Markets slide ahead of Powell's speech tomorrow

Dow dropped 114, decliners over advancers 3-2 & NAZ was off 50.  The MLP index added 1+ to the 281s & the REIT index was even in the 415s.  Junk bond funds fluctuated & Treasuries saw selling which raised yields (more below).  Oil rebounded from a 7 month low 1+ to 73 & gold fell 28 to 2518.

Dow Jones Industrials

Closed sales of previously owned homes rose 1.3% in Jul compared with Jun to a seasonally adjusted, annualized rate of 3.95M units, according to the National Association of Realtors (NAR).  That was the first gain in 5 months.  Sales were 2.5% lower compared with the same time last year.  Sales saw the biggest gains in the Northeast & were flat in the Midwest & prices also rose the most in the Northeast.  “Despite the modest gain, home sales are still sluggish,” said Lawrence Yun, NAR's chief economist.  “But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates.”  These sales are based on contracts that were likely signed in May & Jun, when mortgage rates were well over 7% on the popular 30-year fixed loan.  Rates began dropping in Jul & are now hovering around 6.5%.  All-cash offers made up 27% of Jul sales, up from 26% the year before & far higher than the historical norm.  The supply of homes for sale continued to move higher in Jul.  At the end of the month, there were 1.33M homes on the market, an increase of 0.8% from Jun & 19.8% higher than in Jul 2023.  At the current sales pace, that represents a 4-month supply, slightly lower than it was in Jun.  The increase in supply did not, however, help to cool home prices.  The median price of an existing home sold in Jul was $442K, an increase of 4.2% year-over-year.  First-time buyers made up 29% of sales in Jul, unchanged from Jun but down from 30% in Jul 2023.  Historically, these buyers make up closer to 40% of home sales, but affordability has been hit hard in the last 2 years due to fast-rising home prices & higher mortgage rates.  With rates now slightly lower, demand is starting to pick up.  A separate report from Redfin, a real estate brokerage, found requests for tours & other buying services from Redfin agents rose 4% over the last week to its highest level in 2 months.

July home sales break a four-month losing streak as supply rises nearly 20% over last year

The US 10-year Treasury rose as investors looked ahead to remarks from Federal Reserve Chairman Jerome Powell.  The yield on the 10-year Treasury climbed more than 6 basis points at 3.839%, while the yield on the 2-year Treasury added almost 6 basis points to 3.98%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Powell is set to give a speech at the annual Jackson Hole symposium tomorrow.  His comments come after the release of minutes from the central bank's Jul policy meeting.  The minutes showed the “vast majority” of Fed officials “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”  Market participants are firmly pricing in an interest rate cut at the central bank's next meeting.  Traders are currently pricing in a roughly 66% chance of a 25-basis-point rate cut in Sep, with just over 1/3 pricing in a 50-basis-point rate cut, according to the CME Group's FedWatch Tool.  Jobless claims data released today came in slightly higher than expected.  That can add to a growing view that the labor market is not as strong as once believed, a theory bolstered yesterday when nonfarm payroll growth was revised down by 818K.  That leg up comes after yields slid in the previous day.

Treasury yields rise as traders await Powell remarks

Peloton (PTON) said it is digging itself out of the red & eked out a slight sales increase for the first time in 9 qtrs as it slashed its overall losses.  The beleaguered connected fitness company, which 2 board members have run since former CEO Barry McCarthy resigned earlier this year, saw sales grow by 0.2% during its fiscal 4th qtr.  While only a modest uptick, it's the first time PTON posted year-over-year revenue growth since its 2021 holiday qtr.  The company also indicated it's ready to focus on profitability over growth with significant cuts to its marketing & sales spending & meaningful increases to free cash flow & adjusted EBITDA.  Those cuts helped narrow its quarterly losses to $30.5M from $241.1M in the year-ago period.  For the current qtr, PTON projects sales to be worse than expected but is guiding to higher-than-forecast adjusted EBITDA.  The company said it anticipates sales to be $560-580M, compared with estimates of $609M.  It's expecting to post adjusted EBITDA of $50-60M, compared with estimates of $45M.  For the full year, PTON expects sales to be $2.4 - $2.5B, compared with estimates of $2.7B.  For the 3-month period that ended Jun 30, Peloton significantly narrowed its losses.  The company posted a loss of 8¢ per share, compared with a loss of 68¢ per share a year earlier.  Sales rose to $643.6M, up from $642.1M a year earlier.  That's only a $1.5M increase, but PTON did it at a time when sales are typically a bit slower for the company, because the qtr bleeds into the summer when people are more focused on going out & traveling than working out.  The last time PTON delivered year-over-year sales growth was during its holiday season in 2021, which is typically the company's strongest qtr.  The low priced stock rose 95¢ (28%).

Peloton shares rise more than 15% as turnaround plan takes hold, losses shrink

Investors are weighing how deeply the Federal Reserve might lower interest rates next month on the eve of a key speech by Chair Jerome Powell.  Stocks took a positive tone after minutes from the Fed's last meeting showed several officials were open to a Jul rate cut, signaling a pivot is likely in next month's policy decision.  Mounting hopes for lower rates have already helped markets recoup losses from the early Aug rout.  The Jackson Hole symposium kicks off tomorrow with the market on high alert for any shift in tone from the policymakers when Powell speaks.