Stocks ended a volatile week modestly lower leaving September as the worst month since March of 2020.
The U.K. bond market plunged early in the week for a couple of reasons. First, was due to Prime Minister Truss’ government embarking on simulative tax cuts and spending increases while the Bank of England is trying to cool the economy to reduce inflation. Second, there has been heavy bond selling from U.K. pension funds due to a hedging strategy. Due to the sharp increase in bond yields, the pension funds were forced to sell bonds to cover margin calls. The strategy is more widely used in the U.K. but is also found in some U.S. pension funds as well.
On Wednesday the BOE chose to buy bonds to stabilize prices. This worked not only for the U.K. but also in the U.S. as well, sparking a sharp stock rally. However, stocks gave up most of the gains on Thursday and Friday following data showing increased consumer spending and falling job layoffs, a driver for more FED rate increases.
In good news Medicare announced a 3% reduction in part B premiums for 2023. 2022 saw a large increase due to a new Alzheimer’s medication but the drug was subsequently limited to test programs and the price has decreased significantly allowing for a reduced premium for 2023. This comes at a time when Social Security payments are expected to receive a large cost of living increase, which will be announced in October.
Lumber prices have come down dramatically and are now near pre-pandemic levels. 
While gasoline prices dropped significantly since the June highs, prices have risen in the past week. Gasoline inventories are 6% below the five year average at this time of year but distillates like diesel, heating oil and jet fuel are 20% below the five year average. Jet fuel is especially scarce as refiners prioritize diesel which Europe needs to replace Russian sources.
Treasury bond yields rose with the 30-year bond at 3.777% and the 10-Year note at 3.829%. 30 year mortgage rates rose to 6.92%. Crude oil rose to $79.74 a barrel and natural gas fell to $6.826 per MMBTUs. The U.S. dollar index fell to 112.17 and gold rose to $1668.30 an ounce.
In the economic numbers:
- The Eurozone reported that consumer prices rose 10% in September from a year earlier.
- Excluding volatile food and energy, prices rose 4.8%.
- Both of these measures are an all time high for the Eurozone.
- Price increases varied by country within the Eurozone with the Baltic states over 20% and France less than 7.5%.
- The U.K. revised it’s estimate of 2nd quarter gross domestic product at 0.2% for the quarter, an increase from -0.1% in the first estimate.
- Costar Group reported that rents fell 0.1% in July from record levels and the first decline since December 2020.
- The S&P CoreLogic Case-Shiller National Home Price Index fell 0.3% in July vs June.
- From a year earlier the index is up 15.8%, down from 18.1% year over year in June.
- The National Association of Realtors reported that existing home sales fell 0.4% in August, the seventh consecutive month.
- Inventory of existing homes for sale is about a 3.2 month supply at the current sales pace.
- The median price of an existing home sale was $389,500 up 7.7% from a year ago.
- The Commerce Department reported:
- Durable goods orders fell 0.2% in August, following a revised 0.1% decline in July.
- Excluding defense, durable goods orders fell 0.9%.
- Excluding both volatile defense and civilian aircraft, orders rose 1.3%.
- Durable goods orders are not adjusted for inflation.
- Personal-consumption expenditures rose a seasonally adjusted 0.4% in August up from a 0.2% decline in July. PCE expenditures are adjusted for inflation so represent a real increase.
- The personal-consumption expenditures price index, the Federal Reserve’s preferred gauge of inflation, rose 6.2% in August from a year ago. This was down from 6.4% in July.
- Excluding volatile food and energy the core PCE rose 4.9% up from 4.7% July.
- Personal incomes rose 0.3% in the month of August.
- New home sales rose 29% in August as buyers tried to avoid expected additional mortgage rate increases.
- Durable goods orders fell 0.2% in August, following a revised 0.1% decline in July.
- The Labor Department reported:
- Seasonally adjusted first time claims for unemployment were 193,000, down from a revised 209,000 in the prior week and a five week low.
- The 4-week moving average of claims, designed to smooth out volatility, fell to 207,000 from a revised 215,750.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- Seasonally adjusted first time claims for unemployment were 193,000, down from a revised 209,000 in the prior week and a five week low.
- 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 fell from 12.1MM BPD to 12.0MM BPD.
- Natural gas storage rose 103BN cubic feet and is below the 5-year average at this time of year.
- Baker Hughes reported the number of active oil rigs rose 2 to 604. The number of active natural gas rigs fell 1 to 159.
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Thank you,
Loren C. Rex, CFP®, MA Erik A Smith, AIF®
Founder / Emeritus President & C.E.O.
269-441-4143 517-795-2025
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
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.
