All of the major indexes pulled back this past week, except for the tech-laden NASDAQ Composite which posted a modest gain as a result of the rally on Friday. Despite the one-plus percent pullback in the other averages, after six consecutive weeks of gains, we wouldn’t consider this anything more than a bit of profit taking ahead of the election Tuesday, November fifth.
· What has gone virtually unnoticed is the backup in U.S. Treasury Yields and mortgage rates (see below for mortgage rates) as the interest paid on the benchmark 10-year Note has risen from 3.59% at the close on September 17, one day before the Fed cut rates by 0.50%, to 4.25% as the dust settled Friday. That may not sound like a lot, but for every $100,000 that’s an extra $660 paid out by the Treasury to investors. If you’re interested in why this might have occurred read your Chart Talk that we emailed to you this past Wednesday. If you did not receive it, feel free to email us at www.faganasset.com and we will be certain to send it to you and add you to our mailing list.
· According to the Investment Company Institute, assets held in U.S. Money Market Funds rose to a record high of $6.51 trillion in the week ending October 23. Many believe that these assets will eventually find their way into either stocks or bonds thereby acting as a catalyst to the upside. We wouldn’t be too certain of that, especially if interest rates remain at this level or nudge higher.
· If history is any guide – well it wasn’t this year as the historically dismal months of August and September both posted robust returns as the S&P 500 tacked on 2.28% and 2.02% respectively. With only four trading days left in October, this month hasn’t been so bad either as the S&P 500 has tacked on another 0.79%. Don’t jump for joy over these numbers as it is quite possible that the abnormally positive performance over the past nearly three months have sucked potential for the remainder of the year.
“It’s The Economy…”
The University of Michigan reported that the Final October Reading of Consumer Sentiment rose to 70.5 from a September level of 70.1. The final October expectations component slipped slightly to 74.1 from a September reading of 74.4. Lastly, the final October current conditions component rose to 64.9 from 63.3 at the close of September. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment lifted for the third consecutive month, inching up to its highest reading since April 2024. Sentiment is now more than 40% above the June 2022 trough. This month’s increase was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates.”
The Census Bureau reported that Sales of New Homes rose 29,000 during September to a Seasonally Adjusted Annualized Rate (SAAR) of 738,000 from 709,000 during August (6.3% y/y). Sales of New Homes have fallen by 28.42% from their peak of 1.031 million in October 2020 and 42.30% from the peak in July 2005 of 1,279,000 units. The average sales price of a new home increased 3.0% (-2.7% y/y) to $501,000 in September after rising 4.6% to $486,500 in August. The average price was 7.4% below its peak of $541,200 in July 2022.” (Source, U.S. Census Bureau)
Initial Claims for Unemployment Benefits for the week ending October 19th fell 15,000 to 227,000 from 242,000 the prior week, which was revised higher by 1,000. The four-week rolling average rose 2,000 to 238,500 from 236,500, which was revised up by 250. Continuing claims for the week ending October 12th rose 28,000 to 1,897,000 from 1,869,000 the prior week, which was revised higher by 2,000. The continuing claims four-week average rose 17,500 to 1,860,750 from 1,843,250. (Source, U.S. Department of Labor)
Sales of Existing Homes fell 1.0% to a Seasonally Adjusted Annualized Rate (SAAR) of 3.84 million units during September from 3.88 million during August. Sales this month marked the lowest since October 2010. According to the National Association of Realtors (NAR) “total housing inventory registered at the end of September was 1.39 million units, up 1.5% from August and 23.0% from one year ago (1.13 million). Unsold inventory sits at a 4.3-month supply at the current sales pace, up from 4.2 months in August and 3.4 months in September 2023.” (Source, National Association of Realtors)
- Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the continued strength in the economy drove mortgage rates higher once again this week. Over the last few years, there has been a tension between downbeat economic narrative and incoming economic data stronger than the narrative. This has led to higher-than-normal volatility in mortgage rates, despite a strengthening economy.”
- We reiterate what we noted last week in that “the better than-expected jobs number really put a crimp in the continuation of the decline in interest rates. Unless some unanticipated data comes to the fore, mortgage rates should remain at or above these levels pending either a confirmation or repudiation of the unanticipated strength in the labor market, a process that will most likely take us though the balance of 2024.”
Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, October Consumer Confidence and the September Job Openings and Labor Turnover Survey (JOLTS); on Wednesday, Third Quarter Gross Domestic Product (GDP); on Thursday, the Weekly Report of Initial Claims for Unemployment and September Personal Income and Spending; and, on Friday, October Non-Farm Payroll Report along with the October Unemployment Rate.
The Current Earnings Season is now in full swing. In fact, five of the seven “Magnificent Seven” report earnings. Here’s a list of those as well as others, – Ford Motors (F), Waste Management (WM), Alphabet (GOOG), Crocs (CROX), Edison International (EIN), Pfizer (PFE), McDonald’s (MCD), Visa (V), Amgen (AMGN), Caterpillar (CAT), eBay (EBAY), Eli Lilly (LLY), Meta Platforms (META), Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Bristol-Myers (BMY), ConocoPhillips (COP), Intel (INTC), Mastercard (MA), Merck (MRK) and Exxon Mobil (XOM).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
