ReportWire

Tag: Banking/Credit

  • Crypto investors rattled as Binance abandons its proposed acquisition of rival FTX

    Crypto investors rattled as Binance abandons its proposed acquisition of rival FTX

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    Binance, the world’s largest crypto exchange, is abandoning its proposed acquisition of the non-U.S. assets of rival FTX, amid the latter’s liquidity crunch.

    “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” according to a tweet by Binance’s official account Wednesday.

    “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance wrote.

    Executives at Binance have found a gap, likely in billions and possibly more than $6 billion, between the liabilities and assets of FTX, Bloomberg reported Wednesday, citing an anonymous source familiar with the matter. 

    Representatives at Binance and FTX didn’t immediately respond to a request seeking comments.

    On Tuesday, Changpeng Zhao, Binance’s chief executive, said the exchange had signed a letter of intent to acquire FTX.com, a separate entity from FTX.US, after FTX “asked for help.”

    Read: Bitcoin falls to two-year low after crypto exchange Binance proposed to buy rival FTX

    Investors are worried about any contagion, as concerns over FTX’s solvency spilled over to the already battered crypto market. BitcoinBTCUSD plunged Wednesday to as low as $16,863, the lowest level since November 2020.

    FTX is the third largest crypto exchange by trading volume, according to CoinMarketCap. 

    Also read: Crypto billionaire Sam Bankman-Fried’s net worth could shrink by over $13 billion

    See also: FTX problems mean big headaches for its private equity investors

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  • Live Q&A: Ask us about the midterm election results, and what comes next

    Live Q&A: Ask us about the midterm election results, and what comes next

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    MarketWatch readers: Ask our Washington bureau chief Robert Schroeder about the results of Tuesday’s midterm elections — and what comes next — during a live, dynamic session beginning at 11 a.m. Eastern on Wednesday.

    Before the Q&A starts, please start leaving your questions and comments here and let us know what’s on your mind.  

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  • Coinbase prepares for likely worse 2023, Q3 revenue drops more than 50%

    Coinbase prepares for likely worse 2023, Q3 revenue drops more than 50%

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    Coinbase Global Inc. late Thursday reported a wider quarterly loss and a 54% drop in revenue, saying the headwinds for its business will continue and likely intensify next year.

    Coinbase
    COIN,
    -8.09%
    said it lost $545 million, or $2.43 a share, in the quarter, swinging from earnings of $406 million, or $1.62 a share, in the year-ago period.

    Revenue dropped to $576 million from $1.24 billion a year ago.

    Analysts surveyed by FactSet expected the crypto exchange to report a loss of $2.38 a share on revenue of $641 million.

    Shares traded lower immediately after the report, but at last check were rising more than 8% in the extended session.

    The quarter was “mixed” for Coinbase, the company said in a letter to shareholders. “Transaction revenue was significantly impacted by stronger macroeconomic and crypto market headwinds, as well as trading volume moving offshore.”

    On the plus side, Coinbase saw “strong growth in our subscription and services revenue,” it said.

    Those headwinds, however, continued to impact transaction revenue, which was down 44% quarter on quarter, Coinbase said in the letter.

    Trading volume dropped to $159 billion in the quarter from $217 billion in the second quarter.

    “For 2022, we remain cautiously optimistic that we will operate within the $500 million adjusted EBITDA loss guardrail that we previously communicated,” the company said. That assumes that the crypto market does not deteriorate further, it said.

    For next year, however, Coinbase is “preparing with a conservative bias and assuming that the current macroeconomic headwinds will persist and possibly intensify,” the company said.

    Coinbase earlier this week said its chief product officer was stepping down as the company reorganizes its business.

    In August, the company reported a $1.1 billion loss.

    Coinbase shares have lost more than 77% this year, compared with losses of around 21% for the S&P 500 index
    SPX,
    -1.06%    .

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  • How the Federal Reserve’s rate hike impacts your holiday spending plans: ‘It’s not the time to overspend’

    How the Federal Reserve’s rate hike impacts your holiday spending plans: ‘It’s not the time to overspend’

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    It is three weeks before Black Friday, but the Federal Reserve is about to make the post-holiday debt hangover a little more intense.

    By the time the latest rate hikes filter through the very rate-sensitive credit card industry and pump up customers’ annual percentage rates a little more, experts say it will be some point in December 2022 or January 2023. Right in time for many holiday gifts and expenses to post on credit cards bills — and there to make the costs of a carried balance a little extra expensive.

    Every year, many people accumulate credit card debt through the holiday season, pay it off in the early part of the following year and then repeat the process.

    What’s different now is the presence of four-decade high inflation, coupled with fast-rising interest rates that the Fed hopes will ultimately cool those rising prices, although without sending the economy to a recessionary thud.

    Wednesday’s rate move is the fourth straight 75-basis-point rate hike to the federal funds rate, taking it to the 3.75% -4% range, when it was near zero last year’s holiday season. By now, Americans are all too acquainted with 2022’s fast-rising interest rates. They just haven’t gone through a Christmas and Hanakkuh with it yet.

    “It’s not the time to overspend and have a problem with paying your bills later. We know the economy is sending mixed messages,” said Michele Raneri, vice president of financial services research and consulting at TransUnion
    TRU,
    -4.31%    ,
    one of the country’s three major credit reporting companies.

    It’s extra important to think through a holiday budget and how much relies on credit, she said. “People need to think about how much they can afford to repay and how long it will take to repay it.”

    Holiday spending could be the same as 2021 for many people — but not everyone

    Last month, third-quarter earnings from major banks like JPMorgan Chase & Co.
    JPM,
    -0.92%    ,
    Wells Fargo
    WFC,
    -0.15%    ,
    Citibank
    C,
    -1.45%
    and Bank of America
    BAC,
    -0.30%
    indicated consumer finances, on the whole, are not yet showing cracks under inflation’s strains. (Other numbers show the strain, like the personal savings rate that’s been dwindling.)

    Now, two forecasts suggest many people ready to spend the same amount for this year’s holiday cheer as they did last year.

    People are planning to spend an average $1,430 on gifts, travel and entertainment this year, which is around the $1,447 spent last year, according to PwC researchers. Three-quarters of people said they were planning to spend the same or more than last year and respondents said credit cards were one of their top ways to pay.

    “ Compared to last year, credit card balances are getting bigger, more people are sitting on balances and debt costs are getting pricier.”

    By another measure, Americans will pay an average $1,455 on holiday-related gifts and experiences, essentially flat from last year, say Deloitte researchers.

    More than one-third of surveyed consumers say their financial outlook is worse than the same point last year. Nearly one-quarter of people were concerned about credit card debt as of late September, Deloitte’s numbers show in an ongoing tracking of consumer mood.

    It’s understandable to see the concern with households amassing a collective $890 billion in credit card debt through the second quarter. Compared to last year, balances are getting bigger, more people are sitting on balances and debt costs are getting pricier because the interest rates applied to those balances are rising.

    When people were carrying a credit card balance month to month, the sum was $5,474 on average, according to Raneri. That’s through the end of September and it’s a nearly 13% rise year over year, she said. The 164 million people carrying a balance is a 5% increase from last year, she noted.

    Credit cards carrying a balance during the third quarter had an average 18.43% APR, Federal Reserve data shows. That’s up from 16.65% in the second quarter and up from 17.13% in 2021’s third quarter.

    How the Fed influences credit card rates

    Credit card issuers typically determine their rates by applying a “prime rate” — typically three percentage points on top of the federal funds rate — and the issuer’s profit margin, said Ted Rossman, senior industry analyst at Bankrate.com.

    By late October, the rate on new card offers was 18.73%, according to Bankrate data. At this point last year, it was 16.31%, Rossman said. In a few weeks, the rates on new offers should beat the all-time record of an average 19% APR, exclusive to new offers, he added.

    While it can take a billing cycle or two for a higher APR to make its way to an existing credit card account, Rossman noted the APRs on new offers could rise in a matter of days.

    Here’s a hypothetical to show how much more expensive credit card debt becomes with every extra hike. Suppose the $5,474 balance is on a credit card with the current 18.73% average. If a person has to resort to minimum payments, Rossman said, they’d be paying $7,118 just in interest to pay off the debt.

    “ In a few weeks, the rates on new credit card offers should beat the all-time record of an average 19% APR.”

    What if the 18.73% APR gets kicked up 75 basis points to 19.48%? If that same borrower has to pay minimums, they are now paying $7,417 in interest to snuff the principal debt of $5,474, Rossman said.

    The example has its limits because people may pay more than the minimum and they may incur more credit card debt as they pay off the old one. But it shows a bigger point: “Unfortunately, anybody dealing with credit card debt is a loser from the series of rate hikes. It was already expensive. It’s getting more so,” Rossman said.

    When do rate hikes stop?

    While decisions during the Fed’s November meeting can have a ripple effect on holiday-time borrowing costs, observers say the real question about Wednesday is the clues Federal Reserve Chairman Jerome Powell drops for what’s next. The central bank’s committee voting on interest rate increases reconvenes in mid-December.

    On Wednesday, the Fed said in a statement it expected further rate increases, but also said it would be watching to see if there were lag effects with its tightening policies, which could slow or limit the total amount of increases.

    “People, when they hear lags, they think about a pause. It’s very premature, in my view, to think about or be talking about pausing our rate hike. We have a ways to  go,” Powell told reporters at a Wednesday afternoon press conference.

    The economy is strong enough to handle higher rates, Powell said. For one thing, households have “strong balance sheets” and “strong spending power,” he noted.

    Stock markets first jumped higher after the latest interest rate announcement. But they gave up the gains — and then some — by the end of the day. The Dow Jones Industrial Average
    DJIA,
    -1.55%
    was down more than 500 points, or 1.6% while the S&P 500
    SPX,
    -2.50%
    was down 2.5% and the Nasdaq Composite
    COMP,
    -3.36%
    closed 3.4% lower.

    Top economists in major North American-based banks forecasted the Fed will keep raising interest rates “until the first quarter of next year before potentially lowering rates through the end of 2023,” Sayee Srinivasan, chief economist at the American Bankers Association, the banking sector’s trade association, said ahead of Wednesday’s latest rate hike.

    “Top economists polled as part of a banking industry panel expect Fed rate increases through at least the first quarter of 2023.”

    The forecast, coming through an ABA advisory committee, is no sure thing. “Everything depends on the ability of the Fed to bring inflation down, so that will remain their clear priority,” said Srinivasan.

    Meanwhile, rising costs may cause more people to put the holiday cheer on plastic, even their decorations. The majority of Christmas tree growers in one poll are expecting wholesale prices to climb 5% to 15% for this season.

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  • 20 dividend stocks that may be safest if the Federal Reserve causes a recession

    20 dividend stocks that may be safest if the Federal Reserve causes a recession

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    Investors cheered when a report last week showed the economy expanded in the third quarter after back-to-back contractions.

    But it’s too early to get excited, because the Federal Reserve hasn’t given any sign yet that it is about to stop raising interest rates at the fastest pace in decades.

    Below is a list of dividend stocks that have had low price volatility over the past 12 months, culled from three large exchange traded funds that screen for high yields and quality in different ways.

    In a year when the S&P 500
    SPX,
    -0.40%
    is down 18%, the three ETFs have widely outperformed, with the best of the group falling only 1%.

    Read: GDP looked great for the U.S. economy, but it really wasn’t

    That said, last week was a very good one for U.S. stocks, with the S&P 500 returning 4% and the Dow Jones Industrial Average
    DJIA,
    -0.32%
    having its best October ever.

    This week, investors’ eyes turn back to the Federal Reserve. Following a two-day policy meeting, the Federal Open Market Committee is expected to make its fourth consecutive increase of 0.75% to the federal funds rate on Wednesday.

    The inverted yield curve, with yields on two-year U.S. Treasury notes
    TMUBMUSD02Y,
    4.540%
    exceeding yields on 10-year notes
    TMUBMUSD10Y,
    4.064%    ,
    indicates investors in the bond market expect a recession. Meanwhile, this has been a difficult earnings season for many companies and analysts have reacted by lowering their earnings estimates.

    The weighted rolling consensus 12-month earning estimate for the S&P 500, based on estimates of analysts polled by FactSet, has declined 2% over the past month to $230.60. In a healthy economy, investors expect this number to rise every quarter, at least slightly.

    Low-volatility stocks are working in 2022

    Take a look at this chart, showing year-to-date total returns for the three ETFs against the S&P 500 through October:


    FactSet

    The three dividend-stock ETFs take different approaches:

    • The $40.6 billion Schwab U.S. Dividend Equity ETF
      SCHD,
      +0.15%
      tracks the Dow Jones U.S. Dividend 100 Indexed quarterly. This approach incorporates 10-year screens for cash flow, debt, return on equity and dividend growth for quality and safety. It excludes real estate investment trusts (REITs). The ETF’s 30-day SEC yield was 3.79% as of Sept. 30.

    • The iShares Select Dividend ETF
      DVY,
      +0.45%
      has $21.7 billion in assets. It tracks the Dow Jones U.S. Select Dividend Index, which is weighted by dividend yield and “skews toward smaller firms paying consistent dividends,” according to FactSet. It holds about 100 stocks, includes REITs and looks back five years for dividend growth and payout ratios. The ETF’s 30-day yield was 4.07% as of Sept. 30.

    • The SPDR Portfolio S&P 500 High Dividend ETF
      SPYD,
      +0.60%
      has $7.8 billion in assets and holds 80 stocks, taking an equal-weighted approach to investing in the top-yielding stocks among the S&P 500. It’s 30-day yield was 4.07% as of Sept. 30.

    All three ETFs have fared well this year relative to the S&P 500. The funds’ beta — a measure of price volatility against that of the S&P 500 (in this case) — have ranged this year from 0.75 to 0.76, according to FactSet. A beta of 1 would indicate volatility matching that of the index, while a beta above 1 would indicate higher volatility.

    Now look at this five-year total return chart showing the three ETFs against the S&P 500 over the past five years:


    FactSet

    The Schwab U.S. Dividend Equity ETF ranks highest for five-year total return with dividends reinvested — it is the only one of the three to beat the index for this period.

    Screening for the least volatile dividend stocks

    Together, the three ETFs hold 194 stocks. Here are the 20 with the lowest 12-month beta. The list is sorted by beta, ascending, and dividend yields range from 2.45% to 8.13%:

    Company

    		 Ticker

    		 12-month beta

    		 Dividend yield

    		 2022 total return
    Newmont Corp.

    		 NEM,
    -0.78%         		0.17

    		 5.20%

    		 -30%
    Verizon Communications Inc.

    		 VZ,
    -0.07%         		0.22

    		 6.98%

    		 -24%
    General Mills Inc.

    		 GIS,
    -1.47%         		0.27

    		 2.65%

    		 25%
    Kellogg Co.

    		 K,
    -0.93%         		0.27

    		 3.07%

    		 22%
    Merck & Co. Inc.

    		 MRK,
    -1.73%         		0.29

    		 2.73%

    		 35%
    Kraft Heinz Co.

    		 KHC,
    -0.56%         		0.35

    		 4.16%

    		 11%
    City Holding Co.

    		 CHCO,
    -1.45%         		0.38

    		 2.58%

    		 27%
    CVB Financial Corp.

    		 CVBF,
    -1.24%         		0.38

    		 2.79%

    		 37%
    First Horizon Corp.

    		 FHN,
    -0.18%         		0.39

    		 2.45%

    		 53%
    Avista Corp.

    		 AVA,
    -7.82%         		0.41

    		 4.29%

    		 0%
    NorthWestern Corp.

    		 NWE,
    -0.21%         		0.42

    		 4.77%

    		 -4%
    Altria Group Inc

    		 MO,
    -0.18%         		0.43

    		 8.13%

    		 4%
    Northwest Bancshares Inc.

    		 NWBI,
    +0.10%         		0.45

    		 5.31%

    		 11%
    AT&T Inc.

    		 T,
    +0.63%         		0.47

    		 6.09%

    		 5%
    Flowers Foods Inc.

    		 FLO,
    -0.44%         		0.48

    		 3.07%

    		 7%
    Mercury General Corp.

    		 MCY,
    +0.07%         		0.48

    		 4.38%

    		 -43%
    Conagra Brands Inc.

    		 CAG,
    -0.82%         		0.48

    		 3.60%

    		 10%
    Amgen Inc.

    		 AMGN,
    +0.41%         		0.49

    		 2.87%

    		 23%
    Safety Insurance Group Inc.

    		 SAFT,
    -1.70%         		0.49

    		 4.14%

    		 5%
    Tyson Foods Inc. Class A

    		 TSN,
    -0.40%         		0.50

    		 2.69%

    		 -20%
    Source: FactSet

    Any list of stocks will have its dogs, but 16 of these 20 have outperformed the S&P 500 so far in 2022, and 14 have had positive total returns.

    You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

    Don’t miss: Municipal bond yields are attractive now — here’s how to figure out if they are right for you

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  • Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

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    First the easy part.

    Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.

    “The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.

    The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.

    What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.

    The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.

    The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.

    The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.

    A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.

    “No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

    Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.

    There was a clear slowdown in private-sector wage growth, Tilley said.

    See: U.S. third-quarter wage pressures cool a little from elevated levels

    But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.

    See: U.S. inflation still running hot, key PCE price gauge shows

    Another worry for Powell is that future data might not cooperate.

    There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.

    So Powell might have to reverse course.

    “If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

    This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.

    While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.

    In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.

    Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.

    There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.

    Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.

    Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.

    The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “

    “That strikes me that is going to be a very volatile period for the market,” he added.

    Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.

    Over the month of October, the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.046%
    rose steadily above 4.2% before softening to 4% in recent days.

    “When you get close to the end, every move really counts,” Stanley said.

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  • Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    [ad_1]

    First the easy part.

    Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.

    “The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.

    The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.

    What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.

    The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.

    The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.

    The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.

    A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.

    “No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

    Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.

    There was a clear slowdown in private-sector wage growth, Tilley said.

    See: U.S. third-quarter wage pressures cool a little from elevated levels

    But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.

    See: U.S. inflation still running hot, key PCE price gauge shows

    Another worry for Powell is that future data might not cooperate.

    There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.

    So Powell might have to reverse course.

    “If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

    This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.

    While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.

    In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.

    Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.

    There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.

    Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.

    Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.

    The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “

    “That strikes me that is going to be a very volatile period for the market,” he added.

    Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.

    Over the month of October, the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.030%
    rose steadily above 4.2% before softening to 4% in recent days.

    “When you get close to the end, every move really counts,” Stanley said.

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  • Where Are Markets Headed? Six Pros Take Their Best Guess

    Where Are Markets Headed? Six Pros Take Their Best Guess

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    A massive selloff in bonds. A plunge in tech stocks. The implosion of cryptocurrencies. The highest inflation in four decades.

    Amid a brutal and uncertain climate, we asked six heavyweights in the world of finance to share their thoughts on the state of the markets, how they have handled this year’s carnage and what they anticipate in the future.

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  • ‘He’s not willing to live in my house because it has fewer amenities’: My boyfriend wants me to move in and pay half his monthly costs. Is that fair?

    ‘He’s not willing to live in my house because it has fewer amenities’: My boyfriend wants me to move in and pay half his monthly costs. Is that fair?

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    Dear Quentin,

    My boyfriend owns a house with a 30-year mortgage balance of $150,000 on a 4% interest rate. He has $275,000 in cash and retirement accounts. He is retired.

    My house is paid off. I have $50,000 in cash and retirement accounts. I would like to retire within one to two years.

    We wish to cohabitate but have not been able to agree on a fair “rent” to pay. He is not willing to live in my house because it has fewer amenities. 

    “‘He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash. ‘”

    He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash. 

    I have forgone that luxury and paid off my mortgage. I am now working on building my savings. I don’t feel it is fair for me to pay half of the mortgage interest expense. 

    I don’t know what repair and maintenance costs should be expected from me, if I have no equity in his house. There are many points of view, none of which feels fair.

    These are the options he set forth:

    · I live in his house and thus get to rent mine out. Pay him half of what I net from that rental.

    · Pay half of the actual costs of living expenses and upkeep on his house while I live there.

    · Pay him what I pay to live in my current home for taxes, insurance, and utilities: $800/month.

    What say you, Moneyist?

    House Owner & Girlfriend 

    Dear House Owner,

    I’m sure your house is just as nice. And just because he believes you should pay half his costs, does not make it so. If you are paying no mortgage on your own home, I don’t believe you should pay one red cent more to live in his home. 

    That is to say, you should not come out of this arrangement paying more, just because (a) he would like you to live in his home and (b) he would like you to help him pay off his mortgage, or his tax and maintenance.

    You both made different choices: Yours was to have a home that’s free-and-clear of a mortgage, so you can spend this time building up your savings for retirement and/or a rainy day. 

    You have worked hard to pay off your mortgage, and you have $50,000 in savings, less than 20% of your boyfriend’s savings. He has $150,000 left on his mortgage, and that’s his choice.

    “If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. ”

    You are not the answer to his long-term financial plans, you are his partner in life. If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. What do you expect of you? Forget what he expects.

    By the way he is approaching this arrangement, it seems like he wants the equivalent of a detergent and a fabric softener — a girlfriend and a tenant in one handy bottle to keep his financial plans smooth and clean.

    Bottom line: You should not compromise any plans to build your nest egg. The lady’s not for turning. Only acquiesce to his plan if — with the help of an actual tenant in your home — it helps you too. 

    In other words, the desired outcome for you is more important than the suggestions he has put forward. He could save $600 a month! That’s his business. Not yours. What do you want to have in your pocket every month?

    Figure out what you want, and then work your way backwards based on that goal. For instance, if you can pay him $800 a month, charge $1,600 rent for your home, and put $800 towards your savings, do that.

    You’ve come a long way. Don’t let these negotiations scupper that.

    Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

    The Moneyist regrets he cannot reply to questions individually.

    By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

    Also read:

    I built a property portfolio with 23 units while we were dating. How much should I give to my fiancé in our prenup?

    ‘We will not outlive our money’: How can we give $10,000 to our nieces and nephews without offending the rest of the family?

    ‘S‘I hate to be cheap’: Is it still acceptable to arrive at a friend’s house for dinner with just one bottle of wine?

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  • Flash PMI data show U.S. economic downturn ‘gathering significant momentum’ in October, says S&P Global

    Flash PMI data show U.S. economic downturn ‘gathering significant momentum’ in October, says S&P Global

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    The numbers: The S&P Global U.S. manufacturing sector rose slightly to 50.7 in October from 50.6 in the prior month, based on a “flash” survey.

    The flash U.S. services sector index, meanwhile, fell to 46.6 from 49.3.

    Readings above 50 signify expansion; below that, contraction.

    Economists polled by the Wall Street Journal had expected manufacturing to rise to 51.8 in October and for the service sector to rise to 49.7.

    Key details: In the service sector, the downturn was fueled by the rising cost of living and tightening financial conditions.

    New orders in the manufacturing sector fell back into contraction territory in October. Output remained resilient due to firms eating into backlogs of previously placed orders, S&P Global said.

    While price pressures picked up a bit in the service sector, the pace of the gain in inflation in the manufacturing sector was the slowest in almost two years.

    Big picture: Talk of a recession sometime in 2023 has picked up in the last week. Many economists are sounding more bearish on the outlook, especially since the Federal Reserve is now seen raising its benchmark rate to 5%. However, on Monday, economists at Goldman Sachs said that talk over a recession was overblown.

    What S&P Global said: “The US economic downturn gathered significant
    momentum in October, while confidence in the outlook also deteriorated sharply,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

    “Although price pressures picked up slightly in the service sector due to high food, energy and staff costs, as well as rising borrowing costs, increased competitive forces meant average prices charged for services grew at only a fractionally faster rate. Combined with the easing of price pressures in the goods-producing sector, this adds to evidence that consumer price inflation should cool in coming months,” he added.

    Market reaction: Stocks
    DJIA,
    +0.88%

    SPX,
    +0.58%
    were higher in early trading on Monday, while the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.236%
    inched up to 4.24%.

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  • Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

    Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

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    NASHVILLE, Tenn. — A mortgage industry group is expecting a recession to hit the U.S. economy.

    “We’re forecasting a recession for next year,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said Sunday during the industry group’s annual conference in Nashville, Tenn. 

    “The upside of that potentially for the industry is, that’s the thing that’s likely going to bring rates down a little bit,” he added.

    Also see: Mortgage bankers forecast rates to drop to 5.4% in 2023. Here’s what that means for home prices.

    In a statement, Fratantoni said the MBA’s forecast calls for a recession in the first half of 2023, and predicts the unemployment rate will rise from 3.5% to 5.5% by the end of next year.

    “We’re beginning to see some significant signs of softening in the labor market,” Frantantoni said. 

    He expects companies to no longer be scrambling to fill job openings, and that hiring will eventually cool off.

    On average in 2023, expect the economy to lose 25,000 jobs per month, he said, and end the year with employment at 5.5%. 

    That’s in stark contrast to the latest unemployment rate in September, which was 3.5%, according to the Bureau of Labor Statistics.

    “So a very, very different job market to today,” Frantantoni said. “I do expect the next couple of months are gonna be a pretty abrupt transition.”

    With a recession on the horizon, expect mortgage rates to come down to close to 5.4% at the end of next year, he said, versus the 7%-plus rates that the market is seeing today. 

    “We are holding to our view that this is a spike right now, driven by financial-market dislocation, heightened level of volatility in the market and this global slowdown we’re about to experience, the likelihood of recession in the U.S. will begin to pull this number,” Fratantoni said.

    Mike Fratantoni, senior vice president and chief economist for the MBA, speaks in Nashville on Sunday.


    AARTHI SWAMINATHAN

    Given the massive rise in rates this year, with the 30-year fixed rate averaging 6.94% last week as compared to 3.85% a year ago, many potential home buyers have decided to wait as their projected monthly mortgage payments have become unaffordable.

    Home sales have plunged, and are dragging down home prices. Sellers are also making more concessions in their attempts to woo buyers.

    As a result of the slowdown, the MBA is expecting total mortgage origination volume to fall to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022. 

    They’re also expecting purchase originations to drop 3%, and refinances by 24%.

    Fratantoni also expects delinquencies to rise from 40-year lows.

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  • IRS releases new federal tax brackets and standard deductions. Here’s how they affect your family’s tax bill.

    IRS releases new federal tax brackets and standard deductions. Here’s how they affect your family’s tax bill.

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    America’s high inflation rate will produce a 7% increase in the size of the standard deduction when workers file their taxes on their 2023 income, according to new inflation adjustments from the Internal Revenue Service.

    It’s also going to pump up tax brackets by 7% as well, according to the annual inflation adjustments the IRS announced this week.

    Many tax code provisions — but not all — are indexed for inflation, so the announcements are a recurring event. But when inflation is persistently clinging to four-decade highs, these annual adjustments carry extra significance.

    “When inflation is persistently clinging to four-decade highs, these annual adjustments of approximately 7% for the standard deduction carry extra significance.”

    Start with the standard deduction, which is what most people use instead of itemizing deductions.

    The standard deduction for individuals and married people filing separately will be $13,850 for the 2023 tax year. That’s a $900 increase from the $12,950 standard deduction for the upcoming tax season.

    For married couples filing jointly, the payout climbs to $27,700 for the 2023 tax year. That’s a $1,800 increase from the $25,900 standard deduction set for the upcoming tax year.

    The increases in the marginal tax rates reflect the same 7% rise. For example, the 22% tax bracket for this year is over $41,775 for single filers and over $83,550 for married couples filing jointly. Next year, the same 22% bracket applies to incomes over $44,725 and over $89,450 for married couples filing jointly.

    MarketWatch/IRS

    “The changes seem to be much larger than previous years because inflation is running much higher than it has in previous decades,” said Alex Durante, economist at the Tax Foundation, a right-leaning tax think tank.

    The IRS arrives at its inflation adjustments by averaging a slightly different inflation gauge, the so-called “chained Consumer Price Index” instead of the widely-watched Consumer Price Index, Durante noted. That’s an outcome of the Trump-era Tax Cuts and Jobs Act of 2017, he added.

    “The reason they do this is because the regular CPI is thought to overstate inflation because it doesn’t take into account the substitution that shoppers can make as cost rise,” Durante said. Shoppers substitute when they swap a more expensive item for cheaper one, and research shows many Americans are using the tactic.

    The IRS inflation adjustments come after September CPI data last week showed inflation of 8.2% year-over-year, slightly off from 8.3% in August. Also last week, the Social Security Administration said next year’s payments would include an 8.7% cost of living adjustment.

    “The payout on the earned income tax credit — geared at low- and moderate-income working families who have been hit hard by red-hot inflation — is also increasing. ”

    The payout on the earned income tax credit is also increasing. The maximum payout for a qualifying taxpayer with at least three qualifying children climbs to $7,430, up from $6,935 for this tax year. The longstanding credit is geared at low- and moderate-income working families who have been hit hard by red-hot inflation.

    More than 60 provisions are slated for an increase inline with inflation, but many portions of the tax code are not indexed for inflation. Depending on the circumstances, the taxes or the tax breaks kick in sooner.

    Capital gains tax rules one example. The IRS lets a taxpayer use capital losses to offset capital gains taxes. If losses exceed gains, the IRS allows a taxpayer to deduct up to $3,000 in excess loses. They can then carry the remainder of the capital loses to future tax years. It’s been more than four decades since lawmakers last set the limit, according to Durante.

    “While more than 60 provisions are slated for an increase inline with inflation, many portions of the tax code are not indexed for inflation. They include capital gains tax. ”

    Given the stock market’s rocky downward slide this year, many investors might welcome a fast-approaching tax break — even if it only enables a $3,000 deduction.

    At the same time, a married couple selling their home can exclude the first $500,000 of the sale from capital gains taxation, and it’s $250,000 for a single filer. It’s been that way since the exclusion’s 1997 establishment.

    The once white-hot housing market may be cooling, but many sellers may still be facing the point when taxes kick in. The median home listing was over $367,000 as of early October, according to Redfin
    RDFN,
    +2.29%    .

    The child tax credit is another example. After the payout to parents last year jumped to $3,600 for children under age 6 and $3,000 per child age 6 to 17, it’s back to a maximum $2,000. The credit’s refundable portion climbs from $1,500 to $1,600 during tax year 2023, the IRS notes.

    Proponents of the boosted payouts and some Congressional Democrats want to revive the larger payments in negotiations tied to corporate taxes. The high costs of living are a strong reason to bring back the boosted credit, they say.

    Related:

    What smart strategies can lower your tax bill as year-end approaches? Read this before making any tax moves.

    Three things the best 401(k)s offer that can help you save a lot more

    Enhanced child tax credit helped reduce poverty for families before it ended last year. But there’s one way Republicans and Democrats could agree on reinstating it.

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  • IRS sets new 401(k) limits — investors can save a lot more money in 2023

    IRS sets new 401(k) limits — investors can save a lot more money in 2023

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    People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.

    For 401(k)s, that’s an almost 10% increase from 2022’s contribution limit of $20,500. For IRAs, it’s a more than 8% rise from 2022’s limit of $6,000.

    As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked to approximately 7%.

    When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.

    “Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” Rita Assaf, vice president of retirement products at Fidelity Investments, said after the IRS released the 2023 contribution limits.

    Seven in 10 people are “very concerned” how inflating costs will impact their readiness for retirement according to a Fidelity study, Assaf noted. “Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.

    Older workers can save even more

    The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.

    Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.

    Income phase-outs increase when it comes to possible deductions, credits and contributions

    Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through a workplace retirement plan and yearly income. Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.

    For 2023, a single taxpayer covered by a workplace retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during 2022.

    For a married couple filing jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” the IRS said.

    If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.

    There are also changes coming for the Roth IRA, which people fund with after-tax money and then can tap tax-free later.

    Read also: Here’s when you should choose a Roth IRA over a traditional account

    The Roth IRA contribution limits also climb to $6,500. Retirement savers putting money in their 401(k) can’t also put pre-tax money in a traditional IRA, but they can contribute to a Roth account.

    Still, the eligibility to contribute to Roth IRA accounts is pegged to income, subject to phase-out ranges.

    In 2023, the income phase-out range on Roth IRA contributions climbs to between $138,000 – $153,000 for individuals and people filing as head of household. (That’s up from a range between $129,000 and $144,000, the IRS noted.)

    With a married couple filing jointly, next year’s phase-out range goes to $218,00 – $228,000. That’s a step up from this year’s $204,000 – $214,000 range.

    The income limit surrounding the saver’s credit, which is geared toward low- and moderate-income households, is also getting a lift. The credit lets taxpayers claim 10%, 20% or one-half of contributions to eligible retirement plans, including a 401(k) or an IRA. The credit’s income limits are climbing, the IRS said.

    The 2023 income limit will be $73,000 for married couples filing jointly, $54,750 for heads of household and $36,500 for individuals and married individuals filing separately, according to the IRS.

    Don’t miss: Opinion: It’s harder for me to look at my 529 balance than my 401(k) because I have a high school junior. Here’s some advice for parents on a similar timeline.

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  • Twitter shares slump after report that the U.S. mulls national-security reviews for some of Elon Musk’s ventures

    Twitter shares slump after report that the U.S. mulls national-security reviews for some of Elon Musk’s ventures

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    Shares of Twitter plunged in premarket trade on Friday after a report Biden administration officials are considering subjecting some of Elon Musk’s ventures to national-security reviews.

    Twitter
    TWTR,
    +1.18%
    shares plunged 9% to $47.64 in premarket trade, below the $54.20 per share buyout price.

    Bloomberg News reported late Thursday that some U.S. officials have become concerned in recent weeks by Musk’s Russia-friendly tweets and his threat to cut off Starlink satellite internet service to Ukraine. The Tesla
    TSLA,
    -6.65%
    and SpaceX CEO’s pending $44 billion acquisition of Twitter has also reportedly drawn concerns because of its foreign investors, including a Saudi prince, Binance Holdings — a crypto exchange that was initially based in China — and Qatar’s sovereign wealth fund.

    Citing anonymous sources familiar with the matter, Bloomberg said discussions are still in the early stages and officials are trying to figure out what regulatory tools are available to them. One option could be a national-security review by the Committee on Foreign Investment in the United States, the report said.

    Separately, Bloomberg also reported late Thursday that Musk’s lawyers and bankers are preparing paperwork for the Twitter deal to be completed ahead of a Oct. 28 deadline, and that relations between Musk and Twitter have turned cordial rather than adversarial.

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  • Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

    Home builders sentiment index falls for record tenth month in a row in October. Home builders say the ‘situation is unhealthy and unsustainable.’

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    The numbers:  The National Association of Home Builders’ (NAHB) monthly confidence fell 8 points to 38 in October, the trade group said on Tuesday.

    It’s the tenth month in a row that the index has fallen.

    Outside of the pandemic, the October reading of 38 is the lowest level since August 2012.

    A year ago, the index stood at 80.

    The index’s ten-month drop is a new record. The index last fell for 8 months straight in 2006 and 2007.

    Key details: All three gauges that underpin the overall builder-confidence index fell.

    • The gauge that marks current sales conditions fell by 9 points. 

    • The component that assesses sales expectations for the next six months fell by 11 points.

    • And the gauge that measures traffic of prospective buyers fell by 6 points.

    All four NAHB regions posted a drop in builder confidence, led by the south and the west. 

    It’s also likely that this year will be the first time since 2011 that single-family starts see a decline, the NAHB added.

    Big picture: Builders continue to struggle to find buyers with the current rate environment.

    Now they’re saying they’re worried about that depressed demand impacting supply moving forward.

    Specifically, they’re concerned about housing affordability worsening, with potentially fewer new homes being built in the future.

    Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand. 

    Home price growth is moderating, but prices have not come down substantially — yet. 

    The median sales price for a new home was $436,800 in August, according to the U.S. Census Bureau.

    What the NAHB said: Builders are expecting single-family starts to fall for the first time in 11 years — and expect additional declines through 2023, said NAHB Chief Economist Robert Dietz, due to the Federal Reserve’s projected rate hikes to control inflation.

    “While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates, and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he added.

    “This situation is unhealthy and unsustainable,” Jerry Konter, a home builder and developer from Savannah, Ga. and the NAHB’s chairman, said in a statement.
    “Policymakers must address this worsening housing affordability crisis,” he added.

    What are they saying? “The housing sector – sentiment, building activity and sales – is collapsing under the weight of a rapid increase in interest rates and elevated prices, which are crimping affordability and demand,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.

    So expect building activity to be depressed, she added.

    Market reaction: The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.989%
    fell to 3.98% on Tuesday morning.

    While the SPDR S&P Homebuilders ETF
    XHB,
    +2.15%
    traded slightly higher during the morning session, and the big home-builder stocks, from D.R. Horton Inc.
    DHI,
    +2.90%
    to Toll Brothers
    TOL,
    +1.87%
    to Lennar
    LEN,
    +2.97%    ,
    edged higher.

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  • ‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley

    ‘Material risk’ looms over stocks as investors face bear market’s ‘second act,’ warns Morgan Stanley

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    Stock-market investors have been adjusting to the jump in interest rates amid high inflation, but they have yet to cope with profit headwinds faced by the S&P 500, according to Morgan Stanley Wealth Management.

    “While a rate peak may solidify estimates for the equity risk premium and valuation multiples, equity investors still face the bear market’s second act — the earnings outlook,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday. 

    “They have been slow to recognize that pricing power and operating margins, which hit all-time highs in the past two years, are unsustainable,” she said. “Even without a recession, the mean reversion of profits in 2023 translates to a 10%-to-15% decline from current estimates.”


    MORGAN STANLEY WEALTH MANAGEMENT NOTE DATED OCT. 17 2022

    Unprecedented monetary and fiscal stimulus during the throes of the pandemic had led to the largest U.S. companies booking record operating margins that were 150 to 200 basis points above norms seen in the past decade, according to Shalett. 

    See: Stock market’s wild gyrations put earnings in focus as inflation crushes Fed ‘pivot’ hopes

    She said that company profits may now be imperiled by slowing growth, with “demand skewing toward services” after pulling forward toward goods earlier in the pandemic, and a likely reversal in “extremely strong” pricing power as the Fed fights surging inflation with interest-rate hikes.

    “Such risks are not discounted in 2023 consensus yet, constituting a material risk to stocks for the remainder of the year,” Shalett said.

    While many sectors have discounted the potential drop in 2023 profits from current estimates that could stir headwinds even with no recession, “the megacap secular growth stocks that dominate market-cap indexes have not,” she warned. “And those indexes are where risk gets repriced in the bear market’s final stages.”

    Morgan Stanley’s chief U.S. equity strategist Mike Wilson estimates as much as 11% downside from consensus estimates, with his base-case, earnings-per-share forecast for the S&P 500 for 2023 being $212, according to Shalett’s note. 

    U.S. stocks were bouncing Monday, with major stock benchmarks trading sharply higher in the afternoon, after sinking Friday amid inflation concerns as earnings season got under way. The S&P 500
    SPX,
    +2.65%
    was up 2.7% in afternoon trading, while the Dow Jones Industrial Average
    DJIA,
    +1.86%
    gained 1.9% and the technology-heavy Nasdaq Composite surged 3.5%, FactSet data show, last check. 

    In the bond market, Treasury rates were trading slightly lower Monday afternoon, after the 2-year yield hit a 15-year high and the 10-year yield notched a 14-year high on Friday, according to Dow Jones Market Data. Two-year yields ended last week at 4.507%, the highest level since August 8, 2007 based on 3 p.m. Eastern time levels, while the 10-year rate climbed to 4.005% for its highest rate since Oct. 15, 2008.

    The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.992%
    was down about 1 basis point Monday afternoon at around 4%, while two-year yields
    TMUBMUSD02Y,
    4.439%
    fell about five basis points to around 4.45%, FactSet data show, at last check.

    Meanwhile, as investors capitulated to higher inflation, “peak policy rates moved up aggressively in the fed funds futures market, with the terminal rate now at nearly 5%, an aggressive stance that smacks of ‘peak hawkishness,’” according to the Morgan Stanley note.

    “Critically, although the market is still pricing 1.5 cuts in 2023, the January 2024 fed-funds rate is estimated at 4.5%, a comfortable 100 basis points above our forecast” for core inflation measured by the consumer-price index, Shalett wrote.

    “Consider locking in solid short-term yields in bonds and shoring up positions in high growth, dividend-paying stocks,” she said. “Short-duration Treasuries look attractive, especially because the yield is more than 2.5 times that of the dividend yield on the S&P 500.”

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  • Bank of America Reports Earnings Monday. What Wall Street Is Watching.

    Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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    Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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  • I want to retire next year, but I have $25,000 in credit card debt and a major monthly mortgage payment — I also live with my three kids and ex

    I want to retire next year, but I have $25,000 in credit card debt and a major monthly mortgage payment — I also live with my three kids and ex

    [ad_1]

    I’ll be 57 next month and am divorced with three kids living with me. One is 28, she’s working, another is 21 and a senior in college (with a full scholarship) and the youngest is 15 (a sophomore in high school with a full scholarship). 

    I plan to retire at the end of next year with $25,000 in credit card debt and 15 more years to pay my mortgage. The credit cards have 0% interest. I have a good medical benefit when I retire and it will cover my two sons under 26 years old. My monthly expenses are $2,000, including life insurance, utilities, and a car payment.  

    My mortgage is around $4,000 monthly impounded. The interest rate is 2% until January 2022, then 3% until January 2023 and the remaining loan is 4.5%. Is it worth it to refinance to a lower rate? I also plan to just pay the principal and pay interest in December and April. I have two credit cards: one that totals $20,000, where the 0% promo ends in April 2021, and another with $4,500 where the 0% interest promo ends this December. 

    I work for the state and have a pension and 401(k) and 457 investments that total $110,000. I also have one month’s worth of expenses in an emergency fund. I can only apply for a loan to the retirement accounts while employed. 

    I would like to ask if retiring will be a good idea. If so, is it appropriate to take a loan with my investment to pay off the credit card debt before retiring? Based on our benefit, I don’t have to repay the debt (to the 401(k)) after my retirement unless I win the lottery or something. There won’t be a penalty. My annual gross income is $96,000.

    I’m a cohabitant with my ex on the house but get no contribution from him at all. I am working with my lawyer to see if I have the right to kick him out of the house.

    Please help.

    Thank you.

    CDT

    See: I’m a 57-year-old nurse with no retirement savings and I want to retire within seven years. What can I do?

    Dear CDT, 

    You have a lot to juggle, so the fact that you’re reaching out to someone for some financial guidance should be deemed an accomplishment all its own!

    The truth is, you may want to hold off on retiring if you can. Having $110,000 in retirement accounts is great, and you don’t want to have to start dwindling that down while also trying to manage a way to effectively pay down credit card debt and a mortgage. Should an emergency arise, taking a big chunk out of that nest egg could end up hurting you significantly in the long run. 

    “I think she needs to take a hard look at her income and expenses,” said Tammy Wener, a financial adviser and co-founder of RW Financial Planning. “When it comes to retirement, so many things are out of your control, like inflation and investment return. The one thing you do have control over is expenses.” Furthermore, your pension may be enough to maintain your lifestyle — though advisers wondered what exactly you would be getting from that pension every month — but you would still be better off with a larger nest egg to fall back on. 

    Say you retire next year after all, but you still have credit card debt and hefty bills to pay. Any retirement income you have with and outside of your current funds may not be sufficient for your current living expenses, and if in a few years you realize this, you could end up back in the workforce — though it may be hard to get the same or a similar job you already have. 

    Let’s look at your 401(k) and 457 plans for a moment. You said you could take a loan and based on your benefit you don’t need to pay it back, but you should be extremely cautious about this. With 401(k) loans, employees may be required to repay that loan if they’re separated from their employers, so this is a stipulation you should absolutely verify. If there was any misunderstanding as to how a loan is treated, that remaining loan would be treated as taxable income when you left your job, Wener said. 

    Financial advisers usually caution investors not to take loans and withdrawals from retirement accounts if they can avoid it, and in your case, this may be especially true as you plan to retire in the next year. When you take a loan, you may be paying yourself and your account back, but your balance is reduced by the amount of the loan, which means you could lose out on investment returns. In the midst of this pandemic, many of the Americans who took a loan or withdrawal regret it now, a recent survey found. “I would not recommend ‘swapping debt’ by taking a loan from her investments,” said Hank Fox, a financial planner. “Instead, she should pay whatever amount is due each month to avoid the finance charges and continue to pay-down the balances.” 

    Don’t miss: 5 ways to find free financial advice

    Also, consider what would happen if you continued to work: you’d still be able to contribute to a retirement account, boost your savings and, if applicable, reap the rewards with an employer match. You’d also narrow the amount of time you have between retirement and when you can claim Social Security benefits, Fox said. 

    Outside of the retirement accounts, you should try to build a “sizable” emergency fund, Wener said. Financial advisers typically suggest three to six months’ worth of living expenses, though you might want to strive for closer to six to offset any undesirable scenarios. 

    I’m not sure what the motivation was to retire next year, but if you can delay it, this may be the best solution. “The first thing I would recommend is that she reconsider retiring next year,” Fox said. “Since she will be 57 in November and assuming she is in good health, she should expect to be in retirement for 30 years or more.” 

    If postponing retirement is not an option, and it isn’t always, he suggests reducing or eliminating your mortgage, since it’s your largest expense by far. You could refinance, Wener said. Interest rates are very low these days, and while you may end up paying a little more every month for the next two years compared with that 2% rate you currently have, you’d end up paying the same and then less from February 2022 and on. 

    As for your credit cards, having a 0% interest rate is such a huge help in paying off debts faster, so you should try to extend that benefit, either by calling and asking about your options with your current credit card company or looking at alternative 0% interest cards. 

    A financial adviser — specifically, a Certified Financial Planner — could really help you crunch the numbers and find meaningful ways to make the most of the money you have now and will be getting in retirement, said Vince Clanton, principal and investment adviser representative at Chancellor Wealth Management. 

    An adviser can gather information on your current earnings and expenses, retirement savings, potential Social Security benefits and pension and create a financial plan to help you navigate retirement. “Voluntary retirement, and particularly early retirement, are very big decisions,” Clanton said. “It’s extremely important to know and understand all of the variables.” 

    Letters are edited for clarity.

    Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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  • Weekend reads: The Federal Reserve gets a lot of flak for inflation, but it has actually hit its target recently

    Weekend reads: The Federal Reserve gets a lot of flak for inflation, but it has actually hit its target recently

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    The U.S. stock market benchmark rebounded from a steep loss on the day when the government published hot inflation numbers.

    The S&P 500 Index ended Thursday with a 2.6% gain after investors took a closer look and saw a significant improvement from July through September, as Rex Nutting explained.

    The whipsaw action wasn’t limited to stocks, and was described by Rick Rieder, the chief investment officer for global fixed income at BlackRock, as “one of the craziest days” of his career.

    The bond market’s warning

    Some investors who focus on stocks might not realize that the bond market is much larger, and that its movements can cause government and central-bank policies to shift. Larry McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense,” which described the 2008 failure of Lehman Brothers, explained just how bad the action was in the U.K. bond market over the past few weeks, when 30-year government bonds issued in December traded as low as 24 cents on the dollar. He also predicted what will happen if the Federal Reserve continues on its current course of interest-rate increases.

    Related outlooks for interest rates:

    Bullish signs for long-term stock investors

    Getty Images

    Michael Brush argues the Federal Reserve is moving too quickly to raise interest rates and cool the U.S. economy. He expects a rapid decline in inflation and a new bull market for stocks. In a column, he shares five sentiment indicators that suggest it is time to buy stocks — especially this group of companies.

    More: Here’s how you’ll know stock-market lows are finally here, says the legendary investor who called 1987 crash

    Don’t forget to look over your portfolio

    Beth Pinsker explains how to make sure your investments are best diversified to fit your needs during time of uncertainty in all financial markets.

    Read on: $22 billion in I-bond sales can’t be wrong. Why you may want to buy them even when their rate resets soon

    Time for a refreshing COLA if you are on Social Security

    Getty Images

    The Social Security Administration has announced that its cost-of-living adjustment (COLA) for 2023 will be 8.7%, the largest increase in four decades. There is more to the story, including tax implications and changes to Medicare, as Jessica Hall and Alessandra Malito explain.

    Related: Can I stop and restart Social Security benefits?

    Pay attention to Medicare open enrollment

    Getty Images/iStockphoto

    Medicare’s annual open enrollment season runs from Oct. 15 to Dec. 7. The majority of Medicare recipients don’t review their plans each year, which can cost them a lot of money. Here’s how to approach Medicare’s 2023 enrollment period.

    You won’t like this ‘new normal’ for the housing market

    West Coast housing markets are already seeing price declines as mortgage loan rates hit 7%.


    Stefani Reynolds/Agence France-Presse/Getty Images

    Freddie Mac said interest rates on 30-year mortgage loans averaged 6.92% on Oct. 13, up from 3.05% a year earlier. Mortgage Daily said rates had hit 7.10% — the highest in 20 years — and economists are warning these levels could be a “new normal.”

    A homeowner locked-in with a low interest rate on their mortgage loan will be reluctant to sell. And some would-be buyers may now be priced out of the market because of much higher loan payments. Here’s what economists expect for home prices in 2023.

    More housing coverage from Aarthi Swaminathan: ‘No housing market is immune to home-price declines’: Home values are already falling in these pandemic boomtowns.

    Tips for maximizing financial aid for college

    Getty Images/iStockphoto

    When you fill out the Free Application for Federal Student Aid, or FAFSA, to help pay for your child’s college education, there may be a problem — old news. The form reflects your financial situation up to two years ago, and things may have worsened recently. Here’s how to make sure schools have the most recent information to help you get as much financial aid as possible.

    This is why Florida’s insurance market is such a mess

    Florida insurers are not only suffering from storm-damage payouts.


    Joe Raedle/Getty Images

    Hurricanes are nothing new to Floridians, but insurers in the state are losing money even though premiums have doubled over the past five years. Shahid S. Hamid, the director of the Laboratory for Insurance at Florida International University, explains why the Florida insurance market is so distorted.

    Here’s a travel option you may never have heard of — home swapping

    Villefranche-sur-mer on the French Riviera.


    istock

    Home swapping can give you an opportunity to live as a local in a faraway place while spending much less than you would as a tourist. Here’s how it works.

    Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

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  • JPMorgan profit falls but beats estimates while Wells Fargo misses

    JPMorgan profit falls but beats estimates while Wells Fargo misses

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    JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest in come in the coming quarter.

    In a busy day for bank earnings, Wells Fargo & Co.
    WFC,
    +4.62%
    fell short of earnings target but its stock rose in premarket trades as it beat revenue estimates.

    Morgan Stanley
    MS,
    +3.55%
    shares fell after it missed Wall Street’s targets for earnings and revenue.

    Citigroup Inc.
    C,
    +5.17%
    shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.

    Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.

    As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
    JPM,
    +5.56%
    turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.

    The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.

    “In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”

    Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.

    Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.

    Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time

    JPMorgan Chase’s stock rose 2.4% ahead of Friday’s open after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.

    Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.

    Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T

    The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.

    Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% to $16.9 billion on higher interest rates.

    JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.

    Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.

    Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.

    “Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.

    Shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
    DJIA,
    +2.83%
    and a 23.0% loss by the S&P 500
    SPX,
    +2.60%    .

    Wells Fargo misses profit target but share rise

    Wells Fargo & Co. shares advanced 2% in Friday’s premarket after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.

    The megabank fell short of the earnings-per-share target of $1.09 a share.

    Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.

    Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”

    However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “

    The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.

    Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.

    Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.

    Shares of Wells Fargo have declined 12% in the year to date.

    Morgan Stanley shares fall on results

    Morgan Stanley fell 2.6% in premarket trades after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.

    Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.

    Third-quarter revenue dropped to $12.99 billion from $14.75 billion.

    Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.

    “Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”

    Morgan Stanley shares have lost 19.2% in 2022.

    Citi beats targets but shares lose ground

    Citigroup shares fell 1.3% in premarket trades Friday after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.

    Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.

    Excluding divestiture-related impacts, earnings were $1.50 a share.

    Total revenue increased to $18.5 billion from $17.4 billion.

    Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.

    Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.

    Shares of Citigroup have dropped 28.9% in 2022.

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