Tag: bond markets

HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

[ad_1]

Goodbye pandemic refi cash-outs. Hello HELOCs?

Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.

It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.

Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.

While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.

“Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.

Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.

At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.

Home equity products are making a big comeback as households seek liquidity

BofA Global, New York Fed Consumer Credit Panel/Equifax

The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.

BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.

“The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.

Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.

Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
BAC,
+1.23%,
PNC Bank
PNC,
+0.57%,
Wells Fargo,
WFC,
-0.05%,
JPMorgan Chase
JPM,
+0.24%
and Citizens
CFG,
+0.35%,
according to the team, which notes several other major banks appear to have hit pause on their programs.

A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.

Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
DJIA,
-0.04%
was less than 0.1% lower, while the S&P 500 index
SPX,
-0.45%
was off 0.5% and the Nasdaq Composite
COMP,
-1.16%
fell 1.2%, according to FactSet.

Related: The economy was supposed to cave in by now. It hasn’t — and GDP is set to rise again.

[ad_2]

Source link

June 26, 2023
What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

[ad_1]

Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.

“As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.

U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average
YM00,
+0.14%
rose 25 points, while S&P 500 futures
ES00,
+0.15%
edged up 0.1% and Nasdaq-100 futures gained 0.2%.

Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500
SPX,
-0.77%
ended a streak of five straight weekly gains, while the Dow Jones Industrial Average
DJIA,
-0.65%
and Nasdaq Composite
COMP,
-1.01%
also pulled back.

See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

‘Real cracks’

While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.

“This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.

Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.

Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.

See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

‘Bloodbath’ of volatility?

AXS Investment’s Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”

Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index
VIX,
+4.11%,
a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.

Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

Potential ‘nonevent’

But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.

While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.

“The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.

The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.

The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.

As events unspooled Saturday, analysts warned that extended strife could spark a flight to quality when markets reopened into assets like U.S. Treasury bonds
TMUBMUSD10Y,
3.720%,
the U.S. dollar
DXY,
-0.14%
and other havens like the Japanese yen
USDJPY,
-0.21%,
Swiss franc
USDCHF,
-0.06%
and gold
GC00,
+0.32%.

The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery
GCQ23,
+0.32%
edged up 0.2%.

All eyes on oil

Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.

First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.

Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude
BRN00,
+0.91%
topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.

Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.

Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.

Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.

August Brent crude
BRNQ23,
+0.95%
settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery
CL00,
+0.91%,
the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.

Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).

Rystad Energy

A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.

“Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.

—Barbara Kollmeyer contributed.

[ad_2]

Source link

June 25, 2023
U.S. stock futures little changed after short-lived Wagner mutiny in Russia; oil futures rise

[ad_1]

U.S. stock-index futures opened near unchanged and attempted to edge higher Sunday night, as investors reacted to chaotic weekend events that saw a short-lived rebellion that pitted the mercenary Wagner Group against the Russian military leadership. After advancing to within around two hours of Moscow, the mutiny was abruptly halted, with Wagner Group leader Yevgeny Prigozhin reportedly agreeing to depart for Belarus. Analysts said the events, while a potential plus for Ukraine 16 months after Russia’s invasion, appeared to weaken Russian President Vladimir Putin’s hold on the country, That raises concerns about the potential for further internal strife, a recipe for uncertainty that could feed volatility in financial markets. Futures on the Dow Jones Industrial Average
YM00,
+0.09%
rose 20 points, while S&P 500
ES00,
+0.10%
futures ticked up 2.75 points and Nasdaq-100 futures
NQ00,
+0.16%
edged up 11.25 points shortly after the start of electronic trading. Moves for all three contracts amounted to less than 0.1%. Stocks fell last week, with the S&P 500
SPX,
-0.77%
snappng a streak of five straight weekly gains. Oil futures rose, with West Texas Intermediate crude for August delivery
CL.1,
+1.26%

CL00,
+1.26%,
the U.S. benchmark, up 48 cents, or 0.7%, at $69.64 a barrel on the New York Mercantile Exchange.

[ad_2]

Source link

June 25, 2023
What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

[ad_1]

Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.

“As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.

U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average
YM00,
+0.14%
rose 75 points, while S&P 500 futures
ES00,
+0.12%
edged up 0.2% and Nasdaq-100 futures gained 0.3%.

Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500
SPX,
-0.77%
ended a streak of five straight weekly gains, while the Dow Jones Industrial Average
DJIA,
-0.65%
and Nasdaq Composite
COMP,
-1.01%
also pulled back.

See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

‘Real cracks’

While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.

“This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.

Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.

Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.

See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

‘Bloodbath’ of volatility?

AXS Investments’ Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”

Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index
VIX,
+4.11%,
a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.

Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

Potential ‘nonevent’

But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.

While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.

“The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.

The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.

The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.

As events unspooled Saturday, analysts warned that extended strife could spark a flight to quality when markets reopened into assets like U.S. Treasury bonds
TMUBMUSD10Y,
3.727%,
the U.S. dollar
DXY,
-0.11%
and other havens like the Japanese yen
USDJPY,
-0.19%,
Swiss franc
USDCHF,
-0.03%
and gold
GC00,
+0.18%.

The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery
GCQ23,
+0.18%
edged up 0.2%.

All eyes on oil

Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.

First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.

Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude
BRN00,
+0.73%
topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.

Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.

Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.

Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.

August Brent crude
BRNQ23,
+0.80%
settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery
CL00,
+0.69%,
the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.

Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).

Rystad Energy

A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.

“Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.

—Barbara Kollmeyer contributed.

[ad_2]

Source link

June 25, 2023
Rebellion in Russia could trigger selloff in U.S. stocks and flight to safe assets, analysts say. Here’s what investors should know.

[ad_1]

Watch what happens over the next 36 hours.

That was the advice from one financial analyst as U.S. investors awoke on Saturday to news of an apparent armed rebellion against Moscow led by Yevgeny Prigozhin, the owner of the powerful Russian mercenary organization Wagner Group.

Others speculated that the crisis in Russia could drive U.S. stocks lower, as some traders were already betting on a selloff once markets reopen on Monday due to this sudden spike in geopolitical risk.

“The developments in Russia are ultimately going to suggest President Putin’s leadership is weakening quickly and that resources may shift away from the war with Ukraine. It is too early to say how this will impact Wall Street, but the risk of desperate measures from Putin might make some investors nervous,” Edward Moya, senior market analyst at Oanda, said Saturday.

A simmering feud between Prigozhin, the leader of the military contractor whose mercenary forces have been fighting alongside Russian military troops in Ukraine, and the Russian Defense Ministry came to a head early Saturday as Prigozhin led his troops to successfully overtake a Russian military outpost near the Ukrainian frontier, which the Kremlin has used as its command center for overseeing the war in Ukraine.

Amid the mixture of reliable information and unfounded speculation, market analysts have scrambled to make sense of the situation and what it might mean for financial markets and the global economy.

The main theme that has emerged so far is that U.S. stocks would suffer unless the Russian military managed to quickly suppress the rebellion, as may have occurred with reports late Saturday that Prigozhin had halted a Wagner advance on Moscow and, in fact, might be relocating to neighboring Belarus. But how would something that could potentially cut short the war in Ukraine — which has been a bugbear for markets since the full-scale invasion by Russian forces in February 2022 — be a negative for stocks?

The answer is that chaos leads to uncertainty, and that uncertainty is anathema to markets — especially when it could disrupt global oil and food supplies.

“I’d bet on this creating more uncertainty which is generally going to be negative for risk … in the short term at least you see higher geopolitical risk premia — longer term the risks are on both sides really: does this precipitate the collapse of the Russian front and the war ends?” said Neil Wilson, chief market analyst at Finalto, in a note to clients on Saturday.

Others noted that the crisis is coming at a vulnerable time for U.S. markets, while Michael Antonelli, a market strategist at R.W. Baird & Co., suggested in a tweet that the crisis “has to be” bearish for U.S. stocks.

The S&P 500 index
SPX,
-0.77%
closed out its worst week since March on Friday as a series of interest-rate hikes in the U.K. and across Europe last week sparked fresh fears of a global recession. Some analysts noted that the pullback swiftly followed signs that investors are growing more bullish following a powerful rally that sent stocks to their highest levels in 14 months. There are concerns that this shift in sentiment could presage investors’ final capitulation.

Sven Henrich, founder and lead strategist of Northman Trader, noted that the Cboe Volatility Index
VIX,
+4.11%,
the market’s so-called fear gauge, which measures the stock market’s expectations for volatility over the next 30 days, managed to finish last week below 13.5, its lowest level since January 2020, even as stocks pulled back.

If stocks do continue to slide, that would mean new lows for the Vix have proved to be a reliable counterindicator, suggesting that investors had grown complacent before being walloped by a fresh shock.

Asian markets will be the first to react to ongoing developments by Sunday evening Eastern time, but derivatives traders using CME Group’s Globex platform to trade swaps tracking the value of U.S. equity indexes are already betting on a selloff.

Meanwhile, bitcoin
BTCUSD,
+0.11%,
an asset that does reliably trade 24/7, was down just 0.8% at $30,675, a slight pullback after achieving its highest level in a year late last week. By Saturday evening the leading cryptocurrency has reversed that earlier dip.

Where might investors turn for safety if markets do become chaotic?

Finalto’s Wilson said investors could seek shelter in the currency market, where the U.S. dollar
DXY,
+0.47%,
Swiss franc
USDCHF,
-0.02%
and maybe the euro
EURUSD,
+0.32%
and British pound
GBPUSD,
+0.02%
could benefit from a spike in demand. More “de-risking” could send investors into ultrasafe government bonds like U.S. Treasurys
TMUBMUSD10Y,
3.741%,
which could help to push yields lower, as bond yields move inversely to prices.

Wilson anticipated that European indexes could be “more exposed to de-risking due to makeup and proximity to Russia and the war in Ukraine.” He also noted the possibility that this latest crisis could send the S&P 500 and Nasdaq Composite
COMP,
-1.01%
higher if investors decided to seek shelter in high-quality growth names like Apple Inc.
AAPL,
-0.17%,
Nvidia Corp.
NVDA,
-1.90%
or Microsoft Corp.
MSFT,
-1.38%,
which have helped to drive this year’s equity-market rally.

Whatever happens, the outcome of the crisis should be more clear within the next 35 hours, Wilson said.

“[H]ow the market opens after the weekend will depend on what happens in the next 36 hours. … [I]t could all be over by then,” Wilson said.

Regardless, one of the first to interpret the market’s reaction on Monday will be Melbourne-based Chris Weston, head of research at online broker Pepperstone.

Until then, he cautioned investors against reading too much into the Wagner situation, since analysts’ visibility into a very complicated geopolitical situation is “poor.”

“The humble market participant would simply say they have no edge in knowing how this plays out and our visibility to read this through to markets is currently poor — the information is often biased and it’s hard to truly know what is fact and what is fed to influence. … [W]ill this lead to genuine regime change, fail or perhaps inflame and lead to a market shock?” Weston said in comments provided to MarketWatch.

“At this point we simply don’t know, but it feels like we get enough clarity on potential outcomes and even timelines in the next 24-48 hours — at this point the prospect of modest downside risk on Monday is elevated and naturally we’ll be watching crude and EU assets most closely,” he said.

Terry Haines, founder of Pangea Policy, said in an email to clients that the ongoing uncertainty fueled by the Wagner rebellion reveals the fragility of the Putin regime, and might marginally boost chances of a Ukraine victory.

But Haines also conceded that it’s a “developing and unstable situation with various facets that on net add to geopolitical uncertainties, to which markets usually react negatively.” Investors must also consider that, should that rebellion fail, it could be “replaced by stronger Russian control” or create further instability as “Wagner disintegrates.”

In that same vein, Jim Bianco, head of Bianco Research, offered up a joke aimed at all the armchair geopolitical analysts suddenly flocking to Twitter.

Markets may take a look at this crisis and view it as a “bullish development after some initial volatility, the Kobeissi Letter’s editor in chief and founder, Adam Kobeissi, told MarketWatch in Saturday comments.

“After all, the end of the war in Ukraine is the market’s top geopolitical driver right now, and if this increases the odds of a peace agreement and/or Russia withdrawing from Ukraine, it is likely to be perceived as bullish over the next few weeks,” he said.

He recommended that investors keep an eye on prices of oil and gold, which could be particularly sensitive to any fresh developments.

“If this means more conflict,” he said, “then oil
CL.1,
+0.51%,
bonds
TMUBMUSD10Y,
3.741%
and gold
GC00,
+0.04%
are poised to rally.”

[ad_2]

Source link

June 24, 2023
U.S. stocks fall to cap off worst week since collapse of Silicon Valley Bank
[ad_1]
U.S. stocks fell Friday with the S&P 500 index on track for its worst week since the collapse of Silicon Valley Bank in March suggesting the three month rally may be coming to an end.

Investors sought safety in bonds and the U.S. dollar as a wave of interest-rate hikes and hawkish commentary from international central bankers revived worries about global economic growth.
How are stocks trading?

The S&P 500
SPX,
-0.51%
fell 32 points, or 0.8%, to 4,349.

The Dow Jones Industrial Average
DJIA,
-0.43%
fell 204 points, or 0.6%, to 33,741.

The Nasdaq Composite
COMP,
-0.75%
slid 145 points, or 1.1%, to 13,484.

On Thursday, the Dow industrials fell 4.81 points, or less than 0.1%, to close at 33,946.71. The four-day slide is the blue-chip gauge’s longest losing streak since a five-day drop that ended on May 25, according to Dow Jones Market Data. Both the S&P 500 and Nasdaq finished higher, snapping a three-day losing streak.

What’s driving markets

U.S. stocks on Friday looked set to snap the longest streak of weekly gains since 2019 for the Nasdaq.

Concerns that interest rate rises by central banks might harm global economic growth were weighing on global equities on Friday, analysts said, following interest rate rises in the U.K., Switzerland, Norway and Turkey on Thursday. The latest batch of rate hikes followed moves by the central banks of Canada and Australia earlier this month.

Data released on Friday also showed business activity in the eurozone losing momentum in June, according to a purchasing managers survey. U.S. economic growth may also be slowing. The S&P Global U.S. services index fell to a 54.1 in June from 54.9 in the prior month, a two-month low, while the manufacturing index, meanwhile, slid to a five-month low of 46.9 from 51 in May.

“US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings,” Edward Moya, Senior Market Analyst at Oanda wrote in a note Friday. “The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.”

With central banks around the world promising to raise borrowing costs even higher to tame inflation, analysts focused on the potential ramifications of higher interest rates for both the health of the economy and equity valuations. In the U.S., analysts across Wall Street have warned that the S&P 500 and Nasdaq Composite valuations are again looking unreasonably rich.

The price-to-earnings ratio for the S&P 500 based on Wall Street’s forecasts for corporate earnings over the next 12 months is just shy of 19, according to FactSet. That’s higher than the five-year average.

While the Federal Reserve opted to leave interest rates on hold in June, Chair Jerome Powell reiterated in Congressional testimony this week that senior Fed officials strongly support hiking rates “a couple of times” later this year.

Ryan Belanger, founder and managing principal at Claro Advisors, is among the analysts who believe the market’s rally is getting ahead of itself.

“The market is too confident that the Federal Reserve can engineer a soft landing and it would be wise for investors to reduce exposure to stocks,” Belanger said in emailed commentary.

With the S&P 500 down nearly 1.5% for the week, stocks are on track for their biggest such pullback since March 10, FactSet data showed.

Of course, the market is coming off a rally which is leading some to conclude that this might be a healthy pullback. The S&P 500 had climbed for five straight weeks through June 16, its longest such winning streak since November 2021, Dow Jones Market Data show. Meanwhile, the technology-heavy Nasdaq had logged eighth straight weekly advance to mark its longest stretch of gains since March 2019.

“Some of this is a bit of a giveback and when you look at the market action from the last month and a half, we’ve kind of gone parabolic,” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management, during a phone interview with MarketWatch.

Defensive assets like the dollar and high-quality sovereign bonds were outperforming on Friday, with the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.742%
falling five basis points to 3.744%. Yields on 10-year U.K. gilt
TMBMKGB-10Y,
4.317%
and 10-year German bunds were down by 10 basis points or more. Crude prices
CL.1,
-1.12%,
which are sensitive to expectations for the global economy, fell 1.6% to $68.49 a barrel.

However, U.S. Treasury Secretary Janet Yellen struck an upbeat tone Friday when she said during an interview with Bloomberg that recession risks in the U.S. have faded “because look at the resilience of the labor market, and inflation is coming down.”

Investors will hear from Cleveland Fed President Loretta Mester later. She’s expected to speak at 1:40 p.m. Eastern Time.

Companies in focus

3M Co. shares
MMM,
-0.38%
rose after the materials and chemicals company, and Dow Jones Industrial Average
DJIA,
-0.43%
component, offered $10.3 billion to settle claims it was responsible for so-called “forever chemicals” in drinking water.

Virgin Galactic Holdings Inc.
SPCE,
-19.27%
dropped after the space-tourism company said late Thursday in a filing it’s seeking to raise $400 million to scale up its business and improve its fleet.

Smith & Wesson Brands Inc.
SWBI,
+17.88%
jumped after the gun maker reported fiscal fourth-quarter results that topped expectations

Starbucks
SBUX,
-2.11%
fell as workers at more than 150 stores plan to go on strike, their union said Friday, as tensions escalated in response to accusations that the company banned Pride-themed decorations at some U.S. stores.
[ad_2]

Source link
June 23, 2023
U.S. economy running close to 2% growth rate in second quarter, S&P says

[ad_1]

This version corrects the manufacturing PMI data which fell to a six-month low of 46.3 in June from 48.4 in the prior month.

The numbers: The S&P Global “flash” U.S. service sector activity index fell to a 54.1 in June from 54.9 in the prior month, a two-month low.

Economists surveyed by the Wall Street Journal has forecast a reading of 53.3.

The S&P Global “flash” U.S. manufacturing sector index, meanwhile, slid to a six-month low of 46.3 from 48.4 in May. Economists had expected a 49 reading.

Readings above 50 signifies expansion; below that, contraction.

Key details: In the services sector, new orders increased at a strong rate in June. The pace of expansion was close to May’s 13-month high.

On the other hand, manufacturers recorded the fastest rate of contraction in new orders since last December. They linked the drop to muted consumer confidence. Foreign client demand was also subdued.

Inflation was seen as moderating. The overall rate of selling prices for goods and services dropped to the lowest level since late 2020.

Big picture: The S&P PMIs try to look ahead at the health of the economy, a critical question with even Federal Reserve officials saying that the outlook for the U.S. is hidden in a fog.

A composite output index from S&P showed the fifth straight month of increases in private sector activity.

What S&P Global said: “The overall rate of expansion of business activity in the
US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%,” said Chris Williamson, chief business economist at S&P Global.

Market reaction: Stocks
DJIA,
-0.65%

SPX,
-0.77%
opened lower on Friday on talk of more interest rate hikes from global central banks. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.741%
fell to 3.72%.

[ad_2]

Source link

June 23, 2023
Dow sheds 100 points, stocks post 3-session drop after Fed’s Powell says expect more rate hikes

[ad_1]

U.S. stocks closed lower for a third session in a row, retreating after recently touching their highest levels in more than a year. The Dow Jones Industrial Average
DJIA,
-0.30%
shed about 102 points, or 0.3%, ending near 33,951, the S&P 500 index
SPX,
-0.52%
closed 0.5% lower and the Nasdaq Composite Index
COMP,
-1.21%
shed 1.2%, according to preliminary FactSet data. Stocks have been drifting lower in the past three sessions, pausing a recent rally that lifted the S&P 500 out of a bear market. The second-guessing by bulls comes as the Federal Reserve appears near, but not finished, raising rates in this cycle. Fed Chairman Jerome Powell told Congress on Wednesday to expect more rate hikes this year, with inflation still running well above the central bank’s 2% annual target. Fed officials kept their policy rate in a 5%-5.25% range in June, but signaled potentially two more rate hikes this year. The Fed’s “dot plot” indicates the benchmark rate could peak in a 5.5%-5.75% range.

[ad_2]

Source link

June 21, 2023
Economist who anticipated bank failures says U.S. recession may be just around the corner

[ad_1]

An economist who delivered a prescient warning about the health of the U.S. banking system earlier this year is now saying a long-awaited U.S. recession could finally arrive in the months ahead.

Steve Blitz, chief U.S. economist at TS Lombard, said in a research note shared with MarketWatch on Wednesday that “…the recession view remains very much intact” as banks rein in lending while companies’ profits appear to have weakened once again during the second quarter ending in June.

Both are signs that the U.S. economy is slowing, and the stock market’s “daydream”, which has helped to propel the S&P 500 index
SPX,
-0.24%
nearly 14% higher so far this year according to FactSet data, might soon come to an abrupt end.

The pace of lending growth at small and large U.S. banks has slowed to almost nothing, according to TS Lombard’s analysis of Federal Reserve data on bank lending released weekly. It is the latest milestone in a trend that has persisted for most of this year, and even longer for large banks, the data show.

TS LOMBARD

Meanwhile, the U.S. Treasury’s plan to issue a flood of T-bills to replenish its coffers now that the federal debt ceiling has been raised could divert even more money away from markets and the economy.

See: The debt-ceiling deal may spark a new worry: Who will buy the deluge of Treasury bills?

Treasury has already started the process, and it is expected to issue $1 trillion in bills before the end of August, according to an estimate from BofA Global strategists. T-bills are Treasury bonds with maturities between four and 52 weeks.

Finally, signs of slowing corporate earnings growth could push the economy over the edge. Even as Wall Street analysts have been raising their expectations for corporate profits, a slowdown in quarterly tax payments suggests that earnings have actually continued to sag in 2023. This comes after profits for S&P 500 firms previously shrank on a year-over-year basis during the first quarter of 2023 and fourth quarter of 2022, according to FactSet data.

U.S. Treasury Department data show corporate tax receipts are down 12% year-to-date through June 16, according to a TS Lombard analysis.

Lower tax payments means lower profits, Blitz said. And weaker profits will likely lead to more layoffs and a slowdown in wage growth, which could compound the impact from slowing credit creation and the flurry of T-bill issuance.

“Lower corporate earnings are a key indicator pointing to lower personal income and employment sooner rather than later. Aiding and abetting this process is the pace of lending slowing to a crawl – and then Treasury pulling 9% of GDP, annualized, out of the economy in the current quarter,” Blitz said.

TS LOMBARD

Hopes that the U.S. economy might avoid a recession have helped to lift stocks this year and investors are clinging to signs signs that the U.S. economy, particularly the labor market and the housing market, remains robust.

Blitz addressed some of these concerns, saying that corporate profits will lead to lower employment, while dismissing a surge in housing starts last month as a one-time “outlier.”

According to Commerce Department data released Tuesday, the closely watched measure of U.S. home-building rose 21.7% in May to a seasonally adjusted annual rate of 1.631 million, blowing away economists’ expectations for a modest decline.

See: U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on

“Housing is critical in getting to a recession, only 2001 saw a recession without a major contraction in home construction. It is possible for this to occur again, given the expected mildness of the downturn. Still, recessions rarely develop when construction is roaring ahead,” Blitz said.

“To this point, May looks like an outlier rooted in a jump in April homes sold that weren’t yet started,” he added.

TS LOMBARD

Blitz also cited a drop in railcar loadings of lumber and metal products as a sign that a recent uptick in the health of the manufacturing economy is already fading.

And even if the U.S. does manage to delay a recession, the Federal Reserve and markets could face other problems, like a a resurgence of inflation.

“Absent a recession, inflation will reaccelerate later in the year. Not to 8% or so, 5% is more likely,” he said.

A longtime chronicler of the U.S. economy, Blitz noted back in February that small U.S. banks could be vulnerable due to a number of factors, including a paucity of reserves and a mismatch between the duration of their loans and the short-term nature of their deposit obligations.

The asset-liability mismatch in particular became a major problem when Silicon Valley Bank collapsed into federal receivership a few weeks later after a last-ditch attempt to raise funding triggered a devastating bank run.

Wall Street economists had expected a U.S. recession would begin as soon as the first quarter of 2023, but so far, the economy has proven unexpectedly resilient to the Fed’s interest rate hikes, even after the central bank raised borrowing costs by five percentage points since March 2022.

[ad_2]

Source link

June 21, 2023
Dow ends nearly 250 points lower, stock-market rally pauses ahead of Fed testimony

[ad_1]

U.S. stocks closed lower on Tuesday, the first day of trading after the long federal Juneteenth holiday. The Dow Jones Industrial Average
DJIA,
-0.72%
fell about 245 points, or 0.7%, ending near 34,053, while the S&P 500 index
SPX,
-0.47%
closed about 0.5% lower and the Nasdaq Composite Index
COMP,
-0.16%
shed 0.2%, according to preliminary FactSet figures. Stocks were lower to start the week, after the S&P 500 on Friday booked a fifth straight week of gains and stocks recently touched their highest level in more than a year. Investors were waiting on Federal Reserve Chairman Jerome Powell’s congressional testimony on monetary policy, which kicks off Wednesday, for more insights into the central bank’s thinking on interest rates, after senior officials penciled in two more potential hikes this year, while skipping a rate increase at its June meeting.

[ad_2]

Source link

June 20, 2023
Problem office loans are piling up in Chicago and Houston, but not yet in San Francisco

[ad_1]

Key-card swipes don’t tell the whole story.

Chicago, Philadelphia and Houston have some of the highest percentages of problem office loans when looking at delinquency rates and other early warnings signs of trouble, according to a new report by Barclays.

That might come as a surprise, given that San Francisco has been making headlines for its broader commercial real estate woes, technology sector layoffs and struggles getting workers back to the office.

But so far, it’s other cities like Philadelphia with a 14% rate of office loans at least 30 days delinquent (see chart), or Chicago where 21.2% of its office loans facing imminent default, triggering a transfer of their debt to a “special” loan servicer (Sp. Srv).

Chicago, Houston and Philadelphia are top cities for trouble office loans

Trepp, Barclays Research

Researchers at Barclays based their findings on the performance of commercial property debt in metro areas with at least $2 billion of loans that were packaged into bond deals. They found that, “although there has been much discussion linking issues in the office sector with the very slow pace of return-to-office policies, we see very little correlation between performance of office collateral within various MSAs and Kastle’s weekly occupancy report.”

Kastle’s most recent Back to Work Barometer showed Houston with a 61.6% rate of physical occupancy, above the 50% 10-city average. San Jose’s rate was pegged at below 39%, while the San Francisco metro area was near 45%, when looking at card swipes at more than 2,000 office buildings in 138 cities.

But San Jose and Seattle were outperforming, both with no office loan delinquencies, few specially serviced loans or those on a watchlist for potential problems, according to Barclays.

“Given that tech companies have pulled back from office occupancy and many have embraced remote work, we believe that office delinquencies will continue to rise,” wrote Lea Overby’s credit research team at Barclays, in a Tuesday client note.

While Wall Street’s bond machine, known as the “commercial mortgage-backed securities (CMBS)” market, isn’t the biggest lender on U.S. office buildings, it’s the most transparent place to track loan performance in commercial real estate, because of its monthly public reporting requirements.

Another caveat to the findings is that physical occupancy rates aren’t the same as in-place leases, which many companies continued to pay each month throughout the pandemic. Physical occupancy rates, however, can be a sign of tenant demand for future space.

Higher interest rates, a mountain of maturing property debt and wobbling building prices have been pressuring landlords, with both Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen recently saying they continue to monitor the sector closely.

Stocks were lower Tuesday, as investors awaited Chair Powell’s two days of testimony to Congress, with the Dow Jones Industrial Average
DJIA,
-0.72%
off 200 points, or 0.6%, the S&P 500 index
SPX,
-0.47%
off 0.4% and the Nasdaq Composite Index
COMP,
-0.16%
0.2% lower, according to FactSet.

Related: Blackstone wrote down its stake in this Chicago office building to $0. Now it’s talking with lenders on the debt coming due

The S&P 500 Office REITs Sub-Industry Index
SP500.40402040,
-3.43%
was down 1.1% Tuesday, but off 21% on the year so far, according to FactSet.

[ad_2]

Source link

June 20, 2023
Stocks end sharply higher, S&P 500 scores longest win streak since 2021

[ad_1]

U.S. stocks booked big gains on Thursday, a day after the Federal Reserve skipped a June rate hike, but indicated more increases could be on the table this year. The Dow Jones Industrial Average
DJIA,
+1.26%
jumped about 430 points, or 1.3%, ending near 34,409, according to preliminary FactSet data, while the S&P 500 index
SPX,
+1.22%
gained 1.2% to score a sixth session in a row of wins and its longest stretch of straight gains since Nov. 8, 2021, according to Dow Jones Market Data. The Nasdaq Composite Index
COMP,
+1.15%
closed up 1.2%. The rally for stocks comes in the wake of the S&P 500 emerging from its longest bear market in decades, with shares of big technology companies continuing to lead the index higher on Thursday. Its Communications Services segment rose 1.5% Thursday, while the Information Technology sector gained 1.3%, according to FactSet. Critics of the rally have pointed to exuberance around new advances in artificial intelligence helping lift a select set of seven stocks higher. One of those stocks, Microsoft Corp.
MSFT,
+3.19%
rose about 3.5% to $349, per preliminary data, a record close on Thursday.

[ad_2]

Source link

June 15, 2023
New York Empire State, Philadelphia Fed factory indexes mixed but show signs of optimism

[ad_1]

The numbers: Two U.S. regional gauges of manufacturing sentiment showed signs in June that they may be improving after a rough patch, according to data released Thursday.

The Philadelphia Federal Reserve’s manufacturing index slipped further to a reading of negative 13.7 in June from negative 10.4 in the prior month, but economists had expected a reading of negative 14.8, according to a Wall Street Journal survey of economists. This is the tenth straight negative reading.

The…

[ad_2]

Source link

June 15, 2023
Stocks end mostly higher after Fed skips June rate hike but pencils in more this year

[ad_1]

U.S. stocks finished mostly higher on Wednesday in a choppy session that saw the Fed leave rates steady in June, while penciling in another 50 basis points of potential hikes later this year. The Dow Jones Industrial Average DJIA shed about 231 points, or 0.7%, ending near 33,980, according to preliminary FactSet data, or well off the session’s low of 33,783. The S&P 500 index SPX added about 3 points, or 0.1% and the Nasdaq Composite Index COMP closed 0.4% higher. “It’s just the idea that were are trying to get this right,” Fed Chairman Jerome Powell said about the potential mixed messaging of holding rates steady in…

[ad_2]

Source link

June 14, 2023
Why this $6 trillion pile of cash isn’t heading for stocks any time soon

[ad_1]

Even with U.S. stocks in a new bull market, investors aren’t showing many signs of backing away from money-market funds and other cash-like investments offering yields of about 5%, the highest in about 15 years.

Money-market funds hit a record of $5.9 trillion in assets as of Tuesday, signaling a continuing drain out of bank deposits into higher-yielding “cash-like” investments, according to Peter Crane, president and publisher of Crane Data.

He…

[ad_2]

Source link

June 14, 2023
Nasdaq stock dives after deal to buy Adenza for $10.5 billion in cash and stock from Thoma Bravo

[ad_1]

Shares of Nasdaq Inc.
NDAQ,
+0.28%
dove 5.1%, enough to pace the S&P 500’s premarket decliners Monday, after the securities trading, clearing and listing company announced an agreement to buy software company Adenza for $10.5 billion in cash and stock from Thoma Bravo. The terms of the deal include $5.75 billion in cash and 85.6 million shares of Nasdaq common stock, which will be issued to the owners of Adenza after closing of the deal, expected to occur within six to nine months. The number of shares represents 17.4% of Nasdaq’s shares outstanding. Nasdaq plans to issue 5.9 billion of debt for the cash portion of the deal. “With Adenza, we will have a more complete suite of essential software and technology solutions that make managing risks and complying with regulations simpler and more efficient for our clients,” said Tal Cohen, president of market platforms at Nasdaq. Adenza is expected to have $590 million of revenue in 2023, with annual recurring revenue growth of 18%. Nasdaq’s stock has lost 5.7% year to date through Friday, while the S&P 500
SPX,
+0.11%
has gained 12.0%.

[ad_2]

Source link

June 12, 2023
How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

[ad_1]

It is the notion that the Federal Reserve could deliver a hawkish jolt to markets even if it refrains from raising rates when its two-day policy meeting ends on Wednesday.

There are concerns that such an outcome could spark a turnaround in U.S. stocks, especially if an uncomfortably strong reading on May inflation — due this coming Tuesday just as the Fed’s policy meeting is slated to begin — pushes the central bank toward something even more extreme, like delivering a rate increase on Wednesday despite intimating that it plans to abstain.

The May consumer-price index is forecast to rise 4.0% for the year, down from a rise of 4.9%, while the core index, excluding food and energy prices, is seen easing to a rise of 5.3% from 5.5%.

On the other hand, signs that the economy has weakened and inflation has continued to fade would help the Fed to justify skipping a rate increase in June — as several senior officials have suggested it will — while signaling that a potential hike at its following meeting in July could be the final increase for the cycle.

“Softening U.S. data should support calls that a June skip could eventually turn into a July pause. Next week, most of the data is expected to remain weak or little changed: retail sales could be flat m/m, the Fed regional surveys should remain in negative territory, and consumer sentiment will waver,” said Craig Erlam, senior market analyst at OANDA, in emailed commentary.

See: The Fed’s crystal ball on inflation appears off the mark again. Here’s comes another fix.

Wednesday’s meeting comes at a critical time for the market. U.S. stocks have powered ahead for more than six months, with the S&P 500
SPX,
+0.11%
having risen more than 20% off its Oct. 12 closing low, according to FactSet. Just this past week, the index exited bear-market territory for the first time in a year.

The index is up 12% so far in 2023, reversing some of its 19.4% decline from 2022, its biggest calendar-year drop since 2008, according to Dow Jones Market Data.

So far this year, highflying tech stocks have helped to paper over weakness in other areas of the market. This has started to change over the past two weeks, as small-cap and value-stocks have lurched suddenly higher, but there are fears that the Fed could hurt the most interest-rate sensitive technology names if Chairman Jerome Powell hints at rates rising higher than investors presently anticipate.

The so-called “Megacap eight” stocks — a group that includes both classes of Alphabet Inc. stock
GOOG,
+0.16%

GOOGL,
+0.07%,
Microsoft Corp.
MSFT,
+0.47%,
Tesla Inc.
TSLA,
+4.06%,
Microsoft Corp.
MSFT,
+0.47%,
Netflix Inc.
NFLX,
+2.60%,
Nvidia Corp.
NVDA,
+0.68%,
Meta Platforms Inc.
META,
+0.14%
— have driven nearly all of the S&P 500’s gains this year, according to Ed Yardeni, president of Yardeni Research, who included his analysis in a note to clients.

But since the beginning of June, the Russell 2000
RUT,
-0.80%,
a gauge of small-cap stocks in the U.S., has risen more than 6.6%, according to FactSet data. The Russell 1000 Value Index
RLV,
-0.15%
has also gained nearly 3.7% in that time. During this period, both have outperformed the tech-heavy Nasdaq Composite
COMP,
+0.16%,
although the Nasdaq remains the market leader, having risen 26.7% since Jan. 1.

Concerns about the Fed’s plans intensified this week after the Bank of Canada delivered a surprise interest-rate hike, ending a four-month pause. The BOC’s decision followed a similar move by the Reserve Bank of Australia, and partly as a result, U.S. Treasury yields rose and tech-heavy stocks tumbled, with the Nasdaq logging its biggest drop since April 25, according to FactSet.

While small-caps held up amid the chaos, the reaction stoked fears that something similar might be in store for markets when the Fed delivers its latest decision on interest rates Wednesday.

Consequences of a ‘hawkish pause’

Stocks could be in for more turbulence if the Fed signals it plans to follow the BOC and RBA with a hawkish surprise of its own. And it wouldn’t necessarily need to hike rates to pull this off, market strategists said.

Emerging signs of complacency in the market could complicate its reaction. That the Cboe Volatility Index has fallen back below 15
VIX,
+1.32%
for the first time since before the arrival of COVID-19 is one such sign that investors aren’t worried enough about a potential selloff, said Miller Tabak + Co.’s Chief Market Strategist Matt Maley.

Another analyst likened the potential fallout from a hawkish Fed to the bad old days of 2022.

“If the Fed signals that rates will be going up again, the market playbook could read more like 2022 than what we have seen so far in 2023,” said Will Rhind, the founder and CEO of GraniteShares, during a phone interview with MarketWatch.

Perhaps the biggest wild card is Tuesday’s inflation report. If the numbers come in hot, Powell and his peers could face pressure to hike rates without priming the market first.

For this reason, Rhind believes investors are underestimating the likelihood of a hike next week, even as Fed funds futures currently see a roughly 70% probability that the central bank will stand pat, according to the CME’s FedWatch tool.

And Rhind isn’t the only one. Leslie Falconio, chief investment officer at UBS Global Wealth Management, says the Tuesday inflation report could be a make-or-break moment for markets, summing up fears expressed elsewhere on Wall Street in a recent note to clients.

“We believe another rate increase is on the table, and that the CPI release on 13 June, a day before the Fed decision, will be decisive. In our view, another hike won’t have a material impact on the pace of economic growth,” Falconio said.

What should investors watch out for?

Assuming the Fed does forego a hike in June, there are a few key tells that investors should watch for to determine whether a “hawkish pause” is under way.

Perhaps the most important will be how the Fed handles changes to its closely watched “dot plot.” A modestly higher median dot would send an unmistakable signal to the market that the Fed will continue with its campaign of tightening monetary policy, perhaps to the detriment of the market, said Patrick Saner, head of macro strategy at the Swiss Re Institute.

“If the Fed skips but wanted to avoid the impression of the hiking cycle being done, it would need to include a revision of the dot plot. They could justify that with a more resilient GDP forecast and a higher inflation outlook. So I think it is the dots and then the statement that will be in focus,” Saner said during a phone interview with MarketWatch.

Beyond that, whatever the Fed does or says will likely be viewed through the lens of economic data that is due out next week. In addition to the Tuesday inflation report, a report on May retail sales is due out Thursday, and a on consumer sentiment from the University of Michigan will land on Friday. All these data points could influence investors’ impressions of the state of the U.S. economy, and their expectations for how the Fed will behave as a result.

See also: Puzzled by the ebb and flow of recession worries? Then the MarketWatch weekly recession worry gauge is for you.

[ad_2]

Source link

June 11, 2023
April U.S. factory orders rise for fourth gain in five months

[ad_1]

Orders for manufactured goods rose 0.4% in April, the Commerce Department said Monday. It is the fourth increase in factory-goods orders in the past five months.

Economists surveyed by the Wall Street Journal were expecting a 0.6% rise.

The gain was led by transportation equipment. Excluding that sector, orders were down 0.2%.

Durable-goods orders rose 1.1% in April, unrevised from the initial estimate last week. The advance durable-goods data is always released ahead of the full report. Nondurable-goods orders fell 0.1% in April.

Orders for nondefense capital goods, excluding aircraft, rose a revised 1.3% in April, down slightly from the prior estimate of a 1.4% increase. The gain was led by computers and machinery.

[ad_2]

Source link

June 5, 2023
Biden signs debt ceiling bill that pulls U.S. back from brink of unprecedented default

[ad_1]

With just two days to spare, President Joe Biden signed legislation on Saturday that lifts the nation’s debt ceiling, averting an unprecedented default on the federal government’s debt.

The Treasury Department had warned that the country would start running short of cash to pay all of its bills on Monday, which would have sent shockwaves through the U.S. and global economies.

Republicans refused to raise the country’s borrowing limit unless Democrats agreed to cut spending, leading to a standoff that was not resolved until weeks of intense negotiations between the White House and House Speaker Kevin McCarthy, R-Calif.

The final agreement, which was passed by the House on Wednesday and the Senate on Thursday, suspends the debt limit until 2025 — after the next presidential election — and restricts government spending.

Raising the nation’s debt limit, now at $31.4 trillion, will ensure that the government can borrow to pay debts already incurred.

“Passing this budget agreement was critical. The stakes could not have been higher,” Biden said from the Oval Office on Friday evening. “Nothing would have been more catastrophic,” he said, than defaulting on the country’s debt.

See also: ‘We averted an economic crisis’: Biden hails debt-ceiling deal in Oval Office address

The agreement was hashed out by Biden and House Speaker Kevin McCarthy, giving Republicans some of their demanded federal spending cuts but holding the line on major Democratic priorities.

It raises the debt limit until 2025 — after the 2024 presidential election — and gives legislators budget targets for the next two years in hopes of assuring fiscal stability as the political season heats up.

“No one got everything they wanted but the American people got what they needed,” Biden said, highlighting the “compromise and consensus” in the deal. “We averted an economic crisis and an economic collapse.”

Biden used the opportunity to itemize the achievements of his first term as he runs for reelection, including support for high-tech manufacturing, infrastructure investments and financial incentives for fighting climate change.

He also highlighted ways he blunted Republican efforts to roll back his agenda and achieve deeper cuts.

“We’re cutting spending and bringing deficits down at the same time,” Biden said. “We’re protecting important priorities from Social Security to Medicare to Medicaid to veterans to our transformational investments in infrastructure and clean energy.”

Even as he pledged to continue working with Republicans, Biden also drew contrasts with the opposing party, particularly when it comes to raising taxes on the wealthy, something the Democratic president has sought.

It’s something he suggested may need to wait until a second term.

“I’m going to be coming back,” he said. “With your help, I’m going to win.”

Biden’s remarks were the most detailed comments from the Democratic president on the compromise he and his staff negotiated. He largely remained quiet publicly during the high-stakes talks, a decision that frustrated some members of his party but was intended to give space for both sides to reach a deal and for lawmakers to vote it to his desk.

Biden praised McCarthy and his negotiators for operating in good faith, and all congressional leaders for ensuring swift passage of the legislation. “They acted responsibly, and put the good of the country ahead of politics,” he said.

Overall, the 99-page bill restricts spending for the next two years and changes some policies, including imposing new work requirements for older Americans receiving food aid and greenlighting an Appalachian natural gas pipeline that many Democrats oppose.

Some environmental rules were modified to help streamline approvals for infrastructure and energy projects — a move long sought by moderates in Congress.

The Congressional Budget Office estimates it could actually expand total eligibility for federal food assistance, with the elimination of work requirements for veterans, homeless people and young people leaving foster care.

The legislation also bolsters funds for defense and veterans, cuts back some new money for the Internal Revenue Service and rejects Biden’s call to roll back Trump-era tax breaks on corporations and the wealthy to help cover the nation’s deficits. But the White House said the IRS’ plans to step up enforcement of tax laws for high-income earners and corporations would continue.

The agreement imposes an automatic overall 1% cut to spending programs if Congress fails to approve its annual spending bills — a measure designed to pressure lawmakers of both parties to reach consensus before the end of the fiscal year in September.

See also: With debt-ceiling deal, student-loan borrowers will start resuming payments in 3 months — here’s how to prepare

In both chambers, more Democrats backed the legislation than Republicans, but both parties were critical to its passage. In the Senate the tally was 63-36 including 46 Democrats and independents and 17 Republicans in favor, 31 Republicans along with four Democrats and one independent who caucuses with the Democrats opposed.

The vote in the House was 314-117.

[ad_2]

Source link

June 3, 2023
The 60:40 portfolio is up more than 17%. Why is it doing so much better this year?

[ad_1]

“Regression to the mean” is a powerful force in the financial markets, so it was a good bet that the 60:40 portfolio would have a much better year in 2023 than in 2022.

But not as good a year as it has had so far. That’s important to point out, lest retirees start believing that returns like we’re seeing this year are the norm. They’re not.

The 60:40 portfolio, a default option for many retirees and near-retirees, lost 23.4% last year, assuming the 60% equity portion was invested in the Vanguard Total Stock Market ETF
VTI,
+1.65%
and the 40% bond portion in the Vanguard Long-Term Treasury ETF
VGLT,
-0.94%.
That was the worst calendar-year return for the portfolio since the Great Depression.

Through the end of May this year, in contrast, this portfolio rose at an annualized pace of 17.6%. That is more than double the average return since 1793 of 7.7% annualized for an annually rebalanced portfolio (according to data compiled by Edward McQuarrie of Santa Clara University).

Regression to the mean deserves only a minority of the credit for this reversal. That’s because there’s no guarantee that, following a year with as big a loss as 2022’s, the portfolio would produce a gain this year. Strictly speaking, in fact, all that regression to the mean implies for the 60:40 portfolio is that its return this year would be closer to its long-term average than last year’s. A wide range of possible returns are consistent with this implication, of course, including a loss—just so long as that loss is significantly less than 2022’s.

Rather than thanking mean regression, retirees therefore should thank their lucky stars that the 60:40 portfolio’s year-to-date return is coming in at the upper end of this possible range.

But I need not remind you that luck is not a strategy.

It’s also important to remember that regression to the mean cuts both ways. Assuming that the 60:40 portfolio continues performing for all of 2023 at its year-to-date pace, mean regression would imply a smaller return in 2024. That smaller return could still be a gain, of course, but it also could be a loss.

In any case, it’s worth emphasizing that the 60:40 portfolio is a long-term bet, not a market timing tool. As you can see from the accompanying chart, this portfolio’s most recent trailing 20-year annualized return is almost precisely on top of its two-century average of 7.7% annualized. So no regression to the mean is implied when projecting the portfolio’s long-term future return.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

[ad_2]

Source link

June 2, 2023