Tuesday, November 27, 2018 - Insight after the bell from Investopedia's Editor in Chief
| | | | INV Anxiety Index
100.89 +0.00% | | US 10-Yr Yield
3.060% -0.01% | | | | The U.S. housing market continues to soften
Take a look in your neighborhood or in the next town you drive through… houses aren't selling at the pace they were a year ago, and prices are melting like ice cream in July.
According to S&P Core Logic, data released today for September 2018 shows that the rate of home price increases across the U.S. slowed for the second month in a row. The index rose 5.5%, down from 5.7% in August. The strongest cities: San Francisco, Las Vegas and Seattle. Denver and Minneapolis had the biggest month-over-month declines.
Why it Matters: Americans obsess over real estate prices, whether we rent, own or are thinking about buying. For most people, their home is their biggest asset and liability. When home prices soften, construction and home improvement spending get pretty mushy as well. We are nowhere near a repeat of the 2008-09 financial crisis that was precipitated by overzealous lending to non-creditworthy buyers and a misguided belief that home prices would rise forever. Still, a softening housing market is never a good sign of economic strength.
Mixed bag for stocks
What looked like a potential selloff in the early hours of trading leveled off by the afternoon, leaving the major stock indexes mixed at the close. The DJIA and the S&P 500 rose slightly while the Nasdaq closed around flat.
The real action has been in the bond market where on Friday, U.S. Treasury bonds hit their highest level since early October. Yields are falling (prices and yields move inversely to one another) even though interest rates have been rising. James explains more in our chart of the day, below. Are investors betting that the Fed will rein in its interest rate hikes since the market has been in a downward spiral since August?
Remember: The U.S. Treasury Dept is now back in the business of selling bonds, not buying them like they did for nearly a decade following the financial crisis. That means more supply on the market. Some $300 billion in bonds have been auctioned off by the Treasury in the past 10 days alone.
Cyber Monday sales hit $7.9 billion.
No surprise here. We knew online sales would be break records this year. It's more a function of how much commerce actually happens online than in stores these days, but consumers can't resist a bargain, and online retailers were full of them yesterday. Amazon said it was its biggest Cyber Monday ever. Congratulations.
GM's job cuts land it in a political thicket
No surprise here, either. GM announced yesterday it would cut more than 14,000 jobs and close up to 5 plants by 2020 to save money and pivot towards big vehicles and electric cars. It so happens that a couple of those plants are in Ohio and Michigan, which are ground zero for American politics.
President Trump is not pleased.  Trump threatened to pull subsidies from GM that it receives for electric vehicle manufacturing, which scared investors away from GM shares to the tune of 3 percent today.
Why it Matters: Clearly GM has other problems given its announcement yesterday. The job cuts are a massive blow to the UAW (automotive workers' union) and its members. It so happens that the union is also one of GM's largest shareholders. The last thing GM or any automaker needs right now is to be a political football. Unfortunately, GM put itself right on the 50 yard-line with 2 years to go before the 2020 elections. Chart of the Day: Bond yields down as Fed expectations shift
All eyes will be on Federal Reserve Chair Jerome Powell when he delivers a speech on Wednesday that may likely provide some indication of the Fed's monetary policy stance into 2019. The Fed has already increased interest rates three times this year, and is widely expected to hike again in December. There are some indications, though, that the Fed may take on a less aggressive, less hawkish stance going forward.
For one, Fed Vice Chair Richard Clarida sounded a dovish-leaning tone when discussing monetary policy in a speech on Tuesday. Clarida stressed that the Fed needs to be data-dependent, gradual and cautious when it comes to interest rate increases. Powell's speech on Wednesday will provide more clarity as to whether the Fed has truly shifted its policy stance or not.
As equity markets eagerly await what Powell has to say, so do the bond markets – particularly government bond yields. The chart below of the 10-year Treasury yield shows that yields have been dropping sharply for more than two weeks from a high around 3.25% percent. The rate has now consolidated around 3.05%, just a stone's throw from the closely-watched 3.00% level.
If Powell's speech does indeed shift Fed expectations to the cautious/dovish side, the 10-year yield has a clear potential to break down below 3.00%. This scenario would likely relieve some pressure on stocks as well as push bond prices higher. But if Powell remains steadfast, bond yields could rise towards a re-test of the recent highs and stocks could be in for more turbulence.  Enjoy the Market Sum? Share it with a friend. CONNECT WITH INVESTOPEDIA |
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