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Hawaiian Electric Industries Inc.’s stock added to losses Tuesday, tumbling 26% after S&P Global Ratings downgraded its rating on the utility company to junk.
S&P Global Ratings cut its rating on the company HE to BB- and placed it on CreditWatch negative, meaning the rating agency could downgrade it again in the near term.
The devastating…
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Investors were jolted by a stronger-than-expected retail sales report on Tuesday, which underscores the dual-edged sword now facing markets.
July’s 0.7% surge in retail sales is helping to bolster the view that a resilient U.S. economy can avoid a recession, despite more than a year of rate hikes by the Federal Reserve. However, the data also serves as another piece of information that some policy makers can use to support even more hikes in the final four months of this year, and left the benchmark 10-year Treasury yield…
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The numbers: Builder confidence waned in August as the 30-year mortgage rate surged, dampening U.S. home-buying interest.
Despite a persistent shortage of homes on the market for resale, builders have lost confidence in the late summer amid declining customer traffic from higher mortgage rates, as well as challenges in the construction process.
Mortgage…
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The numbers: The import price index rose 0.4% in July, the Labor Department said Tuesday. This is the biggest gain since May 2022.
Economists surveyed by the Wall Street were expecting a 0.2% gain.
Fuel import costs rose 3.6% in July. Higher prices for petroleum and natural gas contributed to the gain.
Excluding…
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U.S. stocks closed higher on Monday, with the Dow flipping positive near the closing bell, as technology stocks bounced back. The Dow Jones Industrial Average DJIA rose about 26 points, or 0.1%, ending near 35,308, according to preliminary FactSet data. The S&P 500 index SPX scored a 0.6% gain and the Nasdaq Composite Index COMP closed up 1.1%, booking its best daily percentage climb since July 28, according to FactSet data. The S&P 500’s information technology sector outperformed with a 1.9% gain, while the communication services segment rose 1%. The rally saw shares of Meta Platforms META, Apple Inc. AAPL, Alphabet…
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Barry DiRaimondo, chief of SteelWave, a West Coast property developer that in the past half-century has partnering with many of the biggest names in commercial real estate, is looking for diamonds in the rough, distressed office properties located in the American city that many have given up on.
Others may be shunning San Francisco while it’s down on its luck, but DiRaimondo sees better days ahead, despite the city’s threat of a growing deficit, its fentanyl crisis, homelessness and a reluctant return of office workers to its financial core.
“Not much is coming up right now,” DiRaimondo said of buying opportunities, while speaking from his office in the heart of San Francisco’s financial district. But he was eager to point out several nearby buildings that could be candidates to buy, at the right price.
“I think over the next 12 to 18 months, you’re going to see a tsunami,” of distressed office properties, DiRaimondo said.
Like in many big cities, a wave of office buildings bought at peak prices before the pandemic now have a pile of debt coming due, at much higher rates. But San Francisco’s financial core only recently has begun to show flickers of hope in its weak recovery post-COVID.
“Whether it’s San Francisco, Oakland or anywhere here, and your debt is rolling, you’re having a conversation with your lender,” DiRaimondo said. “There’s either a restructuring going on or a foreclosure going on.”
A number of high-profile property owners this year surrendered local properties to lenders, including Westfield’s namesake shopping center downtown and a string of well-known hotels, a blow to the city’s comeback efforts.
Still, DiRaimondo expects the bulk of property ownership transfers in this boom-and-bust cycle to take place quietly, behind the scenes, often through a building’s debt changing hands. It’s a familiar playbook for veteran real-estate developers like SteelWave and its partners, especially when San Francisco office property values tumble and new loans remains expensive and hard to come by.
“Office is a nasty word, right now. Especially tech office,” he said. “We are doing something that’s a bit different.”
San Francisco’s history as a boom-and-bust town perhaps is best suited for real-estate developers able to take a bunch of lemons and make lemonade.
That has been SteelWave’s signature move in the notoriously rough-and-tumble commercial real-estate industry, through its ups and downs. It has bought over $17.5 billion in properties and developments in the past five decades, first under the Legacy Partners Commercial brand before it was renamed in 2015.
It has partnered with some of the biggest names in commercial real estate, including with Angelo Gordon & Co. in 2021 on two Silicon Valley office buildings, but also distressed debt titans that include Rialto Capital, and with Chenco, one of the largest Chinese-owned U.S. real-estate investment firms.
Its stronghold is the Bay Area and DiRaimondo is now looking to raise a $500 million fund to buy distressed buildings, including in downtown San Francisco, a place major Wall Street lenders have been backing away from for months.
“It’s hard to raise equity to buy this stuff right now,” he said, but argues his strategy, which includes expanding its reach to potential investors in the U.A.E., Israel and parts of Europe, will pan out.
SteelWave’s model of buying a property includes a final tally of costs often three to four times the initial purchase price, due to extensive overhauls.
“Typically, what we do is buy something, tear it apart, put it back together, lease it, sell it,” DiRaimondo said.
It’s niche in the distressed world that’s already produced overhauls of buildings from Seattle to Colorado to Los Angeles, places the tech industry wants to lease.
In the southern California town of Costa Mesa, that meant partnering with Invesco to turn an old newsroom and printing press for the Los Angeles Times into a creative work campus. An opinion piece in 2022 from the newspaper described the revamp as turning, “the glum newspaper architecture into something inviting.”
“In New York, people rushed back and refilled the apartments, streets, and subways. Restaurants and stores flooded with customers again,” a team from Moody’s analytics wrote in a recent “tale of two cities” report. “San Francisco, on the other end, battled safety concerns, homelessness, and population exodus which existed before but only became more obvious with barren neighborhoods.”
SteelWave thinks the old days of landlords raking in top-dollar commercial rents in San Francisco, while adding little back to office buildings, are a thing of the past.
“You have to have owners who want to create cool work environments to attract people back into the city,” DiRaimondo said of downtown San Francisco’s long slog back from the brink.
That means buying properties at low prices, but also risking putting money down for major improvements. He isn’t a distressed investors looking to become a “rent bandit,” he says, because the strategy will fail to get quality tenants.
Like the Moody’s team, DiRaimondo thinks San Francisco eventually will bounce back, but he thinks not before reality hits older office properties.
Take a “commodity” building downtown, often older and midblock with generic features, that previously might have been worth $750 to $800 a square foot. It now looks worth less than $300 a square foot, he said.
The early stages of fire-sales have begun already, with the 22-story tower at 350 California, nearby to DiRaimondo’s office, reportedly fetching $200 to $225 a square foot.
“San Francisco is not dead,” DiRaimondo said. “I think there are opportunities in San Francisco.”
See: San Francisco’s office market erases all gains since 2017 as prices sag nationally
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Barry DiRaimondo, chief of SteelWave, a West Coast property developer that in the past half-century has partnering with many of the biggest names in commercial real estate, is looking for diamonds in the rough, distressed office properties located in the American city that many have given up on.
Others may be shunning San Francisco while it’s down on its luck, but DiRaimondo sees better days ahead, despite the city’s threat of a growing deficit, its fentanyl crisis, homelessness and a reluctant return of office workers to its financial core.
“Not much is coming up right now,” DiRaimondo said of buying opportunities, while speaking from his office in the heart of San Francisco’s financial district. But he was eager to point out several nearby buildings that could be candidates to buy, at the right price.
“I think over the next 12 to 18 months, you’re going to see a tsunami,” of distressed office properties, DiRaimondo said.
Like in many big cities, a wave of office buildings bought at peak prices before the pandemic now have a pile of debt coming due, at much higher rates. But San Francisco’s financial core only recently has begun to show flickers of hope in its weak recovery post-COVID.
“Whether it’s San Francisco, Oakland or anywhere here, and your debt is rolling, you’re having a conversation with your lender,” DiRaimondo said. “There’s either a restructuring going on or a foreclosure going on.”
A number of high-profile property owners this year surrendered local properties to lenders, including Westfield’s namesake shopping center downtown and a string of well-known hotels, a blow to the city’s comeback efforts.
Still, DiRaimondo expects the bulk of property ownership transfers in this boom-and-bust cycle to take place quietly, behind the scenes, often through a building’s debt changing hands. It’s a familiar playbook for veteran real-estate developers like SteelWave and its partners, especially when San Francisco office property values tumble and new loans remains expensive and hard to come by.
“Office is a nasty word, right now. Especially tech office,” he said. “We are doing something that’s a bit different.”
San Francisco’s history as a boom-and-bust town perhaps is best suited for real-estate developers able to take a bunch of lemons and make lemonade.
That has been SteelWave’s signature move in the notoriously rough-and-tumble commercial real-estate industry, through its ups and downs. It has bought over $17.5 billion in properties and developments in the past five decades, first under the Legacy Partners Commercial brand before it was renamed in 2015.
It has partnered with some of the biggest names in commercial real estate, including with Angelo Gordon & Co. in 2021 on two Silicon Valley office buildings, but also distressed debt titans that include Rialto Capital, and with Chenco, one of the largest Chinese-owned U.S. real-estate investment firms.
Its stronghold is the Bay Area and DiRaimondo is now looking to raise a $500 million fund to buy distressed buildings, including in downtown San Francisco, a place major Wall Street lenders have been backing away from for months.
“It’s hard to raise equity to buy this stuff right now,” he said, but argues his strategy, which includes expanding its reach to potential investors in the U.A.E., Israel and parts of Europe, will pan out.
SteelWave’s model of buying a property includes a final tally of costs often three to four times the initial purchase price, due to extensive overhauls.
“Typically, what we do is buy something, tear it apart, put it back together, lease it, sell it,” DiRaimondo said.
It’s niche in the distressed world that’s already produced overhauls of buildings from Seattle to Colorado to Los Angeles, places the tech industry wants to lease.
In the southern California town of Costa Mesa, that meant partnering with Invesco to turn an old newsroom and printing press for the Los Angeles Times into a creative work campus. An opinion piece in 2022 from the newspaper described the revamp as turning, “the glum newspaper architecture into something inviting.”
“In New York, people rushed back and refilled the apartments, streets, and subways. Restaurants and stores flooded with customers again,” a team from Moody’s analytics wrote in a recent “tale of two cities” report. “San Francisco, on the other end, battled safety concerns, homelessness, and population exodus which existed before but only became more obvious with barren neighborhoods.”
SteelWave thinks the old days of landlords raking in top-dollar commercial rents in San Francisco, while adding little back to office buildings, are a thing of the past.
“You have to have owners who want to create cool work environments to attract people back into the city,” DiRaimondo said of downtown San Francisco’s long slog back from the brink.
That means buying properties at low prices, but also risking putting money down for major improvements. He isn’t a distressed investors looking to become a “rent bandit,” he says, because the strategy will fail to get quality tenants.
Like the Moody’s team, DiRaimondo thinks San Francisco eventually will bounce back, but he thinks not before reality hits older office properties.
Take a “commodity” building downtown, often older and midblock with generic features, that previously might have been worth $750 to $800 a square foot. It now looks worth less than $300 a square foot, he said.
The early stages of fire-sales have begun already, with the 22-story tower at 350 California, nearby to DiRaimondo’s office, reportedly fetching $200 to $225 a square foot.
“San Francisco is not dead,” DiRaimondo said. “I think there are opportunities in San Francisco.”
See: San Francisco’s office market erases all gains since 2017 as prices sag nationally
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For the last 18 months, all you’ve heard from the markets is that the U.S. economy is three months away from a recession. Now, the popular analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.
Worries about a recession have evaporated, and all the talk is about a “soft landing,” with the Federal Reserve not having to hike interest rates more than once more, at most.
But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.
What does “no landing” mean? Essentially it’s marked by economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes, according to Chris Low, chief economist at FHN Financial.
So instead of the U.S. central bank starting to cut rates early next year, there may be more rate hikes in store.
“There is still considerable work to do before the inflation beast is fully tamed,” Low said.
Former Fed Vice Chair Richard Clarida described the risk in crystal-clear terms. “If the Fed finds itself in March 2024 with an unemployment rate of 4% and an inflation rate of 4% with some of that temporary good news behind them, they are in a very tough spot,” Clarida said in a recent interview with Bloomberg News.
“It is a risk. It is not the base case. But if I was still there [at the Fed], I would be assessing it,” he added.
So why does this matter? Why would the Fed be in such a tough spot? Two words: presidential election.
A Fed that is dedicated to bringing inflation down might have to slam the brakes on the economy forcefully to get the job done. That gets tough during an election year, especially one that already seems poised to be filled with acrimony.
“The Fed does not play politics with monetary policy. The FOMC will do what is right for the economy, election year or not. Nevertheless, FOMC participants are already sensitive to triggering a recession. Doing it in an overt way when Congress, a third of the Senate, and the White House are up for grabs would be reckless,” Low said.
Andrew Levin, professor of economics at Dartmouth College and a former top Fed staffer, said “raising interest rates sharply in the midst of an election cycle could be a delicate matter. Even the vaunted inflation fighter, Paul Volcker [the Fed’s chairman from 1979 to 1987], decided to ease off the brakes midway through the 1980 presidential campaign.”
Ray Fair, a Yale economics professor, thinks that, whether or not the Fed successfully lowers consumer-price inflation to the vicinity of 2% will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for President Joe Biden and the Democratic Party, he said.
See: Inflation could rebound later this year. And that might be a good thing.
To avoid hiking rates next year, the Fed, in Low’s view, will raise interest rates to 6% by the end of this year. That is an out-of-consensus call. Financial markets think the Fed is done hiking with its benchmark policy interest rate in a range of 5.25% to 5.5%.
Many economist and the financial markets are talking more about prospective Fed rate cuts in early 2024 than any more hikes.
Asked during a recent radio interview if he thought a “no landing” scenario was taking shape, Philadelphia Fed President Patrick Harker replied: “I don’t think so.”
Harker said the economy was likely on track to return to the low-interest-rate and low-inflation environment of 2012-19.
“I think about this a lot, and I asked myself what’s different fundamentally about the U.S. economy now then the way it was before the pandemic,” Harker said. He concluded that there wasn’t much difference.
The big trend Harker mentioned was demographics, with baby boomers still moving in large numbers into retirement. “I don’t think we have to stay in a high-inflation regime. I think we can get back to where we were,” he said.
Steve Blitz, chief U.S. economist at research firm GlobalData.TSLombard, said he puts the probability of a “no landing” scenario at about 35%.
Blitz added it was a common mistake for economists, policy makers, traders and journalists “to presume that the expansion to come is going to look like the expansion that was.”
“At least in the United States, that was never the case,” he added.
Blitz said that if the U.S. economy were growing at a rate below 2% with an inflation rate higher than 3%, the Fed would have to raise the policy rate to about 6.5%. But if the economy is humming along with 3% growth and inflation over 3%, that would be a trickier spot. “Does the Fed really want to slow that down?” he asked.
See: The U.S. economy is aiming for a three-peat: 2% GDP growth
The range of possible outcomes for the economy remains wide. Some economists still believe that a recession early next is the most likely outcome.
Other economists, like Michelle Meyer, chief U.S. economist at Mastercard, think the economy will continue to grow, with inflation coming down. Meyer described that outcome as “a soft landing with bumps.”
Stephen Stanley, chief economist at Santander U.S., said he thinks the U.S. economy will “muddle through” next year with subpar growth in the range of 1% for several quarters and inflation slowing gradually.
“Obviously, that optimism melts away if we’re back to readings of 0.4% and 0.5% on core CPI in three months or six months,” Stanley said.
Economic calendar: See what’s on the U.S. economic-data docket in the coming week
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The thing that will make companies lower prices is if consumers stop complaining about paying more for the things they need and want, and actually start refusing to buy them.
As the U.S. corporate earnings-reporting season progresses, with earnings from major retailers Walmart Inc.
WMT,
Target Corp.
TGT,
and Home Depot Inc.
HD,
on tap next week, investors can get a ground-floor view of how consumer demand may have been hurt, or not, by higher prices, and what the companies plan to do, or not do, about it.
This dynamic of how consumers adjust their spending habits when prices change is referred to by economists as the price elasticity of demand.
“ For companies to cut prices, ‘you have to have the consumer go on strike, and they’re not there yet.’”
Those who trust companies will choose to ratchet down prices on their own, or at least not raise them because the rise in input costs has been slowing, haven’t been listening to what the many companies have told analysts on their post-earnings-report conference calls.
Read: U.S. inflation eases again, PCE shows. Prices rise at slowest pace in almost two years.
Kraft Heinz Co.
KHC,
acknowledged after its second-quarter report that its relatively higher prices have hurt demand, but not by enough for the food and condiments company to consider cutting prices.
Colgate-Palmolive Co.
CL,
said it will continue to raise prices, even as inflation slows and selling volume declines, as the consumer-products company continues to be laser focused on boosting margins and profits.
And while PepsiCo Inc.
PEP,
was worried that elasticities would increase, given how its lower-income customers were being particularly pressured by inflation, the beverage and snack giant reported strong results as it witnessed “better elasticities” in most of the markets in which it operated.
“Obviously, there is still carryover pricing, and I don’t think we’ll do anything different than our normal cycles on pricing in the balance of the year,” PepsiCo Chief Financial Officer Hugh Johnston told analysts, according to an AlphaSense transcript.
Basically, as MarketWatch has reported, so-called greedflation is alive and well.
Jamie Cox, managing partner for Harris Financial Group, said as long as the job market stays strong, as it is now, corporate greed will continue to pay off.
“If something is more expensive, and you have a job, you’ll complain about it, but you won’t substitute it for something cheaper,” Cox said. For companies to cut prices, “you have to have the consumer go on strike, and they’re not there yet,” Cox added.
“ ‘At some point, people are going to say, “All right — enough.” ’ ”
The reason elasticity is so important in the current environment is that, as long as consumers continue to pay the higher prices companies are charging, inflation will remain stubbornly high, making it, in turn, more likely that the Federal Reserve will continue to raise interest rates or, at the very least, not lower them.
But the longer interest rates stay high enough to crimp economic growth, the more likely the stock market will reverse lower as recession fears rise.
“At some point, people are going to say, ‘All right — enough,’ ” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management. “But we just haven’t seen that yet.”
What is elasticity?
Economists use the term “price elasticity of demand” to refer to the way in which consumers adjust their spending habits when prices change.
“Elasticity tries to measure how much more producers will want to produce if prices rise, and how much more consumers will want to buy if prices fall,” explained Bill Adams, chief economist at Comerica.
Elasticity often depends on the type of product a company sells.
For example, consumer-discretionary-goods companies that sell products and services that people want will often experience greater price elasticity than consumer-staples companies that sell things that people need, such as groceries and prescription drugs.
But even for needs, consumers often still have a choice, as less expensive generic, or private-label, alternatives may be available.
Andre Schulten, chief financial officer of consumer-staples maker Procter & Gamble Co.
PG,
which recently beat earnings expectations as it continued to raise prices, telling analysts that, while there was “some trading into private label,” the overall market share of private-label products was unchanged for the year.
As Harris Financial’s Cox said, consumers may be complaining about higher prices, but they aren’t yet desperate enough to stop buying.
The Federal Reserve’s latest Beige Book economic survey stated that business contacts in some districts had observed a “reluctance” to raise prices as consumers appeared to have grown more sensitive to prices, but other districts reported “solid demand” allowed companies to maintain prices and profitability.
That’s likely why companies and analysts have become less concerned about price elasticity. Based on a FactSet analysis, mentions of the word “elasticity” in press releases and conference calls of S&P 500 companies
SPX
increased as inflation and interest rates started surging in early 2022 through the end of the year.
With inflation trends softening this year, the Fed took a brief pause in raising rates in June, helping fuel further stock-market gains, before raising rates again in July.
FactSet
As the chart shows, “elasticity” popped up in more than 55% of earnings releases and conference calls in mid-2022, but with the second-quarter 2023 earnings-reporting season more than half over, mentions had dropped to about 20%.
Perhaps that will pick up, as retailers, especially those catering to lower-income customers — recall the PepsiCo comment — assess the demand impact of continued price increases.
Meanwhile, the branded-foods company Conagra Brands Inc.
CAG,
whose wide-ranging food brands including Birds Eye, Duncan Hines, Hunt’s, Orville Redenbacher’s and Slim Jim, were starting to see the emergence of a different dynamic.
Chief Executive Sean Connolly said consumers were shifting behavior in some categories as prices remained high. Rather than trade down to lower-priced alternatives, he noticed some consumers buying fewer items overall, “more of a hunkering down than a trading down.”
That’s exactly the kind of consumer behavior that is needed, if companies are to stop feeding into the greedflation phenomenon and to start pulling back on prices.
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The numbers: The University of Michigan’s gauge of consumer sentiment inched down to a preliminary August reading of 71.2 after hitting a 22-month high of 71.6 in the prior month.
Economists polled by the Wall Street Journal had expected sentiment to inch up to a 71.7 reading in August.
Another key part of the report is the U. of M. measure of inflation expectations.
According to the report, Americans’ expectations for overall inflation over the next year slipped to 3.3% in August from 3.4% in the prior month, while expectations for inflation over the next 5 years inched down to 2.9% from 3%.
Key details: According to the Michigan report, a gauge of U.S. consumers’ views on current conditions rose to to 77.4 in August from 76.6 in the prior month, while a barometer of their future expectations fell to 67.3 from 68.3.
Big picture: Sentiment has been boosted by waning recession fears and disinflation in grocery store prices.
What the University of Michigan said: “Consumer sentiment was essentially unchanged from July, with small offsetting increases and decreases within the index. In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago,” said Joanne Hsu, the director of University of Michigan consumer surveys.
Market reaction: Stocks
DJIA
SPX
were mixed in early trading Friday while the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose to 4.12%, the highest level since the spike last week after Fitch Ratings downgraded the U.S. credit rating.
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The numbers: The U.S. producer price index rose 0.3% in July, the Labor Department said Friday, up from a revised flat reading in June and the largest gain since January.
Economists polled by The Wall Street Journal had forecast a 0.2% advance.
The core producer price index, which excludes volatile food, energy prices, and trade services rose 0.2 in July, up from a 0.1% gain in the prior month. This is the largest increase since February.
Key details: Over the past year, headline producer price inflation was running at a 0.8% rate in July, up from 0.2% in the prior month.
Core prices are up 2.7% from a year earlier, matching the gain in June. Core PPI prices were running at a 5.8% rate in July 2022.
A big part of the increase in producer prices was in the services sector.
The cost of services rose 0.5% last month, up from a 0.1% drop in June. This is the largest increase in a year. The increase was led by a 7.6% gain for portfolio management.
The cost of goods rose 0.1% in July after a flat reading in the prior month.
Energy prices were flat in July, down sharply from a 0.7% gain in the prior month.
Wholesale food prices jumped 0.5% after a 0.2% fall in the prior month.
Further back on the production line, prices for intermediate goods fell 0.6%, the sixth straight monthly decline.
Big picture: Price pressures have been diminishing at the producer level much faster than at the consumer level. Economists are watching the inflation data closely to see if the July interest rate hike by the Federal Reserve was the last hike of the cycle.
What are they saying? “In short, PPI surprised to the upside in July. While we do not expect further rate hikes this year, if inflation surprises to the upside and the labor market and growth do not slow, another increase in interest rates cannot be ruled out in 2023,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Market reaction: U.S. stocks
DJIA
SPX
were set to open lower on Friday after the stronger-than-expected PPI data. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose to 4.12%.
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A worsening U.S. fiscal situation caught stock and bond investors off guard in the past week and now a round of approaching government auctions is about to provide a crucial test for Treasurys.
The question in the days ahead is whether risks to the demand for U.S. government debt are growing. If so, that could put upward pressure on Treasury yields, which would undermine the performance of stocks. However, if investors end up caring less about the fiscal situation than they do about the possibility of slowing economic growth and decelerating inflation, government debt’s safe-haven appeal could be reinforced, putting a limit on how high yields might go.
Concern about the deteriorating fiscal outlook was a factor behind the past week’s rise in long-term Treasury yields. Ten-
BX:TMUBMUSD10Y
and 30-year yields
BX:TMUBMUSD30Y
respectively jumped to 4.188% and 4.304% on Thursday, the highest levels since early November, as investors sold off long-term government debt — which took the shine off U.S. stocks. By Friday, though, a moderating pace of U.S. job creation for July sent yields into reverse, giving equities a temporary lift during the final trading session of the week.
At issue is the extent to which potential buyers of Treasurys may be deterred by Fitch Ratings’ Aug. 1 decision to cut the U.S. government’s top AAA rating, at a time when the government is about to unleash what Barclays rates strategists describe as a “tsunami” of supply. A total of $103 billion in 3-, 10-and 30-year Treasurys come up for sale between Tuesday and Thursday. In addition, a spate of Treasury bills are scheduled to be auctioned starting on Monday.
Gene Tannuzzo, global head of fixed income at Boston-based Columbia Threadneedle Investments, said that while he and his team still have room to add T-bills to the government money-market funds they oversee during the week ahead, they haven’t made up their minds about whether to buy more longer-dated maturities for their bond funds.
“While we are comfortable that the Fed is at or near the end of its rate hikes, there are a lot more questions about the durability of the economic recovery, the degree that inflation will remain low, and the risk premium that needs to be put in at the long end,” Tannuzzo said via phone.
Treasury’s $1 trillion third-quarter borrowing plans, along with some technical issues and the Bank of Japan’s decision to switch to a more flexible yield-curve control approach, might reduce demand for U.S. government debt, he said. Columbia Threadneedle managed $617 billion as of June.
“One can’t ignore the risk of an unruly rise in yields, but our view is that this is a low risk and what the Treasury auctions may produce instead is ‘indigestion,’ driven by poor technicals and low liquidity, Fitch’s downgrade, and the Bank of Japan action — and by the end of August, we should be past much of this,” he told MarketWatch.
Key Words: Warren Buffett dismisses Fitch downgrade: ‘There are some things people shouldn’t worry about’
Risks to the demand for Treasurys may become obvious soon, given Tuesday-Thursday’s $103 billion in total sales of 3-, 10- and 30-year securities, according to analyst John Canavan of U.K.-based Oxford Economics. The main “question mark” for the market’s ability to absorb the increased Treasury issuance will be whether or not domestic investment funds continue to show interest, Canavan wrote in a note distributed on Friday.
“ ‘My suspicion is that with higher rates comes equally solid demand’ at upcoming auctions.”
Market players have had little difficulty absorbing Treasury coupon issuances in recent years because of flight-to-safety trades made after the U.S. onset of the Covid-19 pandemic in 2020. Now, however, increased auction sizes are being accompanied by still-elevated inflation, better-than-expected economic growth, and the possibility of more rate hikes by the Federal Reserve — which is likely to complicate the market’s ability to absorb the increased supply “without hiccups,” Canavan said.
On the flip side of the debate is John Flahive, head of fixed income at BNY Mellon Wealth Management in Boston, which managed $286 billion in assets as of June. He said equity markets will continue to be much more focused on economic developments and earnings. And as long as the latter of the two remains robust, stocks “can grind higher in a low-volatility environment,” Flahive said via phone.
Saying he does not expect his team to be a major participant in the Treasury auctions, Flahive said that the bond market’s reaction in the past week was “a little overdone” and “we always felt that there was a limited to how much yields could go up to reflect more government debt.”
“My suspicion is that with higher rates comes equally solid demand” at upcoming auctions, he said. “I’m still optimistic about rates going back down over time as the result of a slowing economy and decelerating inflation. We continue to like the bond market and see a better-than-even chance that yields go down as the economy continues to weaken in the quarters ahead.”
Friday’s reaction to July’s official jobs report, which showed the U.S. added a modest 187,000 new jobs, provided a breather from the past week’s run-up in Treasury yields.
On Friday, the 30-year Treasury yield fell 9 basis points to 4.214%, yet still ended with its biggest weekly gain since early February. The 10-year rate, which dropped 12.8 basis points to 4.06%, finished with a third straight week of advances.
Stocks fell Friday, leaving major indexes with weekly declines. The Dow Jones Industrial Average
DJIA
posted a 1.1% weekly fall, while the S&P 500
SPX
shed 2.3% and the Nasdaq Composite
COMP
retreated 2.9%. The soft start to August comes after a run of sharp gains for equities. The S&P 500 remains up 16.6% for the year to date.
The economic calendar for the week ahead includes U.S. inflation updates.
On Monday, June consumer-credit data is set to be released. Tuesday brings the NFIB’s small business optimism index, plus data on the U.S. trade balance and wholesale inventories. Then on Thursday, weekly initial jobless claims and the July consumer-price index are released. That’s followed on Friday by the producer-price index for last month and an August consumer-sentiment reading.
Meanwhile, portfolio manager and fixed-income analyst John Luke Tyner at Alabama-based Aptus Capital Advisors, which manages roughly $5 billion in assets, said he plans to follow the Treasury auctions, but doesn’t usually participate in them.
“One of the biggest trends we’ve seen is the continued increase in the issuance amounts from Treasury. Whatever we are budgeting for is never enough, which justifies the Fitch downgrade,” Tyner said via phone. “It’s tough to say people aren’t going to buy U.S. debt, but you’ve got to entice them to buy duration and take the risk.
“The U.S. is not an emerging market, but ultimately we are going to see the market rate that participants require be higher, with a notable uptick in term premia,” he said. “What we could see in the face of all this issuance is a grind up in yields on an auction-by-auction basis. If I look at the technicals, a 4.9%-5% yield on the 10-year note seems in the cards,” and “it will be difficult for stocks to hold or expand from full valuations as rates run up.”
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US. stocks closed lower Friday, capping off a volatile week that finished with losses after Fitch took away its top AAA ratings for the U.S. and government bond yields embarked on a wild ride. The Dow Jones Industrial Average
DJIA,
fell about 150 points, or 0.4% on Friday, ending near 35,065, according to preliminary FactSet data. The S&P 500 index
SPX,
shed 0.5% and the Nasdaq Composite Index closed 0.4% lower. For the week, the Dow posted a 1.1% decline, the S&P 500 a 2.3% drop and the Nasdaq shed 2.9% since Monday, according to FactSet. Investors were focused on July jobs data released on Friday for clues to the health of the economy and potential next moves by the Federal Reserve on rates. The 10-year Treasury yield
TMUBMUSD10Y,
swung almost 13 basis points lower on Friday to 4.06%, after briefly climbing to about 4.2% earlier in the week, according to FactSet data.
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Icahn Enterprises Inc.’s bonds saw better buying on Friday, after Carl Icahn’s investing arm announced it was halving its quarterly distribution, a move that disappointed unit holders but is positive for its bonds.
Bondholders are typically focused on making sure a company can make its interest payments and repay the principal when a bond matures.
The company said it would now make a distribution of $1, down from $2 previously. The news came as the company posted a surprise loss for the second quarter and a $1 billion decline in revenue.
Icahn placed the blame for the fund’s poor performance on Hindenburg Research, the short seller that published a report about IEP on May 2, accusing it of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.
For more, see: Icahn Enterprises’ stock slides 30% after company halves quarterly distribution to $1 per unit
The stock promptly tumbled and was last down 24%, putting it on track for its biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.
As the chart below from data-as-a-service provider BondCliQ Media Services shows buyers emerging after 8:00 a.m. Eastern, immediately after the news was announced. By midmorning, some sellers had emerged.
The following table shows there was net buying over the last 10 days, focused on the 6.35% notes that mature in 2026.
In a letter to unit holders accompanying the results, Icahn acknowledged missteps in the past several years as the company has shifted away from its core activist strategy and shorted far more than was necessary.
“While we made money on the long side through our activism efforts, our returns have been overwhelmed by our overly bearish view of the market and related oversized short (hedge) positions,” Icahn wrote. “Over the past six months, we have significantly reduced our hedges. Going forward, we intend to stick to our knitting and focus on our activist strategy while remaining appropriately hedged.”
For more, see: Carl Icahn admits he was wrong to take a huge short position on the market that lost $9 billion
Activism is the best investment paradigm because “there is no accountability in Corporate America,” he wrote.
With many exceptions, “most CEOs are incapable of creating great businesses (or even improving them) and the desire to empire build is rampant. “
Many are not the best person for the job or even the most talented individual in the organization, he continued. Far too often, they have climbed through the ranks by being agreeable and presenting no threat to their superiors.
“Those CEOs are generally too busy playing at the proverbial country club to realize what improvements can be made or what hidden jewels can be unlocked,” he said.
CEOs are hard to unseat, as they can pack a board with loyal cronies and use company funds to defend against an activist campaign by hiring expensive legal and financial experts, further depleting the coffers.
Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc.
ILMN,
as the Associated Press reported.
Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix
NFLX,
Forest Labs, Apple
AAPL,
CVR Energy
CVI,
Herbalife
HLF,
eBay
EBAY,
Tropicana, Cheniere
LNG,
and Occidental
OXY,
as examples.
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Stocks fell on Wednesday, a day after Fitch Ratings lowered its U.S. debt ratings to AA+ from the top AAA category, pointing to its growing debt burden and “erosion of governance” over the past two decades. The S&P 500
SPX,
fell about 63 points, or 1.4%, ending near 4,513, booking its biggest daily percentage decline since April 25, according to preliminary Dow Jones Market Data. The Dow Jones Industrial Average
DJIA,
shed about 1%, while the Nasdaq Composite Index
COMP,
closed 2.2% lower. Stocks already had been taking a breather from their march toward record levels when Fitch on Tuesday evening made good on a threat to downgrade its U.S. debt rating a notch to AA+. Longer-dated Treasury yields rose Wednesday, with the 10-year Treasury rate
TMUBMUSD10Y,
touching 4.07%, according to FactSet. Treasurys and other haven assets are viewed as likely to benefit from a flight to safety in a scenario where investors get more jittery about the U.S. economic outlook.
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As you’ve probably heard by now, Fitch Ratings late Tuesday cut the U.S. federal government’s credit rating to AA+ from AAA.
Here’s a look at what it means for investors and markets:
A credit rating is an independent assessment of the ability of an organization, including corporations and governments, ranging from school boards to cities, counties, states and countries, that have issued debt to meet their obligations. Fitch — alongside S&P Global and Moody’s Investors Service — is one of the world’s big three ratings firms.
Need to Know: The U.S. is downgraded. How much does it matter to markets? And the surprise asset that may benefit.
The ratings firms use scales that employ letters, and in Moody’s case also include numbers, to provide a guide to creditworthiness. At the top of the list is the AAA rating from S&P and Fitch, or Aaa, in the case of Moody’s. AA+ is the second-highest rating.
Ratings that employ Cs are at the bottom of the scales, with Fitch and S&P using D ratings in cases of default or bankruptcy.
Any rating below BBB- from Fitch and S&P, or Baa from Moody’s, is considered below “investment grade.” Such debt is often termed “junk.”
Fitch had warned in May that a cut was possible, with the ratings firm expressing dismay over what it termed another round of “brinkmanship” around the U.S. government’s debt ceiling. The warning came amid a battle between congressional Republicans and the Biden administration over lifting or suspending the federal government’s debt ceiling.
The limit has been a frequent source of political squabbling. While the showdown was resolved with a two-year suspension of the limit, the battle underlined the high stakes. Failure to reach a deal could have led to a default. In Tuesday’s decision, Fitch said that the past two decades have seen “a steady deterioration in standards of governance” in the U.S., the debt-ceiling agreement notwithstanding.
Fitch isn’t the first of the big three ratings firms to strip the U.S. of its AAA rating. S&P did so in 2011, amid an earlier debt-limit battle. That leaves Moody’s as the only firm to still assign the U.S. its top rating.
The pool of triple-A sovereign ratings, meanwhile, continues to dwindle. Only a handful of countries carry triple-A ratings across the board from all three ratings firms.
See: Here are the countries that still have Triple-A credit ratings across the board
The cut isn’t seen having much lasting effect on investor demand for U.S. Treasurys. The market for Treasurys is the largest and most liquid debt market in the world. Despite the lack of triple-A ratings, Treasurys are viewed and treated by investors as being virtually “risk-free,” or equivalent to cash. Other types of debt are often quoted in terms of the yield premium, or spread, demanded by investors to hold them over Treasurys.
That isn’t going to change overnight. Analysts have emphasized that investors don’t buy Treasurys based on the credit rating. And any outflows from funds that are required to hold only triple-A rated bonds are expected to be limited.
See: $25 trillion Treasury market is in the spotlight as U.S. loses its AAA rating for a second time
“Many major Treasury holders, such as funds and index trackers, have already prepared for the move by changing mandates to specifically refer to Treasurys rather than AAA credit, and are unlikely to be forced into selling given the importance of the asset class,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a Wednesday note.
The downgrade was blamed for a weak tone across global equity markets, with U.S. stocks following suit. The Dow Jones Industrial Average
DJIA
dropped around 315 points, or 0.9%, while the S&P 500
SPX
shed 1.3%. The moves come after a strong run of gains, however.
Treasury yields, which move opposite to price, were higher. The selling, however, took hold only after data from ADP that showed a stronger-than-expected rise in private-sector payrolls. Treasurys took the downgrade in stride in earlier trading, with yields moving lower.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was up around 2 basis points near 4.02%.
Marcelli recalled that in 2011 the yield on the 10-year U.S. Treasury fell around 50 basis points, or half a percentage point, in the three days after the S&P downgrade to 2.6% on Aug. 5. Even 15 trading days later, yields were still down 40 basis points from the day of the downgrade, and around 80 basis points lower compared with where they were 15 trading days before the move.
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Fitch Ratings cut its top U.S. credit rating to AA+ from AAA on Tuesday, pointing to “erosion” of governance and the nation’s expected fiscal deterioration over the next three years.
Fitch said eroding governance in the U.S. over the past two decades was among the factors for its downgrade, in a Tuesday evening statement. It also said it expected the general government deficit to climb to 6.3% of gross domestic product in 2023, from 3.7% in 2022, on weaker federal revenues, new spending initiatives and a higher interest burden.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” Fitch said.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”
Fitch warned in May that it might cut the U.S.’s AAA ratings as the latest debt-ceiling fight was dragging on for months without a resolution.
Borrowing costs have climbed as the Treasury Department has unleashed a flood of Treasury issuance since its June debt-ceiling deal to restock it coffers. The 1-month Treasury yield was at 5.36% on Tuesday, while auctions of other Treasury bills maturing in one year often kick off yields north of 5%.
Stocks ended trade Tuesday nearing record levels, with the Dow Jones Industrial Average
DJIA,
and S&P 500 index
SPX,
both less than 5% off their highest closing levels from early 2022.
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Just a day after the Treasury Department released a $1 trillion borrowing estimate for the third quarter, questions are being raised about the extent to which foreign and domestic buyers can continue to keep up their demand for U.S. government debt.
Further details about Treasury’s financing need will be released at 8:30 a.m. on Wednesday. For now, the $1 trillion estimate, the largest ever for the July-September period, has analysts concluding that the U.S. is facing a deteriorating fiscal deficit outlook and continuing pressure to borrow.
At stake for the broader fixed-income market is whether the presence of large ongoing auctions over the coming quarter and beyond will lead to a prolonged period where demand from potential buyers might begin to dry up, Treasury yields edge higher, and the government-debt market returns to some form of illiquidity.
“You can make the argument that since 2020, with the onset of Covid, that Treasury issuances have been met with reasonably good demand,” said Thomas Simons, an economist at Jefferies
JEF,
“But as we go forward and further away from that period of time, it’s hard to see where that same flow of dollars can come from. We may be looking at recent history and drawing too much of a conclusion that this borrowing need will be easily met.”
Simons said in a phone interview Tuesday that “the risk is that you don’t get continued demand from foreign or domestic buyers of fixed income.” The result could be “six to nine months where the market is fatigued by bigger auction sizes, Treasurys become more and more difficult to trade, there’s a grind higher in yields, and there may be issues with liquidity where markets may not be so deep.” Still, he expects such a period, if there is one, to be less acute than what was seen in the 2013 taper tantrum or last year’s volatility in the U.K. bond market.
On Monday, the Treasury revealed a $1.007 trillion third-quarter borrowing estimate that was $274 billion higher than what it had expected in May. The estimate — which Simons calls “eye-popping” — assumes an end-of-September cash balance of $650 billion, and has gone up partly because of projections for lower receipts and higher outlays, according to Treasury officials.
Monday’s estimate is the largest ever for the third quarter, though not relative to other parts of the year. In May 2020, a few months after the onset of the COVID-19 pandemic in the U.S., Treasury gave an almost $3 trillion borrowing estimate for the April-June quarter of that year.
For the upcoming fourth quarter, Treasury is now expecting to borrow $852 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $750 billion. According to strategist Jay Barry and others at JPMorgan Chase & Co.
JPM,
the third- and fourth-quarter estimates “suggest that, at face value, Treasury continues to expect a wider budget deficit” for the 2023 fiscal year.
As of Tuesday, investors appeared to be less focused on the Treasury’s borrowing needs than on signs of continued strength in the U.S. labor market, which raises the prospect of higher-for-longer interest rates. One-
TMUBMUSD01Y,
through 30-year Treasury yields
TMUBMUSD30Y,
were all higher as data showed demand for workers is still strong. Meanwhile, all three major U.S. stock indexes
DJIA,
COMP,
were mostly lower in morning trading.
According to Simons, who the most likely buyers will be at Treasury’s upcoming auctions will depend on where the department decides to focus its issuances. If the focus is on bills, then money-market mutual funds could “move some cash over,” he said. And if it’s on long-duration coupons, it would be “real money” players such as insurers, pension funds, hedge funds and bond funds — though much will rely on inflows from clients “before demand would pick up.”
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The bond market is expressing confidence in company cash flows, flashing a sign of support for the stock market’s rally, according to DataTrek Research.
“U.S. corporate bond spreads continue to tighten and are now essentially the same as 2017–2019,” said Nicholas Colas, co-founder of DataTrek Research, in a note emailed Monday. “That is a green light for further stock market gains.”
Declining corporate bond spreads over comparable Treaurys signal rising confidence in future cash flows and earnings, said Colas. Both investment-grade and high-yield bonds have broadly seen their spreads tighten over the past few weeks to average levels seen in 2017–2019, when conditions in the economy were generally good, his note shows.
Investment-grade spreads averaged 1.19 percentage points over Treasurys over that stretch, while junk bonds averaged 3.82 percentage points, according to Colas’s research.
“This was a period of generally good economic conditions and just one hiccup in capital markets, namely when the Fed briefly overreached on rate policy in late 2018,” he said.
Weekend Snapshot: Stocks are on a seemingly unstoppable hot streak, but this bond-market ‘tipping point’ could see it end in a hurry
This year, investment-grade bond spreads have recently declined to around 1.22 percentage points and those for high-yield debt have narrowed to 3.78%, the DataTrek note said.
“Corporate bond markets continue to mirror equity market confidence” in stable and strengthening company cash flows, Colas said. “This is not only supporting the ongoing rally in large caps, but also helping small caps outperform in July.”
The Russell 2000 index
RUT,
which tracks small-cap stocks in the U.S., has climbed 4.9% so far this month, exceeding the S&P 500’s 3% gains over the same period, according to FactSet data. The Russell 2000 has been trailing the S&P 500 in 2023, though, with 12.5% gains so far this year.
Earlier this month, Bespoke Investment Group also pointed to high-yield bonds as the latest indicator confirming the equity market’s rally. The S&P 500, a gauge of U.S. large-cap stocks, has jumped 19.3% this year through Friday.
Citigroup analysts said in a research note on Friday that they raised their 2023 target for the S&P 500 by 600 points to 4,600, while revising up their mid-2024 target to 5,000, from 4,400.
The popular stock-market index
SPX,
closed Friday at 4,582.23.
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The S&P 500 index is on the verge of a fifth straight monthly gain in July. It’s a reality that few on Wall Street expected just eight months ago.
As a result, it seems that one by one, equity analysts at the big banks are issuing mea culpas or tweaking their S&P 500 targets.
With so many reconsidering their assumptions about markets and the economy, one analyst who has been bullish for months sees an opportunity to reflect on what Wall Street got wrong in 2023 — and by doing so, pinpoint potential existential threats to the rally that may lie ahead.
Jawad Mian, a longtime financial markets professional and the founder of Stray Reflections, said professional investors and economists generally underestimated just how resilient U.S. corporations, and U.S. consumers, and the broader U.S. economy would be to higher interest rates. At the same time, they failed to fully appreciate inflation’s ability to boost corporate profits over the long term.
So far, stocks have proved resilient to higher bond yields in 2023, but that doesn’t mean they always will be. Mian believes that rising real yields could eventually push past a “tipping point” that would send U.S. equity valuations sharply lower.
“I think what’s happening is we are collectively discovering how high interest rates can go before the economy breaks,” he said.
“I think the 10-year yield is heading toward 5%. But the nuanced take here is the path higher is not troublesome…however, at some point, we’ll reach a level that’s too much,” Mian added during a phone interview with MarketWatch.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
stood at 3.955% on Friday.
The Federal Reserve pushed its policy interest-rate to its highest level in 22 years earlier this week, and further hikes certainly could push long-dated bond yields higher, Mian said. But the blow that drives markets over the cliff could easily come from somewhere else as well.
For example: Foreign investors, particularly those in Japan, could choose to dump U.S. Treasurys now that they’re being enticed by more attractive yields back home.
Investors received a small taste of what this might look like on Thursday afternoon when a headline about the Bank of Japan’s plans to loosen its grip on its government bond market sent the yield on the 30-year Treasury bond
TMUBMUSD30Y,
north of 4%, sparking a selloff in stocks that led to the Dow Jones Industrial Average snapping a 13-day winning streak.
Yields on the 10-year Japanese government bond hit their highest levels since 2014 on Friday after the BOJ confirmed those reports during its July policy meeting.
See: Why U.S. stocks and bonds stumbled on talk of a Bank of Japan policy tweak
While it’s important for investors to monitor bond-market threats like this, yields don’t exist in a vacuum. Corporate earnings are another important piece of the puzzle.
Higher yields make bonds more attractive to investors, helping to dim the appeal of stocks, but they also increase borrowing costs for corporations, potentially cutting into profits and pushing companies to lay off employees or enact other belt-tightening measures.
The more pressure companies face from rising borrowing costs, they more likely they’ll need to take more cost-cutting measures like laying off employees.
“Generally speaking, if yields move higher that should put downward pressure on multiples. That’s a risk to the stock market for sure,” said James St. Aubin, chief investment officer for Sierra Investment Management, during a phone interview with MarketWatch.
For now at least, it looks like stocks could continue to ride this wave of momentum higher, even if valuations are looking somewhat stretched relative to recent history already, St. Aubin said. For this to continue though, corporate earnings will need to keep pace with increasingly optimistic expectations.
Already, stock valuations are looking lofty based on the price-to-earnings ratio, one of Wall Street’s favorite metrics for determining how expensive or cheap the market looks.
The forward 12-month price-to-earnings ratio for the S&P 500 index currently stands at 19.4. That’s already higher than the five-year average of 18.6, and the 10-year average of 17.4, according to FactSet data.
Right now, investors are willing to tolerate this because they expect corporate profits to grow substantially in the years ahead, even though profits are expected to contract by 7% in the quarter ended in June, bringing the stretch of negative earnings growth to a third straight quarter.
But in 2024, year-over-year earnings growth is expected to swell to 12.6%. If companies meet, or surpass, these expectations, stocks will likely hold on to their gains, if not continue to climb, St. Aubin said.
However, should earnings growth disappoint, a painful market reckoning might follow.
Since the start of 2023, U.S. stocks have nearly erased all of their losses from 2022, which was the worst year for stock-market performance since 2008, while bonds saw their biggest declines in decades as yields soared driven by inflation and the Federal Reserve’s aggressive interest-rate hikes. Since Jan. 1, the S&P 500
SPX,
has risen 19.3% to 4,582.23, according to FactSet.
The Nasdaq Composite
COMP,
has risen 36.8% to 14,316, while the Dow Jones Industrial Average
DJIA,
is up 7%.
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