Wednesday, September 25, 2024

Markets hesitate as investors keep a watchful eye on the economy

Dow dropped 144, decliners over advancers 3-2 & NAZ went up 56.  The MLP index fell 1 to the 287s & the REIT index fluctuated in the 441s.  Junk bond funds eased lower & Treasuries saw more selling, driving yields higher.  Oil dipped under 71 & gold rose 7 to 2684 for another record.

Dow Jones Industrials


Online spending is expected to jump 8.4% to $241B this holiday shopping season, largely driven by a surge in discounts & the popularity of buy now, pay later services, according to Adobe's latest figures.  This estimate surpasses the $222B shoppers spent online during last year's holiday shopping season, which spans from Nov 1 - Dec 31.  The holiday season, according to Adobe lead analyst Vivek Pandya, "has been reshaped in recent years, where consumers are making purchases earlier, driven by a stream of discounts that has allowed shoppers to manage their budgets in different ways."  Pandya said that these "discounting patterns are driving material changes in shopping behavior, with certain consumers now trading up to goods that were previously higher-priced and propelling growth for U.S. retailers."  This year, shoppers will see "strong discounts" for as much as 30% off listed prices, convincing them to "trade up" in certain categories such as electronics, appliances & sporting goods.  This will contribute to over $2B in incremental spending.  At the same time, the buy now, pay later services, which allow consumers to pay in installments, will drive a record $18.5B in online spending, up 11.4% year over year.  In Nov alone, Adobe estimates that the flexible spending method will drive $9.5B in sales, which would be the largest month on record.  However, Cyber Monday is projected to mark the largest day on record for buy now, pay later spending at $993M.  About 39% of millennials will use this payment method, followed by 38% of Gen Z shoppers.  The primary reason consumers cite for using these services is that it frees up cash & allows them to purchase items they otherwise wouldn't be able to afford.

Buy now, pay later discounts drive holiday spending

A steady decline in mortgage rates to 2-year lows has current homeowners rushing to take advantage of potential savings.  Applications to refinance a home loan surged 20% last week compared with the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Demand was a stunning 175% higher than the same week 1 year ago.  This as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) decreased to 6.13% from 6.15%, with points increasing to 0.57 from 0.56 (including the origination fee) for loans with a 20% down payment.  The rate was 128 basis points higher the same week one year ago, or 7.41%.  "The 30-year fixed rate decreased for the eighth straight week to 6.13%, while the FHA rate decreased to 5.99%, breaking the psychologically important 6% level," said Joel Kan, VP & deputy chief economist at the MBA.  "As a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply."  The refinance share of applications rose to 55.7%.  While the jump compared with a year ago is large & the share is now a majority of total mortgage demand, the level of refinance activity is still modest compared with prior refi waves, according to Kan.  Part of that is the seasonal slowdown in homebuying.  Mortgage applications to purchase a home rose just 1% for the week & were 2% higher than the same week 1 year ago.  Buyers are still facing high home prices & limited supply of houses for sale.  "Average loan sizes were higher both for purchase and refinance applications, which pushed the overall average loan size to its highest in the survey's history at $413,100," Kan added.  Mortgage rates haven't moved much to start this week, & will likely wait for more pressing economic data later in the week & at the start of Oct.

Mortgage refinance boom takes hold, as weekly demand surges 20%

Treasury yields were slightly higher as investors weighed economic data & considered the state of the economy.  The yield on the 10-year Treasury was up by 3.6 basis points to 3.772% & the 2-year Treasury yield was last at 3.547% after rising by just over 2 basis points.  Yields & prices move in opposite directions 1 basis point equals 0.01%.  Investor attention is refocusing on the state of the US economy after the Federal Reserve announced the hotly anticipated start of its interest rate cuts last week.  Economic data points will therefore be watched closely in the coming days & weeks as concerns about a potential slowdown of the economy linger.  Data yesterday showed that consumer confidence fell to its lowest level in over 3 years in Sep, coming in at 98.7.  That is down from 105.6 in Aug & below the consensus estimate of 104.  New home sales figures for Aug are expected today, before durable goods orders data, weekly initial jobless claims & a final 2nd-qtr GDP reading are slated tomorrow.  Later this week, investors will also hear from Fed officials including Chair Jerome Powell.  They will be watching closely for any new hints about the outlook for monetary policy & the Fed's expectations for the economy.  At the end of the week, key economic data in form of the latest personal consumption expenditures (PCE) price index is also set to be published.  The PCE is the Fed's favored inflation gauge.

Treasury yields inch higher as investors consider the state of the economy

Investors will look at upcoming data for clues to the health of the economy & the chances of another jumbo rate cut.  There are worries the US economy could find itself in a recession, with concerns fanned by a surprisingly weak reading on consumer confidence.  The debate centers on whether the Federal Reserve lowered rates by a bigger-than-usual 0.5% in response to a slowing economy & what further malaise means for another hoped-for deep cut.

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