Markets fall as bond yields keep climbing

Dow dropped 345, decliners over advancers by more than 6-1 & NAZ sank.  The MLP index was off another 2+ to 241 & the REIT index lost 6+ to the 326s (not seen since May 2020).  Junk bond funds declined along with stocks & Treasuries were sold once again, raising yields.  Oil was pennies lower in the 88s & gold slid back 1 to 1845.

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The 10-year Treasury yield, which serves as a benchmark for mortgage rates & as an investor confidence barometer, surged to its highest level since 2007.  The 10-year Treasury yield was last up about 8 basis points to 4.758% & the 30-year Treasury yield rose as high 4.874%, also the highest since 2007.  The 2-year Treasury yield, which is sensitive to expectations around where the Federal Reserve will set its own key borrowing rate, increased slightly to 5.129%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%. Aug's Job Openings & Labor Turnover survey showed a still tight labor market, giving the Federal Reserve the green light to keep lifting rates.  In recent public remarks, Fed policymakers have indicated disagreement about whether another rate hike is needed before the end of the year, but concur that rates will have to stay elevated for what could be a prolonged period of time.  Yesterday, Fed Vice Chair for Supervision Michael Barr said it's less important to focus on another hike & more critical to understand that rates likely will remain elevated “for some time.”  And Cleveland Fed Pres Loretta Mester, a nonvoter this year on the FOMC, said “we may well need to raise the fed funds rate once more this year and then hold it there for some time.”

10-year and 30-year Treasury yields rise to their highest levels since 2007

Employment vacancies at US businesses unexpectedly surged in Aug, a sign that the labor market remains tight & robust despite the Federal Reserve's efforts to slow the economy.  Job openings totaled 9.6M for the month, a jump of nearly 700K from Jul & well above the for 8.8M, the Labor Dept said in its monthly Job Openings& Labor Turnover Survey (JOLTS).  Hires, however, rose only modestly, moving up to 5.857M, an increase of just 35K. The Fed follows the JOLTS report closely for signs of labor slack.  Openings had been on the decline for the last several months, indicating that the central bank's interest rates hikes were beginning to have an impact on a labor market that had been hit by a large supply-demand mismatch in which openings had outnumbered available workers 2 to 1.  The ratio now is down to 1.5-1.0, following an increase of workers classified as unemployed in Aug.  The Aug JOLTS report comes just a few days ahead of the dept's nonfarm payrolls count for Sep.  The forecast expects that report, due Fri, to show an increase of 170K.  Quits, a measure of worker confidence in finding a new job after leaving a previous position, were little changed.  That also was the case with total separations & layoffs.

August job openings top 9.6 million, more than expected as labor market remains strong 

Home sales in the US increased 0.7% month-over-month in Jul to 387K, representing the most significant bump since the beginning of the year, according to the latest data by Redfin.  However, home sales have yet to reach pre-pandemic levels & still sit at 5.4% above the low point from Mar 2022 of 367K units, the lowest levels since the onset of the pandemic.  On an annual basis, home sales dropped 15.7% in Jul, marking the smallest annual decline since last summer.  Nonetheless, homebuyer demand remains strained by high home prices & rising interest rates.  "Home sales hit a bottom in 2022 and haven’t meaningfully budged since," Redfin Chief Economist Daryl Fairweather said.  "Fading recession fears and the prospect of further home price increases have brought some house hunters off the sidelines, but for the most part, buyers remain hesitant to jump into the market because their buying power is so much lower than it was a year ago."  The median annual home sale price increased 1.7% in Jul to $422K, according to Redfin’s data.  That translates to 2.5% below the record high of $432K set in May 2022.  High home prices have been partly driven by a severe lack of available homes for sale that’s pushing determined homebuyers into a roughly competitive housing market.  The total number of homes for sale dropped 3.9% month-over-month in Jul to its lowest level on record.  "It’s a seller’s market, but only because there’s so little inventory," Salt Lake City Redfin Premier real estate agent Mitch Price said.  "Buyers are getting hammered by high interest rates, so they’re not just jumping on whatever is available like they were before. They don’t want to overpay, so they’re waiting for the right home. As a seller, if you overprice your home, that’s your doomsday ticket."  In addition, homebuyers have had to deal with rising mortgage rates.

Home sales increase to highest level since start of year: Redfin

The JOLTS report sent a negative signal to the stock market which has been absorbing other disturbing reports.  High interest rates continue to keep buyers away.  Currently Dow is down 74 YTD as investors are afraid to buy at present levels.

Dow Jones Industrials

 

Markets slide while bond yields extend their rise

Dow dropped 74, decliners over advancers a very big 5-1 & NAZ was up 88.  The MLP index sank 4+ to the 242s & the REIT index was off 6+ to the 332s as yields rise (1 year low for the REIT index).  Junk bond funds drifted lower & Treasuries continues to see very heavy selling, driving yields much higher.  Oil pulled back a big 2+ to the 88s & gold retreated 20 to 1945 (more  on both below).

AMJ (Alerian MLP Index tracking fund)

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A major benchmark for US stocks the Russell 2000  index, turned negative for the year today, an indicator of broader weakness occurring in the economy that's being masked by a few large cap tech equities.  The small-cap barometer lost 1.6% on the day, pushing its YTD performance a loss of 0.2%.  It is also down 12.5% from its 52-week high.  By comparison, the large-cap-focused S&P 500 & NAZ are up 11% & 26%, respectively.  The Russell 2000's comparative weakness relative to the broad market indexes underscores concerns that the 2023 market rally has been too narrow.  By contrast, the Russell 2000 is often perceived as a better insight into the state of the broader US economy thanks to its focus on smaller businesses whose fate depends more on macroeconomic conditions.  The sell-off in the small cap sector has not been surprising due to the current period of market stress & uncertainty, according to Claro Advisors senior VP Jeff Corey.  “Investors tend to look for quality during times of market volatility, and that consists of stocks with strong balance sheets, significant profit margins, stable business models and growing dividends, and those are characteristics that are not typically found in the small caps space,” Corey said.  Compared to large-cap companies, small caps can also be more sensitive to the higher rate environment.  Lending is also often more difficult for small cap companies versus larger cap names, which are can negotiate lower lending rates.  The 10-year Treasury yield is near 15-year highs & was surging today.  The Russell 2000 has higher sector weight in financials, which makes it more leveraged toward interest rate conditions, said Bespoke Investment Group co-founder Paul Hickey.  “So if you put all those factors together, I wouldn’t say that the Russell 2000 is a canary in the coal mine. That being said, it’s very out of favor,” said Hickey.  The strategist believes that easing pressure on interest rates should help the small cap index bounce back from its oversold period.  He noted that major index ETFs that cover US stocks have are currently trading at “extreme” oversold levels, which could set the Russell 2000 on track to an upward trend.

The benchmark for small cap stocks turned negative for the year

Walmart (WMT), a Dow stock & Dividend Aristocrat, announced changes to job titles & pay structure for its corporate staff starting in Nov.  The changes will largely affect job titles & compensation, although no current workers will see their base pay reduced.  WMT, the largest private-sector employer in the US, said some staff will receive new job titles although their roles, responsibilities, type of work & base pay will be unchanged.  WMT is also updating its bonus targets & stock compensation plans.  "As Walmart has continued to grow and evolve over the years, so have the jobs needed to support our business," a spokesperson said.  "We’re in the process of updating our approach to campus office jobs to ensure we remain competitive in today’s environment, better reflect the work being done today, while streamlining job titles across our campus office roles."  Corp employees at WMT & Sam's Club, the company's warehouse chain, will be reclassified into fewer groups of possible job titles with some pay changes taking effect in Nov.  While most staff will receive the same or higher levels of stock compensation, about 4% of staff will see stock targets reduced to align compensation across different geographies.  Those who are set to see a reduction in stock options will receive a one-time grant to account for the change in total compensation before their options are reset at a lower level going forward.  A spokesperson said that the changes are "good compensation hygiene" aimed at helping ensure the company is "appropriately rewarding similar levels of work."  The stock rose 16¢.
If you would like to learn more about WMT, click on this link:
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Major retailer shuffles corporate titles, pay in latest staff move

A top CIA official is warning of the potential threat that China's artificial intelligence programs may pose to US national security, as the agency also seeks to deploy the tech in a way that is beneficial to the US.  Lakshmi Raman, the CIA's director for artificial intelligence, said at the Politico AI & Tech Summit this week that the agency is watching China's AI program, with a concern about how it could leverage the technology.  "They are growing every which way," she said.  That concern echoes concerns from other parts of the federal gov.  The Dept of Homeland Security's threat assessment said that "the proliferation of "accessible artificial intelligence tools likely will bolster our adversaries’ tactics."  "Nation-states seeking to undermine trust in our government institutions, social cohesion, and democratic processes are using AI to create more believable mis-, dis-, and malinformation campaigns, while cyber actors use AI to develop new tools and accesses that allow them to compromise more victims and enable larger-scale, faster, efficient, and more evasive cyber attacks," the assessment said.  But Raman said that the power of the tech also has potential positives for the US, including allowing agents to go thru enormous amounts of data & identify trends that wouldn't be possible without the technology.  She also said that the agency is developing an internal chatbot to help with research & writing.  "What AI sometimes enables in these spaces is the ability to do it at a scale and speed that hasn’t been possible," she added, according to the outlet.  "It’s much more available, and much easier for people."  She also said that the agency is looking to hire, telling the conference that "we need the people who can do this kind of work."  There has been both excitement & concern about the potential uses of the technology.  Lawmakers in Congress recently met with tech giants, union leaders & experts about how best to regulate the technology.

CIA official says China ‘growing every which way’ on artificial intelligence

Gold prices fell to more than 6-month lows, weighed down by a stronger $ & higher bond yields amid bets the Federal Reserve will hold interest rates higher for longer to fight inflation.  The $ index surged to 106.94, gaining nearly 0.7%.  Gold futures for Dec ended lower by $18 at $1847 an ounce.  Gold prices continue to soften as investors prepares for even higher real rates.  A peak in the $ remains elusive as Treasury yields can't stop rising.  A lot of gloom is coming towards the US consumer but that won't lead to safe-haven flows for bullion until the bond market selloff is believed to be over. 

Gold Futures Settle Lower As Dollar Rises On Interest Rate Bets

US crude futures dropped 2.2% to finish at $88.82 a barrel, marking the largest one-day percentage decline in 2 months & the lowest closing price since Sep 13.  Prices surged to a 13-month closing high of $93.68 last Wed, but have fallen each of the 3 sessions since then as investors worry over weak demand & rising spare capacity amid ongoing production cuts by Saudi Arabia & Russia.  ISM data this morning highlighted worries over weak oil & fuel demand as it showed the US manufacturing sector contracted for an 11th consecutive month in Sep.  Another surge higher in the $ today also put some downward pressure on oil prices. The WSJ Dollar Index was recently up 0.6%.

WTI Oil Falls to 2-Week Low on US Data, Dollar

This is a dreary time for the stock market.  The root of the problem for stocks is high interest rates.  Not only are they very high, but there are no signs of reduced rates in the near term.  Sep data which is coming shortly is not likely to send bullish signals.

Dow Jones Industrials 

Markets mixed amid shutdown relief and yields rally

Dow lost 119. decliners over advancers 3-1 & NAZ went up 86.  The MLP index was off 2+ to the 244s & the REIT index fell 2+ to the 366s while yields rally.  Junk bond funds hardly budged & Treasuries were heavily sold, raising yields substantially.  Oil slipped back 1+ to the 89s & gold declined 21 to 1845.

AMJ (Alerian MLP Index tracking fund)

 

 

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Tesla (TSLA) posted its 3ird-qtr vehicle production & delivery report for 2023. Total deliveries in Q3 2023: were 435K & total production was 430K.  During the previous qtr, TSLA reported total deliveries of 466K & production was 480K.  During the same period in 2022 TSLA reported total vehicle production of 365K & deliveries of 343K.  “A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call,” the company said.  “Our 2023 volume target of around 1.8 million vehicles remains unchanged.”  CEO Elon Musk cautioned that TSLA would “continue to target 1.8 million vehicle deliveries this year” but expected 3rd-qtr production to decline slightly following “summer shutdowns for a lot of factory upgrades.”  The company is still not reporting on production or delivery numbers for the Semi, a class 8 electric truck, though it delivered some to an early customer.  The forecast was expecting deliveries to reach 461K for the period ending Sep 30.  An independent TSLA researcher, who uses the handle Troy Teslike on social media, was expecting deliveries of 441K vehicles.  The stock rose 3.82.
If you would like to learn more about TSLA, click on this link:
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Tesla reported 435,059 deliveries for the third quarter, and production of 430,488 vehicles. 

After the United Auto Workers (UAW) expanded its strike against Ford (F), the automaker warned that hundreds of thousands of employees' jobs could be at stake if the work stoppage goes on for too long.  The union launched its simultaneous but limited strike against Detroit's Big Three 2 weeks ago, starting with a Ford plant in Michigan, a General Motors (GM) plant in Missouri & a Stellantis (STLA) plant in Ohio.  In the UAW's 2nd round of strike targets on Sep 22, Ford was spared while union leadership, led by Pres Shawn Fain, told members to walk off the job at 38 parts distribution facilities for GM & STLA.  But the union targeted Ford again in its latest expansion, announcing the shutdown of the automaker's Chicago assembly plant along with GM's assembly facility in Lansing, Michigan.  Following the escalation, Ford execs held a media briefing Fri when CEO Jim Farley said there was still time to make a contract deal that would "avert a real disaster, but not much more time, given the fragility of the supply base of all the companies."  Execs were asked about the costs Ford is sustaining from the ongoing strike & a timeline for when they may become unsustainable.  The company did not offer specifics on $ amounts, but it said that with 2 assembly plants now down, the impact on the business would be "substantial."  Then chief supply chain officer Liz Door provided the company's projections on how the strike could impact jobs.  "Our concern really is the resilience of the supply chain, particularly as we are healing post-COVID," Door said.  "You heard Jim speak about the fact that the supplier ecosystem for Michigan assembly plant is at risk. We understand today there's about 2,400 supplier employees that have been laid off. But as a consequence of the actions today, we see this two-week inflection point."

Ford warns extended UAW strike could result in up to 500,000 employee layoffs

Most Americans plan to draw on their Social Security benefits well before reaching the age of claiming the maximum amount, according to a recent survey.  The decision to draw on benefits early came even as 72% said they knew that waiting would mean a higher payment, according to the Schroders' 2023 US Retirement Survey.  Yet, only 10% of Americans plan to wait until 70 to claim Social Security benefits, & 40% plan to take it in the ages of 62-65, short of qualifying for full benefits.  The survey said that 44% of respondents planned to draw on their benefits early over concern that Social Security is running out of money.  Social Security recipients could see their benefits cut by 20% as soon as 2034 unless Congress takes action, according to the annual trustees' report recently released by the Treasury.  "We have a crisis of confidence in the Social Security system, and it's costing American workers real money," Deb Boyden, Schroders head of US defined contribution, said.  "Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement."  The upfront benefit of claiming retirement benefits at age 70 is a higher payment, according to retirement planning experts.  "For each year an individual defers beyond their full retirement age, until age 70, they will generally accrue a permanently increased benefit amount of 8%," Joseph Doerrer, Mezzasalma Advisors VP of wealth planning, said.  "For an individual with a full retirement age of 67, deferring to age 70 means a permanent benefit increase of 24% above their full retirement age amount."

Fear over Social Security's future pushes Americans to claim benefits early: survey

Traders were not happy with the stock market last month & gloomy thinking is continuing in Oct.  Sep data will be reported shortly.  If good, stock buyers may return.

Dow Jones Industrials