher as Powell gives a second day of testimony

Dow went up 70, advances over decliners about 2-1 & NAZ gained 83.  The MLP index slid back 1 to 290 & the REIT index remained steady in the 378s.  Junk bond funds were little changed & Treasuries had marginal buying bringing yields a little lower.  Oil climbed higher to the high 81s & gold advanced 15 to 2383.

Dow Jones Industrials 

The recent run-up in home prices, a staggering increase of more than 40% from pre-pandemic levels, should have current homeowners rushing to refinance.  But for most, pulling that cash out simply costs too much now that interest rates are more than twice what they were just 2 years ago.  Applications to refinance a home dropped last week for the 4th straight week, down 2%, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Last week's results included an adjustment for the July Fourth holiday.  Demand is still 28% higher than it was the same week 1 year ago, when rates were 7 basis points higher.  Homeowners were sitting on a collective $17T in equity at the end of the first qtr of 2024, according to CoreLogic.  In just 1 year, homeowners gained $1.5T, or $28K per borrower.  “Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates,” said Joel Kan, an MBA economist.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) decreased last week to 7.00% from 7.03%, with points falling to 0.60 from 0.62 (including the origination fee) for loans with a 20% down payment.  Applications for a mortgage to purchase a home increased 1% for the week but were 13% lower than the same week 1 year ago.  “Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications,” Kan added.  Mortgage rates haven't moved at all so far this week, despite Federal Reserve Chair Jerome Powell's testimony before Congress yesterday.  That is likely to change with new economic data coming tomorrow with the latest read on the consumer price index.  “Fed Chair Powell reiterated the same messages heard from multiple Fed speakers,” wrote Matthew Graham, chief operating officer at Mortgage News Daily.  “After CPI comes out, [rate] movement is all but guaranteed, for better or worse.”

Mortgage refinance demand drops despite homeowners sitting on huge equity

Walmart (WMT), a Dow stock, will open 5 automated distribution centers for fresh food across the country, as the retailer chases efficiency & its online grocery business grows.  The discounter's new facilities are roughly 700K square feet on average.  Chilled & frozen areas have automation that stores & retrieves perishable items, such as strawberries & frozen chicken nuggets that are later sold at stores or added to customers' e-commerce orders.  WMT is the nation's largest grocer, but it is modernizing its supply chain to keep up with customers who are increasingly picking up orders in the parking lot or getting groceries delivered to their doors.  Store pickup & delivery drove it 22% e-commerce gains in the US in its most recent qtr.  The retailer has been automating supply chain facilities across the country, including distribution centers that handle shelf-stable items & fulfillment centers that help pack & ship online orders.  Automation, along with higher-margin businesses like advertising, is a key reason why CEO Doug McMillon said in Apr 2023 that WMT would grow its profits faster than sales over the next 5 years.  Dave Guggina, exec VP of its supply chain, said the automated facilities give the company a more precise picture of its inventory & allow it to get groceries to stores faster.  “We know what we own, in what quantity and where it is, all in near real time,” he said.  “And we know that at a level of proficiency that is significantly improved than what we’ve been able to achieve with manual processes or legacy software.”  The stock slid back 11¢.

Walmart is opening five automated distribution centers as it tries to keep its grocery dominance

There is a "historic surge" of corp bankruptcies underway in the US, as debt-saddled companies struggle to adjust to the new era of high interest rates.  New figures published by S&P Global Intelligence show that 75 companies filed for bankruptcy in Jun, the highest number recorded in a single month since early 2020 at the height of the COVID-19 pandemic.  That pushed this year's total number of bankruptcies so far to 346, which is notably higher than comparable levels seen in the past 13 years.  Before this, the highest ½-year figure recorded was in 2010, with 437 companies filing for bankruptcy in Jan - Jun.  The S&P report blamed high interest rates, supply chain issues & slowing consumer spending for the spike in bankruptcies this year.  The Federal Reserve raised interest rates sharply in 2022 & 2023 to the highest level since 2001 in a bid to crush high inflation, bringing to an end more than a decade of ultra-easy money.  Officials are now grappling with when they should take their foot off the brake amid signs that economic growth is slowing & inflation is once again falling.  Most investors expect the Fed to begin cutting rates in Sep or Nov & are penciling in just 1 or 2 reductions this year, a dramatic shift from the start of the year, when they anticipated 6 rate cuts beginning as soon as Mar.  Even then, rates will likely remain elevated.  Some economists have called on the central bank to cut rates sooner, citing concerns that high interest rates pose a risk to the financial system.  "The economy has weathered the Fed’s higher-for-longer strategy admirably well, but there is a mounting threat that the ongoing pressure will expose fault lines in the financial system," Moody's chief economist Mark Zandi wrote.  "As last year’s banking crisis showed, the relentless strain of high rates can cause parts of the financial system to buckle in ways that are difficult to predict and control."  Bankruptcies started to rise notably in Apr as companies continued to "feel the burden of high interest rates," & as it dawned on many businesses that rates would likely remain at peak levels for some time.

Companies are going bankrupt at the fastest pace since 2020: A 'historic surge'

Chair Jerome Powell is back on Capitol Hill to testify before the House Financial Services Committee on US monetary policy.  Stock averages are holding near all-time highs as his remarks to the Senate buoyed rate-cut hopes.  Yesterday, Powell hinted the stage is almost set for lowering interest rates from 2-decade highs, pointing to cooling in inflation & the jobs market.  He also cautioned that keeping rates elevated for too long could weaken the economy, giving hope to rate-cut-hungry investors.  At the same time, nervous investors are buying gold.