The Long Term Investor

Nice to see those earnings reports posted on here....Smokie......when I got home.

 

I just got in. A nice BIG gain for me today. EVERY stock in the green.....AND.....a nice beat on the SP500 of 0.58%.

An amazingly strong day in the markets today.......and a BIG LESSON........see post below.

 

I posted on here yesterday that one of the accounts that I manage had $10,000 added to the account. As I posted.....I put in an order yesterday (Thursday) to buy $10,000 of the SP500 Index Fund. That order executed at the market close yesterday.

At that time I considered waiting till Friday (today) to do the order after the Amazon and Apple earnings. In the end, I decided to stick with what I ALWAYS DO......when the money is available put it....ALL IN ALL AT ONCE. The academic research regarding long term investing and whether to dollar cost in, or try to hit an entry point, or to go all in all at once......CLEARLY favors putting the money in.....all in all at once.

Of course the earnings came out for Apple and Amazon on Thursday after the close......and there was a big drop in each stock in the futures market. I was thinking in bed last night that perhaps I should have waited till Friday (today) to do that order in anticipation of the markets being way down on those earnings and the earlier in the week tech earnings. I quickly dismissed that thought because......I NEVER wait for any event or entry point.

Today was a CLASSIC EXAMPLE of the futility of trying to time an entry point. I suspect that most people would NOT have put those funds into the markets on Thursday with the earnings that were going to come out that evening. In fact MOST people can not stand to put money in......all in all at once.

This is a perfect example of NOT trying to market time and how you can NEVER anticipate what the markets will do. Today.....contrary to every prediction the markets SOARED. I captured the gains today with that $10,000 of new money that invested on Thursday.

This is why I ALWAYS.....follow the research. It shows conclusively that for a long term investor.....market timing does not work....... that ALL IN ALL AT ONCE when you have funds to invest provides a greater return......and.....trying to hit an entry or exit point is foolish.

Today was a good reminder to me to continue to do what I have always done.....trust the academic research rather than intuition or general thinking.

 

My view is that today was a.....RELIEF RALLY. All the BIG TECH earnings are now out of the way.....and they did better than the predictions. The misses were small and many of the positives were significant. Poor Amazon is the only one that I would have any concerns about. The question for them is.....can their totally new management operate the company as was done in the past. I am sticking with the stock for at least another year or two....but....I have doubt about the new management and all the managers that have BAILED over the past 6-12 months.

In any event......it was another BEAUTIFUL DAY to end the week. Here is how we ended up as we move ever closer to the ELECTION and YEAR END.

DOW year to date (-9.57%)
DOW for the week +5.72%

SP500 year to date (-18.15%)
SP500 for the week +3.95%

NASDAQ 100 year to date (-29.25%)
NASDAQ 100 for the week +2.09%

NASDAQ year to date (-29.04%)
NASDAQ for the week +2.24%

RUSSELL year to date (-17.74%)
RUSSELL for the week +6.01%

At the moment the DOW is not even in a correction. The SP500 is now below bear market and in a correction. A VERY STRONG week for the markets.....which simply REFUSED to go down. It is so nice to be hearing so little from the FED lately.

 

I like this little article....it avoids all the drama, fear mongering, speculation, and other BS.

Dow, in 6th Straight Weekly Win, Gains 828 Points

https://www.newsmax.com/finance/streettalk/wall-street-financial-markets/2022/10/28/id/1093937/

(BOLD is my opinion OR what I consider important content)

"Wall Street closed sharply higher, capping another strong week with gains led by Apple and other companies that made even bigger profits during the summer than expected.

The Dow, up for the sixth straight week in a row, gained 2.59%, or 828 points Friday. The S&P 500 rose 2.46% and marked its first back-to-back weekly gain since August. Nasdaq notched a 2.87% gain.

Stocks have revived recently partly on hopes for a dialing down later this year of the big interest-rate hikes that have been shaking the market. More recently, many big U.S. companies have been reporting stronger earnings than expected, though the bag remains decidedly mixed.

Apple, Intel, and Gilead Sciences jumped following strong reports, which helped offset a discouraging forecast from Amazon.

Smaller company stocks also gained ground, lifting the Russell 2000 index by 2.1%.

One reason that stocks have revived recently is hopes for a “pivot” by the Federal Reserve, where the central bank dials down the big interest-rate hikes that have shaken the market. Such a move could boost the market, but many analysts say such hopes may be overdone.

“This rally has now gotten a bit irrational and fragile at this level,” said Liz Young, chief investment strategist at SoFi.

The central bank has been very clear about its plan to err on the side going too far in order to tame inflation, she said, which means the big gains on hopes of a pullback seem premature.

More recently, many big U.S. companies have been reporting stronger earnings than expected, though the bag remains decidedly mixed.

Apple rose 7.4% and was the strongest force lifting the S&P 500 in its first trading after reporting fatter revenue and profit than expected for the latest quarter. Intel jumped 10.2% after delivering much bigger profit than analysts forecasted even though it said it saw “worsening economic conditions.”

Gilead Sciences soared 12.5%, and T-Mobile US gained 7.6% after they also topped Wall Street's profit expectations.

They helped to offset a 7.2% drop for Amazon, which offered a weaker-than-expected forecast for upcoming revenue. It was the latest Big Tech company to take a beating this week after reporting some discouraging trends. It's a sharp turnaround after the group dominated Wall Street for years with seemingly unstoppable growth.

Earlier in the week, Meta Platforms lost nearly a quarter of its value after reporting a second straight quarter of revenue decline amid falling advertising sales and stiff competition from TikTok. Microsoft and Google's parent company also reported slowdowns in key areas.

Such woes have created a sharp split on Wall Street this week, between lagging Big Tech stocks and the rest of the market.

Rising interest rates have hit Big Tech stock prices harder than the rest of the market, and the pressure increased Friday as yields climbed.

“The markets still seem to not want to believe that we might end up in a place where an earnings recession is possible,” Young said.

Data released in the morning showed the raises that U.S. workers got in wages and other compensation during the summer was in line with economists’ expectations. That should keep the Fed on track to keep hiking rates sharply in hopes of weakening the job market enough to undercut the nation’s high inflation. Other data showed the Fed's preferred measure of inflation remains very high, and U.S. households continue to spend more in the face of it.

The Fed is trying to starve inflation of the purchases made by households and businesses needed to keep it high. It's doing that by intentionally slowing the economy and the jobs market. The worry is that it could go too far and cause a sharp downturn.

The Fed has already raised its benchmark overnight interest rate up to a range of 3% to 3.25% up from virtually zero in March. The widespread expectation is for it to push through another increase that's triple the usual size next week, before it potentially makes a smaller increase in December. Higher rates not only slow the economy, they also hurt prices for stocks and other investments.

The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 4.42% from 4.28% late Thursday.

The 10-year yield, which helps set rates for mortgages and many other loans, climbed to 4.01% from 3.93%.

Trading in Twitter's stock has ended, after Elon Musk has taken control of the company following a lengthy legal battle.

In Europe, stock indexes were mixed in relatively muted trading.

Shares fell 0.9% in Tokyo even as the government approved a massive stimulus spending package to help the world’s No. 3 economy cope with inflation. As expected, the Bank of Japan wrapped up a policy meeting by keeping its ultra-lax monetary policy unchanged even as it forecast higher inflation."

MY COMMENT

It has been a long time since I have seen a financial article like this one. Factual and mostly free of the drama, fear mongering and speculative opinion of some writer. This is a good summary of the short term market at this moment. It is also pretty accurate in describing the earnings that are now pouring in.

 

I also like this little article.

What Recent Data Suggest About America’s Economy
Q3 GDP cuts against recession talk

https://www.fisherinvestments.com/en-us/marketminder/what-recent-data-suggest-about-americas-economy

(BOLD is my opinion OR what I consider important content)

"Mixed. That is the word most coverage used to describe the US Q3 GDP report, which hit the wires Thursday morning. On the bright side, the 2.6% annualized growth erased Q1 and Q2’s sequential declines and brought GDP to a fresh high, with consumer spending and business investment also notching new records. But residential real estate detracted bigtime, and two of the three biggest contributors were the relatively less meaningful government spending and net trade. Looming over everything, the most meaningful segment of the yield curve—the stretch between 3-month and 10-year US Treasury yields—slightly inverted in recent days, fanning fears that recession is just around the corner. To be fair, it is possible economic conditions get worse from here. But it isn’t a foregone conclusion, and for stocks, a mild recession probably lacks much surprise power.

The GDP report did clear up one thing: It cuts against the argument that the US economy was already in recession when GDP slid in Q1 and Q2. In both quarters, consumer spending and business investment rose—and even when you factor in residential real estate’s burgeoning slide, pure private sector components overall grew. That repeated in Q3, contributing to GDP more than erasing its Q1 and Q2 slide. But deeper under the hood, the script flipped a bit. Government spending and fast-rising imports pulled headline GDP negative in Q1, while Uncle Sam and falling private inventories were Q2’s detractors. Yet in Q3, net trade added 2.77 percentage points to headline growth as exports rose 14.4% and imports fell -6.9%.[ii] That isn’t great news, considering imports represent domestic demand and the strong dollar—in theory—should have enabled businesses and consumers to import a higher quantity of goods for less money. So that is something to watch. Meanwhile, consumer spending growth slowed from 2.0% in Q2 to 1.4% as spending on goods contracted again (-1.2%) and spending on services slowed from 4.0% to 2.8%.[iii] Business investment was more of a bright spot, accelerating from 0.1% annualized growth in Q2 to 3.7%, but residential real estate’s -26.4% plunge weighed heavily on total private sector growth.[iv]

Now, we aren’t of the school that believes slowing private sector growth is an automatic prelude to a contraction. Past behavior doesn’t predict. However, we also think it is fair to presume elevated inflation forced consumers to cool their jets a bit, and that could continue. Imports’ slide could be a sign domestic demand overall is slipping. Inventories’ continued slide could mean businesses are in cost-cutting mode. A lot of this stuff is open to interpretation.

So yes, we acknowledge the possibility that economic conditions worsen and a recession materializes. However, we don’t think the ever-so-slightly inverted yield curve makes that much likelier than it was last week. Yes, the yield curve is one of the most reliable leading indicators on the planet. But we must consider the why behind that. Some argue its powers exist because when long rates are below short, it means markets are pricing in the high likelihood that a recession will arise and force the Fed to cut rates. That may be so to an extent, but that view ignores the yield curve’s real-world impact. Bank lending is the lifeblood of economic growth, and the interest rate spread is typically its main influence. Banks borrow at short-term interest rates and lend at long rates, making the difference between the two their net interest margin—the potential profit on each new loan. The wider the spread, the bigger the profit, the greater the incentive to lend. A negative spread means the profit well may have run dry, which freezes lending.

Normally, 3-month rates are a good approximation of banks’ borrowing costs, while the 10-year Treasury is the reference rate for most long-term loans. Today, however, banks’ funding costs are far below 3-month rates. Per Bankrate, the national average savings account rate is 0.16%, miles below the current 4.0% US Treasury bill rate. That means banks haven’t passed Fed rate hikes on to consumers, and with deposits still nearly $6.3 trillion higher than the total amount of loans outstanding, they don’t need to raise rates to compete for deposits.[v] They already have far more than they need, especially with the Fed having scrapped reserve requirements in 2020. Meanwhile, with 10-year Treasury rates also near 4.0%, the prime lending rate is now over 5%.[vi] That means banks can lend quite profitably, which we think is a big reason loan growth is running north of 11.0% y/y.[vii]

In our experience, rip-roaring loan growth is inconsistent with a brewing recession. But we also think it is important to consider the possibility that we are wrong. So, what if? Well, when in doubt, think like markets, which look forward. From its January 3 high to its most recent low on October 12, the S&P 500 fell around -25.0%.[viii] That is a shallow bear market and consistent with stocks’ pricing in a shallow recession. It doesn’t mean a recession is automatic, but it likely shows stocks have spent much of the year considering the possibility. None of this week’s news provided stocks with materially new and negative information. Slower private sector growth? GDP Nowcasts have hinted at that for weeks. A mild yield curve inversion? Historically (and notwithstanding the difference between bank rates and Treasury rates) that would point to only a mild recession. Nothing on the dashboard today points to a severe shock where consumer spending and business investment tank, which is what it would likely take to deliver a negative surprise at this juncture.

Stocks don’t need perfect conditions to mount a recovery—all they need is a reality that goes a little better than feared. Right now, economic expectations are rock bottom. Recent surveys show a majority of economists expect the US to slip into a pretty bad recession early next year. An economy that muddles through or has only a minor slide would probably qualify as positive surprise, and to us, that looks pretty likely. So no, today’s backward-looking GDP report isn’t reason to be bullish. But it isn’t reason to be bearish, either, and nor—in our view—is a very mild yield curve inversion."

MY COMMENT

Some good discussion above regarding banking and the current and/or future potential for recession. Of course.....I really dont care if we are in a recession or not. I dont invest based on anything to do with recession or economic data. I invest according to the future prospects of the companies that I own. It is all about specific business dominance and performance.......that is ALL that matters long term.

 

YES.....I still expect the FED to raise rates by 0.75% in November. As to December.....who knows....either 0.50% or 0.75%. I would think that by the time we hit the new year.....the majority of the big increases will be over. At that point we are probably looking at 0.25% rate increases being the norm.....with perhaps a few at 0.50%.

As I have said for a long time now......whatever the FED is going to do in 2023.....they need to give the markets and business a clear road map of what they plan. They have NOT done that so far and have jerked the economy around as a result. They have caused rampant speculation about what they are doing. At this point they need to be transparent and reliable. If they do that they can try to attack inflation and at the same time give business and the economy some peace of mind.

 

At least we will get the FED rate increase out of the way very early this month (November).

Fed, jobs data to set groundwork for rest of 2022: What to know this week

https://finance.yahoo.com/news/stoc...te-decision-preview-october-30-170543034.html

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve’s next policy move and a rush of employment data will headline a busy start to November on Wall Street this week.

Markets face another sizable increase to the U.S. central bank’s benchmark interest rate, with officials expected to deliver a fourth-straight 75-basis-point hike after their two-day meeting concludes Wednesday at 2:00 p.m. ET. Investors will also tune in to remarks from Chair Jerome Powell following the decision, along with economic projections from Fed officials and the latest dot plot showing each member’s forecast for the U.S. short-term interest rate.

The Labor Department’s October jobs report due out at 8:30 a.m. ET Friday morning will also be closely watched. Economists expect 190,000 jobs were added or created last month, according to consensus estimates from Bloomberg.

Both events are likely to determine the market’s course for the rest of the year. On Friday, the major averages leaped toward big weekly gains. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite were up 3.9%, 5.7%, and 2.2%, respectively, over the last five trading days.

Equity markets have made a notable recovery in October after September’s historic sell-off, with especially strong wins for the Dow. The index is up 14.4% month-to-date as of Friday’s close – making October its 10th best month on record since 1915, according to data from Bespoke Investment Group. If the Dow closes just 2 basis points higher on Monday, this October will beat January 1976 as the best month since the 1930s.

Strategists expect that momentum to continue this week if the Fed's messaging and weakening economic readings stoke hopes of sooner-than-expected policy pivot.

“It feels like we are nearing the peak in inflation and, as such, getting closer to that elusive terminal rate, the achievement of which could bring some stability to markets and allow the Fed to pause to assess the impact of its rapid rate hikes on inflation and the economy,” TwentyFour Asset Management Head of U.S. Credit David Norris said in a note, though adding: “Ultimately, we feel the Fed will likely begin to reduce the size of increases and then pause to assess their cumulative effect, but we expect the narrative will remain ‘higher for longer’ rather than entertaining any kind of ‘pivot’ language.”

Investors entertained this line of thinking earlier in July and August, but optimism around a pivot proved premature after officials repeatedly asserted they would continue an aggressive course of policy tightening until price stability is restored — spurring a deep slump in September.

Analysts at Goldman Sachs, however, point out that several FOMC participants have recently suggested slowing the pace of monetary tightening as conditions have become more restrictive. The bank pointed to a Yahoo Finance Live interview with San Francisco Fed President Mary Daly.

“There’s a big difference between what rate you get to and then holding it,” Daly said. “Holding the economy in a restrictive stance of policy also continues to bridle it, so we’ll end at a rate that we think is appropriate and in terms of where to stop and look around.”

Increasing weakness in some economic data points have likely inspired the changes in tone among the Fed’s more dovish members. Earlier this month, the Conference Board warned that weakness will intensify and spread more broadly throughout the U.S. economy in coming months. Even as the government’s advance estimate of third-quarter GDP showed the economy grew during the period after back-to-back quarterly contractions, experts were quick to dismiss any excitement over the measure.

“While it’s good to see GDP grow slightly more than expected and expand for the first time in 2022, the report does little to squash any longer-term stagflation or recession fears,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office said in emailed commentary. “Investors may have a “glass half full” mindset when it comes to mixed earnings and a likely bear market rally, but the Fed decision and jobs report next week may provide more clarity on what type of situation we’re truly in.”

October’s jobs report is expected to show monthly payrolls fell below 200,000, a big drop-off from an average of 400,000 across much of the pandemic recovery but on par with the pre-pandemic monthly average of below 200,000. The Job Openings and Labor Turnover Survey, or JOLTS report, set for release Tuesday, is also forecast to show a sixth month of decreases in job openings, signaling more loosening in the labor market after the reading showed the job openings fell by the most in nearly 2.5 years in August.

Earnings season is also ongoing. Over 100 companies are expected to report third-quarter results. Companies’ financials have so far been a mixed bag, with disappointing figures and guidance from some market heavyweights while other names came in better than feared.

According to analysts at Bank of America, earnings overall continue to “defy recessionary calls,” with 34% of S&P 500 companies netting flat earnings per share on a quarter-over-quarter basis. BofA also pointed out that half-year EBITDAs were up 16% for the second quarter reporting season versus the first quarter and are beginning to come through roughly flat in the third versus the second quarter.

“This is an upside surprise, given the consensus expectations of earnings showing weakness as early as this current reporting season,” analysts said, also emphasizing that we are still early in the reporting season.

Bellwether reporters this week include Pfizer (PFE), Advanced Micro Devices (AMD), Uber Technologies (UBER), QUALCOMM (QCOM), Yum! Brands (YUM), PayPal (PYPL), Berkshire Hathaway (BRK.A, BKR.B), and many others."


"Economic Calendar
Monday: MNI Chicago PMI, October (47.0 expected, 45.7 during prior month); Dallas Fed Manufacturing Activity, October (-18.5 expected, -17.2 during prior month)

Tuesday: S&P Global U.S. Manufacturing PMI, October final (49.9 expected, 49.9 during prior month); JOLTS Job Openings, September (9.625 million expected, 10.053 million during prior month); Construction Spending, month-over-month, September (-0.5% expected, -0.7% during prior month); ISM Manufacturing, October (50.0 expected, 50.9 during prior month); ISM Prices Paid, October (53.0 expected, 51.7 prior month); ISM New Orders, October (47.1 during prior month); ISM Employment, October (48.7 during prior month); WARDS Total Vehicle Sales, October (14.30 million expected, 13.49 million prior month)

Wednesday: MBA Mortgage Applications, week ended Oct. 28 (-1.7% during prior week); ADP Employment Change, October (180,000 expected, 208,000 during prior month); FOMC Rate Decision (Lower Bound), Nov. 2 (3.75% expected, 3.00% prior); FOMC Rate Decision (Upper Bound), Nov. 2 (4.00% expected, 3.25% prior); Interest on Reserve Balances Rate, Nov. 2 (3.90% expected, 3.15% prior)

Thursday: Challenger Job Cuts, year-over-year, October (67.6% during prior month); Trade Balance, September (-$72.0 billion expected, -$67.4 billion during prior month); Nonfarm Productivity, Q3 preliminary (0.5% expected, -4.1% during prior quarter); Unit Labor Costs, Q3 preliminary (0.5% expected, -4.1% during prior quarter); Initial Jobless Claims, week ended Oct. 29 (220,000 expected, 217,000 during prior week); Continuing Claims, week ended Oct. 22 (1.450 million expected, 1.438 million during prior week); S&P Global U.S. Services PMI, October final (46.6 expected, 46.6 during prior month); S&P Global U.S. Composite PMI, October final (47.3 expected, 47.3 during prior month); Factory Orders, September (0.3% expected, 0.0% during prior month); Factory Orders Excluding Transportation, September (0.2% during prior month); Durable Goods Orders, September final (0.4% expected, 0.4% during prior month); Durables Excluding Transportation, September final (-0.5% during prior month); Non-defense Capital Goods Orders Excluding aircraft, September final (-0.7% during prior month); Non-defense Capital Goods Shipments Excluding Aircraft, September final (-0.5% during prior month); ISM Services Index, October (55.1 expected, 56.7 during prior month)

Friday: Two-Month Payroll Net Revision, October (11,000 prior); Change in Nonfarm Payrolls, October (190,000 expected, 263,000 during prior month); Change in Private Payrolls, October (195,000 expected, 288,000 during prior month); Change in Manufacturing Payrolls, October (15,000 expected, 22,000 during prior month); Unemployment Rate, October (3.6% expected, 3.5% during prior month); Average Hourly Earnings, month-over-month, October (0.3% expected, 0.3% during prior month); Average Hourly Earnings, year-over-year, October (4.7% expected, 5.0% prior month); Average Weekly Hours All Employees, October (34.5 expected, 34.5 during prior month); Labor Force Participation Rate, October (62.4% expected, 62.3% during prior month); Underemployment Rate, October (6.7% prior month)"


"Earnings Calendar
Monday: Aflac (AFL), Williams Companies (WMB), ON Semiconductor (ON), Loews Corporation (L), Marriott Vacations Worldwide (VAC), Vornado Realty Trust (VNO), PriceSmart (PMT)

Tuesday: Eli Lilly and Company (LLY), Pfizer (PFE), BP (BP), Advanced Micro Devices (AMD), Sony Group (SONY), Mondelez International (MDLZ), Airbnb (ABNB), Eaton Corporation (ETN), Marathon Petroleum (MPC), McKesson (MCK), Uber Technologies (UBER), Thomson Reuters (TRI), Devon Energy (DVN), Phillips 66 (PSX), American International Group (AIG), Sysco (SYY), KKR & Co. (KKR), Prudential Financial (PRU), Sirius XM (SIRI), ZoomInfo Technologies (ZI), Clorox Company (CLX), Match Group (MTCH), H&R Block (HRB), Western Union Company (WU), SoFi Technologies (SOFI)

Wednesday: QUALCOMM (QCOM), CVS Health (CVS), Estee Lauder Companies (EL), Booking (BKNG), Humana (HUM), MetLife (MET), Fortinet (FTNT), Ferrari (RACE), Allstate (ALL), Yum! Brands (YUM), Apollo Global Management (APO), eBay (EBAY), Marathon Oil (MRO), Brookfield Infrastructure Partners (BIP), Paramount Global (PARA), MGM Resorts (MGM), Etsy (ETSY), Robinhood (HOOD), Zillow (ZG)

Thursday: Toyota Motor (TM), ConocoPhillips (COP), PayPal (PYPL), Amgen (AMGN), Starbucks (SBUX), Cigna (CI), Regeneron Pharmaceuticals (REGN), Moderna (MRNA), Intercontinental Exchange (ICE), Marriott International (MAR), Monster Beverage (MNST), Block (SQ), Kellogg (K), Coinbase (COIN), Live Nation (LYV), DoorDash (DASH), Hyatt Hotels (H)

Friday: Berkshire Hathaway (BRK.A, BKR.B), Duke Energy (DUK), Dominion Energy (D), Hershey (HSY), Honda Motor (HMC), Cardinal Health (CAH), Royal Caribbean (RCL), Cboe Global Markets (CBOE), Nomura (NMR)"

MY COMMENT

The media is like a broken record.....the FED, FED, FED, FED, FED. AND......what about the economic data to report this week......OMG.

SORRY.....looks to me like the markets have now simply moved on. I dont see as much power in the FED to move the short term markets. They have worn everyone out with the same old stuff being fear mongered for the past 6 months.

NO....this little article will NOT say it......but......the NUMBER ONE issue that will impact the markets for the rest of the year and into next year is the.........ELECTION. Especially if the current minority party takes BOTH the house and the senate.

The NUMBER TWO issue for the rest of the year will be the EARNINGS that will continue for the next 4-5 weeks.

The FED.......who cares. I dont see any impact of what they are doing on the current inflation.....at all. They have worn out the markets with their constant talking. In this sort of situation there ALWAYS comes a time when the markets just move on and say......"who cares".

 

HAPPY HALLOWEEN.......and....HAPPY FED WEEK. Seems like these two go together. Lets get that 0.75% increase out of the way and move on.

More bad news coming for anyone that is house hunting and going to do a 30 year mortgage. Once this latest rate increase happens rates are going to push toward the mid 7% range.......and ultimately toward 8%. We will soon...perhaps in a couple of months see rates going above the "normal range". In my mind I put that....."normal range"......as 5% to 7.5%.

 

Speaking of the mortgage rates and indirectly the housing markets.

An Autumn Update on US Housing
Does residential real estate’s weakness portend trouble for the economy?

https://www.fisherinvestments.com/en-us/marketminder/an-autumn-update-on-us-housing

(BOLD is my opinion OR what I consider important content)

"Will trouble in the US housing market spill over into the broader economy? Some analysts worry rising mortgage rates—tied to the Fed’s rate hikes—will leave would-be buyers unable to seal the deal, leading to an oversupply of new homes. That will then cause housing prices to crash—with alleged worrisome consequences for the US economy. However, while housing market data don’t look great, we don’t think a US recession is assured to stem from housing—and here is why.

Your first clue housing doesn’t drive the economy: the latest GDP report. Despite residential investment’s -26.4% annualized plunge in Q3, its worst reading since Q2 2020, headline GDP rose 2.6%. Residential investment’s -1.4 percentage point detraction didn’t negate positive contributions from personal consumption expenditures, business investment and net trade.[ii] Now, GDP isn’t an all-encompassing economic snapshot, but in our view, its Q3 growth despite residential real estate’s big drop speaks to housing’s broader economic impact—or lack thereof.

While real estate often gets eyeballs, it is a volatile subcategory that comprises about 3% of GDP—thereby lacking the scale to be a meaningful economic swing factor, in our view. Recent pre-pandemic history shows residential investment’s big swings (positive or negative) didn’t drive headline GDP. (Exhibit 1)

Exhibit 1: Real Estate’s Swings Didn’t Mean Much for GDP


Source: FactSet, as of 10/27/2022. US GDP and residential fixed investment, seasonally adjusted annualized growth rates, quarterly, Q4 2014 – Q4 2019.

Moreover, a well-known factor is weighing on residential real estate: rising mortgage rates. Per the latest Freddie Mac survey, the average 30-year fixed-rate mortgage rose from 6.94% last week to 7.08% this week, a 20-year high. That is also up from 3.14% a year ago, and Freddie Mac’s gauge is in line with other widely watched trackers.[iii] Mortgage rates’ climb has weighed on demand, as the latest data point to sliding new home sales: September new single-family homes sales were at a seasonally adjusted annualized rate of 603,000 per the US Census Bureau, down -10.9% from August and -17.9% from September 2021.[iv]

Exhibit 2: Rising Mortgage Rates, Slowing Home Sales


Source: FactSet and Freddie Mac, as of 10/27/2022. New residential sales, seasonally adjusted annualized rate, monthly, and monthly average commitment rate on 30-year fixed-rate mortgage, December 2018 – September 2022.

Yet given the Fed’s rate hikes this year, higher mortgage rates aren’t shocking. They are also unsurprisingly denting demand, as buying a home has become less affordable for many. In response, home prices are also down, as sellers have to cut list prices in order to attract buyers with newly stretched budgets. While an imperfect indicator, the S&P/Case Shiller Home Price National Index has fallen on a monthly basis the past two months, including August’s -1.3% drop.[v]

But does this weakness mean a broader housing crash? Not necessarily. In our view, it is premature to compare today’s environment to the mid-2000s, which culminated in 2006’s peak. Supply, though up, remains short of those peak levels. Take new home inventory. Supply has jumped in terms of homes under construction and homes not yet started, but completed units for sale are still below pre-pandemic levels. (Exhibit 3) Builders may choose to pause or push back construction depending on their anticipated supply and demand dynamics—so a huge influx of new supply from here isn’t assured.

Exhibit 3: A Look at New Housing Inventory


Source: US Census Bureau, as of 10/27/2022. New privately owned houses for sale by stage of construction, January 2000 – September 2022.

Moreover, existing home inventory remains historically low—another sign supply hasn’t exploded like it did in the mid-2000s.

Exhibit 4: A Look at Existing Homes Inventory


Source: FactSet, as of 10/27/2022. National Association of Realtors inventory of existing homes for sale, not seasonally adjusted, October 2002 – September 2022.

Note, new housing construction is real estate’s primary contribution to GDP. In our view, the decline in housing investment reflects the latest shifting supply and demand dynamics—which have already started showing up in GDP. If the big recent housing declines haven’t driven deep GDP declines at this point, it seems unlikely to us that they will in the foreseeable future."

MY COMMENT

I agree with the above. In addition, housing is extremely local and not a good national indicator. I know from what I heard on Saturday on the radio that our market here is STILL a technical SELLERS MARKET with only about 2.5 months of inventory. AND.......a good chunk of that inventory is......."to be built".....units that are listed by builders as active listings.

 

No....housing is not the "cause" of anything. The "cause" of what is going onright now is the.....FED.....doing their rate increases with little to no impact. Most of what they are doing is simply an exercise in killing the economy. the current inflation is OBVIOUSLY caused by supply issues at the moment which we have been experiencing since the economic lock-down ended.

Raising rates by the FED is not going to have much of an impact on SUPPLY ISSUES.....other than making them worse as they try to CRASH the economy.

 

One good thing about the current NASTY little bear market......it looks like many people have learned the lesson to NOT panic and do something crazy.

Investors Show Few Signs of Throwing in the Towel on Stocks
Stock fund managers have raised cash as investors put money to work, but investors are still choosing U.S. equity funds.

https://www.morningstar.com/article...-few-signs-of-throwing-in-the-towel-on-stocks

(BOLD is my opinion OR what I consider important content)

"It’s been a brutal year in the stock and bond markets, and while individual investors and stock fund managers have gotten more defensive, in general, both continue to hang tough.

Stock fund managers broadly have been raising cash, but their dry powder is at levels comparable to previous bear markets.

Investors, meanwhile, are showing no signs of bailing out of the markets. Over the course of this year, cash has been moved out of money market funds and investors continue to put money to work in stock funds, while bond funds have seen outflows.

``Flows into U.S. equity funds are on pace to fall well short of 2021. But that doesn’t mean investors have capitulated,’’ Morningstar manager research analyst Ryan Jackson says. ``Rather, it seems they have used routine rebalancing to stick to their plan or picked their spots more carefully.’’



For the most part, investors seem to be staying calm. Cash levels aren’t much higher than their historical levels, investors are still purchasing U.S. equity funds, and money market funds aren’t seeing large inflows like they have in other periods of distress.

The amount of cash that managers are holding isn’t much higher than their long-term averages. Cash levels have hovered around 3.19% for the past five years.

From a longer-term viewpoint the level of cash isn’t extreme, and even one quarter with higher cash levels can be temporary. Managers also raised cash in 2010 and 2016, but quickly returned to normal levels. Morningstar senior manager research analyst Adam Sabban points out that there’s a natural effect of cash weightings going up when equity markets are going down if managers don’t rebalance.

However, an uptick in cash allocations among equity managers could still be meaningful given managers are typically required to be fully invested in U.S. stocks, he says.



Some funds have hung on to more cash. One of the most widely held mutual funds, American Funds Investment Company of America AIVSX, allocated 8.72% of its portfolio to cash as of the end of September, up from 6.95% at the end of June.

Provident Trust Strategy PROVX doubled its cash stake to 20% at end of September from June.

Overall, investors still find U.S. equity funds attractive. They have poured $70 billion into U.S. equity funds this year and bought up $12 billion in international equity funds this year. Investors mostly favored passive, U.S. large-blend funds, but haven’t redeemed active funds at a greater rate than they have in previous years.

“”When it comes to flows, U.S. equity funds have hung tough given the market environment. Investors added about $3.1 billion to U.S. equity funds in the third quarter while they fled most other categories,” says Jackson.



Investors also aren’t parking cash in money market funds like they did in other volatile periods. March 2020 was a time of extreme volatility owing to the onset of the coronavirus pandemic, and investors put $686 billion into money market funds. This year, investors have pulled almost $200 billion from money market funds."

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MY COMMENT

Perhaps we are finally seeing a time when the majority of investors are no longer going to PANIC when there is a downturn. That would be a good thing. Although.....during this little market drop there were really no alternatives to stocks and funds. Money Market returns are dismal and until recently CD's and other safe investments were paying NOTHING.