Dow dropped 31, advancers over decliners 5-4 & NAZ finished up 50. The MLP index rose 1+ to the 291s, & the REIT index crawled up 1+ to the 378s. Junk bond funds fluctuated & Treasuries were flattish, keeping yields close to even. Oil fell 1 to the low 82s & gold sank 35 to 2363 (more on both below).
Dow Jones Industrials
The cost of buying a new house just hit another all-time high. Findings from Redfin show the median US home sale price soared to $398K in Jun, a nearly 5% increase from a year earlier. That marks the highest level on record & the biggest annual increase since Mar. The monthly mortgage payment at that price, when accounting for the 6.86% median interest rate for a 30-year mortgage, is now $2749. That is roughly $88 shy of Apr's record, thanks to a slight drop in mortgage rates. "High mortgage rates and record-setting home prices have made affordability the biggest challenge in the housing market in 2024," said Lisa Sturtevant, Bright MLS chief economist. "Even as more inventory comes onto the market, more buyers are being priced out in markets across the U.S. Some buyers are going to wait for rates to come down in the second half of the year which means that it could be a relatively slow summer for home sales." There are a number of driving forces behind the affordability crisis. Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates & expensive construction materials. Higher mortgage rates over the past 3 years have also created a "golden handcuff" effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further & leaving few options for eager would-be buyers. Mortgage buyer Freddie Mac said that the average rate on a 30-year loan this week inched higher to 6.95%. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%. Mortgage buyer Freddie Mac said that the average rate on a 30-year loan this week inched higher to 6.95%. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%. Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com. Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.
US home prices just hit another all-time high
As Americans' political focus turns towards this fall's elections, the winner of the presidential race will be confronted with a national debt that's on pace to reach a record-setting level in the next 4 years, as well as looming deadlines that may force their hand on fiscal policy. A recent update to the federal gov's long-term budget outlook by the nonpartisan Congressional Budget Office (CBO) found that budget deficits are projected to widen from about $1.9T this year to more than $2T annually starting in 2030, before nearing $2.9T in 2034. In that period, the debt held by the public will rise from more than $28T this year to over $50T in 2034. When compared to the size of the US economy in terms of gross domestic product, debt held by the public is projected to rise from 99% of GDP this year to 106% of GDP in 2027 in the 2nd ½ of the next presidential term, which would top a record set in 1946 amid the post-World War II demobilization. Debt to GDP is projected to reach 122% in 2034 & is on track to continue to rise to 166% of GDP in 2054 & higher after that date. As the debt grows, the risk of the US gov facing a debt crisis caused by investors losing confidence in its ability to repay its debt also rises. That would likely cause interest rates to increase, making it more costly to service the existing debt without defaulting. Although it's unclear what level of debt is a tipping point, some estimates identified by the Congressional Research Service put debt-to-GDP ratios of 80-200% & beyond in the danger zone for a crisis. The Penn-Wharton Budget Model in Oct noted that the "U.S. debt held by the public cannot exceed about 200 percent of GDP even under today's generally favorable market conditions." "We are not now at an immediate risk of a fiscal crisis, but the rising national debt makes one more likely, and also makes us less prepared to address other unexpected future crises," the nonpartisan Peterson Foundation said. With the country facing a bleak budgetary outlook, a series of fiscal policy deadlines & changes slated to take effect in 2025 offer lawmakers & the public an opportunity to discuss reforms to alter that trajectory. The first of those deadlines will arrive on Jan 1 when the debt limit, which was suspended in Jun 2023, is reactivated. That will prompt the Treasury Dept to use "extraordinary measures" to stave off default for a period of several months while lawmakers in Congress work on the next increase or suspension of the debt limit.
US national debt to surge to record levels without reform, raising prospect of debt crisis
Boeing (BA), a Dow stock, has agreed to plead guilty to criminal fraud tied to the fatal 737
Max crashes, a decision that brands the US aerospace giant a felon but
allows it to avoid trial while it tries to turn the page from safety & manufacturing crises. Under the deal, BA would face a fine
of up to $487M, though the Justice Dept recommended that
the court credit BA with ½ that amount it paid under a previous
agreement, resulting in a fine of $243M. The plea deal requires
the approval of a federal judge to take effect. If
the deal is accepted, it could complicate BA's ability to sell
products to the US gov as a felon, though the company could
seek waivers. About 32% of BA's nearly $78B in revenue last year came from its defense, space & security unit. An
independent compliance monitor would also be installed to oversee
compliance at BA for 3 years during a probationary period.
BA would also have to invest at least $455M in compliance &
safety programs. BA also agreed for its board of directors to meet with crash victims' family members. The Justice Dept unveiled the deal yesterday, months after US prosecutors said the aerospace giant violated a 2021 settlement that shielded it from prosecution for 3 years. The
plea deal offer forced BA to decide between a guilty plea & the
attached terms, or going to trial, just as the company was seeking to turn a corner in its manufacturing & safety crises, pick a new CEO & acquire its fuselage maker, Spirit AeroSystems (SPR). “We
can confirm that we have reached an agreement in principle on terms of a
resolution with the Justice Dept, subject to the memorialization
and approval of specific terms,” BA said. BA stock edged up 1.02.
Boeing to plead guilty to criminal fraud charge stemming from 737 Max crashes
Gold prices fell more than 1%, hurt by a risk-on rally in equities & profit-taking by investors after a sharp rally in the previous session over expectations that the Federal Reserve could cut interest rates in Sep. Spot gold was down 1.4% to $2357 per ounce after rising to its highest level since May 22 on Fri. US gold futures settled 1.4% lower to $2363. Data last week pointed to a slackening labor market keeping the US central bank on course to start cutting interest rates soon. Markets are currently pricing in a 71% chance of the Fed cutting interest rates in Sep & another cut in Dec. Investors this week will be focused on Fed Chair Jerome Powell's semi-annual Congressional testimony, comments from a series of Fed officials & US inflation data due on Thurs. Elsewhere, top consumer China's central bank refrained from gold purchases to its reserves for a 2nd consecutive month in Jun.
Gold drops more than 1% as risk appetite grows
West Texas Intermediate (WTI) crude oil closed lower, falling for a 2nd day on lower geopolitical risk as Iran elected a more moderate pres amid ceasefire talks between Israel & Hamas, while Hurricane Beryl made landfall in Texas, closing export facilities. WTI crude for Aug closed down 83¢ to settle at $82.33 per barrel, while Sep Brent crude, the global benchmark, was last seen down 74¢ to $85.80. Iran elected reformist Masoud Pezeshkian as its pres, who looks to improve the country's relationship with the West & bring an end to sanctions, though he is expected to face opposition from the military & religious authorities. As well, ceasefire talks to end the 9-month war between Israel & the Hamas militant group, moderated by Egypt & Qatar, are continuing. Hurricane Beryl made landfall on Texas' southern coast at Category 1 strength with heavy rain & 75 mile per hour winds, shuttering some oil-export facilities near Houston.
WTI Oil Weaken for a Second Session as Geopolitical Risk Eases and Hurricane Beryl Hits Texas
Dow was up about 300 in the first hour of trading, but that enthusiasm faded fast & Dow remained near even for the rest of the session. Uncertainty about rate cuts is a very dark cloud hanging over the stock market. The new pres in Iran is getting a lot of attention since he's labeled as a "reformer." But he is only #2. The real #1 is 85 & in poor health. But he is in charge & at his age of 85 is not interested in changes. Dow remains flattish in recent months (see chart above).
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