Major stock indices were all lower this week and bond yields rose following Federal Reserve statements indicating rates will stay higher for longer. While the FED chose not to raise rates at the meeting this week it indicated that another rate hike is likely before year end. FED Chairman Powell indicated that when rates come down, the so called neutral rate may be higher than expected. The average estimate of FOMC participants shows a longer term rate of 2.5% after 2026.
Home construction starts showed a sharp decline in multi-family (apartment) housing, which is largely driven by interest rates, reducing the potential return for investors. Single family housing starts have been more resilient as those individual home buyers that can afford the higher rates are more likely to continue to build.
The Bank of England met and chose to leave it’ benchmark interest rate at 5.25%.
Treasury bond yields rose with the 30-year bond yield at 4.521% and the 10-Year note at 4.40%. Freddie Mac reported that the average 30-year mortgage rate rose to 7.19%. Crude oil fell to $90.31 a barrel and natural gas rose to $2.883 per MMBTUs. The U.S. dollar index rose to 105.60 and gold rose to $1945.40 an ounce.
- The U.K. reported that inflation in August fell to 6.7% year over year down from 6.8% in July.
- Core inflation, excluding volatile food and energy, fell from 6.9% to 6.2%.
- The Commerce Department reported that housing starts fell a seasonally adjusted 11.3% in August from the revised July estimate and a 14.8% decline from a year ago.
- Permits, a sign of future housing starts, rose a seasonally adjusted 6.9% in August. This is down 2.7% from last August.
- Single family starts fell 4.3% from July and have risen 2.4% from a year ago.
- Multi-family starts fell 26.3% from July and are down 41.0% from a year ago.
- The National Association of Realtors reported that existing home sales fell 0.7% in August and are down 15.3% from a year ago. The decline was attributed to low supply and high mortgage rates.
- The median price of an existing home sale was $407,100 an increase of 3.9% from a year ago.
- The Labor Department reported:
- Seasonally adjusted first-time claims for unemployment were 201,000, an decrease of 20,000 from the previous week’s revised level of 221,000.
- The 4-week moving average of claims, designed to smooth out volatility, was 217,000, a decrease of 7750 from the previous week’s revised level.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- Seasonally adjusted first-time claims for unemployment were 201,000, an decrease of 20,000 from the previous week’s revised level of 221,000.
- The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf . Also, the EIA reported in the prior week:
- Field production of crude oil was unchanged at 12.9MM BPD.
- Natural gas storage rose 64BN cubic feet and is above the 5-year average at this time of year.
- Baker Hughes reported the number of active oil rigs fell 8 to 507. The number of active natural gas fell 3 to 118.
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Loren C. Rex, CFP®, MA Erik A Smith, AIF®
Founder / Emeritus President & C.E.O.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.
Sources:
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W
https://ir.eia.gov/ngs/ngs.html
https://www.freddiemac.com/pmms
https://www.wsj.com/market-data?mod=nav_top_subsection
https://bakerhughesrigcount.gcs-web.com/na-rig-count
https://www.census.gov/economic-indicators
https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
