Markets drift lower following recent advances

Dow was off 4, advancers over decliners 5-4 & NAZ pulled back 37.  The MLP index added 2 to the 279s & the REIT index was off 1+ to the 407s.  Junk bond funds were mixed & Treasuries had a little buying which lowered yields (more below).  Oil fell 1+ to the 76s & gold jumped 35 to 2528 (record territory).

Dow Jones Industrials

The indebtedness of American households has surged in the last few years amid a challenging economic environment for consumers that has contributed to delinquency rates rising to their highest levels in more than a decade.  A quarterly report published this month by the Federal Reserve Bank of New York on household credit & debt found that between the first qtr of 2021 & the 2nd qtr of 2024, credit card debt surged 48.1% while household debt, which includes mortgages and auto loans, rose by 21.6%.  In $ terms, credit card debt rose from $770B in early 2021 to $1.14T in the most recent qtr, while household debt increased from $14.6T to $17.8T in the same period.  Amid American rising debt burdens, delinquency rates have grown as well. In the last 12 months, about 9.1% of credit card debt balances & 8% of auto loan balances moved into delinquency, the highest levels since early 2011 & the end of 2010, respectively.  The early delinquency rate for mortgages edged up by 0.1 percentage point, though the New York Fed noted that remains low by historical standards.  American ballooning debt burden occurs against the backdrop of the inflation rate hitting a 40-year high of 9.1% in Jun 2022.  That spurred the Federal Reserve to embark on a campaign of interest rate hikes that pushed the central bank's benchmark rate to 5.25% - 5.50%, the highest level in 23 years, in an effort to tamp down inflation.  Matt Schulz, LendingTree's chief credit analyst, said, "There's never just one reason for debt increases," & explained that while taking on debt can be either a sign of confidence or distress for households, the current economic climate tends to suggest the latter.  "Delinquencies and debt are rising because the combination of high debt, record interest rates and stubborn inflation created this perfect storm that hit many American families really, really hard. Honestly, the fact that delinquencies aren't higher feels like a sign of the resilience and strength of the American consumer," Schulz added.

Americans' household debt surged in recent years amid challenging consumer environment

VP Kamala Harris will unveil a new set of economic proposals that she would prioritize in her first 100 days in office.  The policies aim to lower the cost of groceries & prescription drugs, expand affordable housing & cut taxes for the middle class.  The Dem presidential nominee will visit the battleground state of North Carolina to deliver her first dedicated policy speech since Pres Biden withdrew from the race in late Jul, catapulting her to the top of the ticket.  “These bold actions will address some of the sharpest pain points American families are confronting and bolster their financial security,” the Harris campaign said.  In an effort to tackle the stubbornly high price of groceries, Harris will work with Congress to advance the first-ever federal ban on “corp price-gouging” on food & groceries.  This would include setting clear “rules of the road” so that corps “can’t unfairly exploit consumers to run up excessive corporate profits” on grocery staples, according to the fact sheet.  To investigate & penalize alleged violations, Harris would empower the Federal Trade Commission & state attorneys general.  A Harris administration would also take an aggressive regulatory approach to proposed mergers & consolidation among the biggest food producers.  Harris' plan would help cash-strapped renters by blocking data firms from hiking lease rates & by preventing investors from buying homes in bulk to resell at a premium.  Harris will also call for the US to construct 3M new housing units over the next 4 years.  In order to facilitate that, she will call for new tax incentives for builders who construct “starter homes.”

Harris economic plan features new tax cuts, housing incentives and price caps

Treasury yields were lower as investors weighed this week's key data & considered the state of the economy.  The yield on the 10-year Treasury was down by 2.2 basis points to 3.904%, hovering around the 3.9% level it had crossed yesterday & the 2-year Treasury yield was less than 1 basis point lower to 4.098%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Yields had jumped on yesterday after US retail sales figures for Jul came in much higher than expected, surging 1% in the month.  The forecast had expedience a 0.3% increase.  The data suggested that consumer spending is robust & therefore eased fears of a recession or economic slowdown.  Weekly initial jobless claims also came in below expectations yesterday, calming concerns about the state of the labor market.  Jitters about the labor market & wider economy surged earlier this month after the Jul jobs report was weaker than expected.  It also prompted questions about whether the Federal Reserve should have already cut interest rates.  A rate cut in Sep, when the central bank next meets, was last firmly priced in by markets, boosted by inflation data released this week.  The consumer price index rose 0.2% on a monthly basis in Jul, as expected, & was up 2.9% from a year earlier, which was less than forecast.

Treasury yields fall as investors digest economic data

Harris's economic plans did not excite investors.  Investors are paring back some of their more dramatic bets on rate cuts from the Federal Reserve this year.  Data from the CME Group shows investors placing 66% odds on the Fed cutting rates by 0.25% next month; odds of a 0.50% rate cut now stand at 33%.  During the market's most turbulent moments last week, there was almost a near-certainty that a 0.50% would be warranted.