Trade The Journey

Trade The Journey

Is a Soft-landing possible?

Top of the Morning! I hope all is well and everyone is enjoying their weekend. It seems like the market is regaining its footing, as most of the indices are trending upward. The only indices struggling to make the same run as the other indices is the Nasdaq. Fed chairman Powell spoke during the week, advocating for a possible slowdown in the size of the rate hikes which helped improved sentiment.

It seems like the money that was once held on the sidelines is being deployed into the market. With yields at reasonable highs, bonds could see a rise in buying, possibly ending the bear market in treasuries.

With recession forecasts varying with each market analyst, it’s hard to say that a recession is imminent. One analyst mentioned the possibility of a rolling recession, which means that different industries would experience slowdowns at different times. Cryptocurrencies, a great barometer for risk-taking in the market, are still drifting sideways. FTX and Sam Bankman-Friedman’s announcement of bankruptcy and the potential legal ramifications continue to weigh on Crypto.

This past week, I resumed trading options. Usually, I review the trade within the insight post, however, I brought a new microphone, to add a voice to the trading review. Stay tuned for the upcoming changes I plan to make to this site.

Economic

Starting off with housing, the Case-Shiller U.S. National home price NSA index for single-family home prices for the national fell this past month by 1%. The S&P first & second mortgage default index remained steady for the month of November. Auto and bankcard defaults rose slightly between 0.05-0.08%.

Mortgage applications fell 0.8% from the previous week. The refinance and purchase indices both fell from the previous week, 13% and 4% respectively. Mortgage rates fell again on the falling bond yields and expectations of a Fed slowing the size of its rate hikes. Conforming 30-year mortgage rates came in at 6.49% and 30-year jumbo mortgage rates rose 0.05% to 6.35%. Adjustable-rate mortgages’ share of applications rose 9%.

The FHFA house price index measures single-family home values in all 50 states. The most recent release measures the third quarter and reports data from two months ago, in October. Many housing indices including the FHFA house price index use a repeat sales method which measures the price changes of real estate between the current sale and the previous sale. According to the report, house prices remain strong, up 12.4% from a year ago.

Housing prices rose nationally, rising most in Florida, South Carolina, Tennessee, and North Carolina. The lowest slowed the most in the District of Columbia, Oregon, California, Minnesota, and Louisiana.

Pending home sales fell 4.6% in October marking the fifth month of consecutive declines. Pending home sales have declined 37% from a year ago. Pending home sales reports is a leading indicator for the housing sector based on pending sales of existing homes. Pending sales are listed as so when the contract has been signed but has not been closed.

Consumer Confidence came in at expectations although down 2 points at 100.2.  The present situation index based on consumers’ outlook on current business and labor market conditions fell 1.3 points, coming at 137.4. The Expectations index based on the short-term outlook for income, business, and labor market conditions fell 2.5 points, coming in at 75.4. Below 80 signals that the probability of a recession remains. Consumers remain resilient in the face of higher prices although inflation is still a headache for consumers.

Real GDP rose to 2.9% in the third quarter according to the second estimate, rising 0.3% from the first estimate. The main reason for the increase were revisions to consumer spending, state and local government spending and nonresidential fixed investment. A downward revision was made to residential fixed and private inventory investments.

Consumer spending was led by an increase in services, specifically health care and other services. Motor vehicles & parts and food & beverages led the decrease in goods. Nonresidential fixed investments were primarily in equipment and intellectual property. The decrease in residential fixed investment was led by new single-family construction and brokers’ commissions.

Profits of domestic financial corporations fell, following a decline in the second quarter. Profits of domestic nonfinancial corporations increased following a rise in the second quarter. Rest-of-the-world profits fell in the third quarter after rising in the second quarter. Personal Saving and the personal saving rate had a downward revision.  Disposable and real disposable personal income both were revised upward.

Advance retail inventories fell 0.2% in October from September. Advance wholesale inventories were up 0.8% in October from September. Retail inventories fell across the board, while merchant wholesale inventories rose both in durable and nondurable goods.

Moving to employment, which has served as a barometer for the market’s perception of future rate hikes. The number of job openings fell slightly but remains at historic levels. Hires and total separations were little changed from the previous month. Quits, layoffs, and discharges also changed little. Job openings increased in other services and finance & insurance. Openings fell in education, nondurable goods manufacturing, and the federal government. Seeing that quits have remained have steady means that people are staying at their jobs signaling a cooling job market.

Initial claims fell slightly, coming in below market expectations. Continuing claims increased last week. The initial claims signal that the job remains strong despite the rate increases. Employers seem to be reluctant to release workers, knowing that hiring qualified workers will be a considerable challenge in the future.

The much-anticipated employment situation report disappointed the market. There were 263,000 jobs added in November and the unemployment rate was unchanged at 3.7%. Job gains occurred in leisure & hospitality, health care, and government. Jobs declined in retail trade, transportation, and warehousing. The labor participation rate was unchanged at 62.1%. Monthly job growth has averaged 392,000 in 2022, so there is some slowing job growth.

Construction employment added 20,000 jobs, averaging 19,000 monthly jobs this year. Total construction spending fell for private but rose for public construction according to the latest construction spending report. Total residential spending fell 0.3% from the previous month. Spending declined manufacturing, commercial spending, and nonresidential spending for private construction.  Public construction increased in nonresidential spending led by education and power. Residential spending fell for private construction.

Manufacturing added 14,000 jobs, decisively lower than the 34,000 average of monthly job additions. The average hourly workweek declined by 0.1 hours to 34.4 hours. The manufacturing average hourly workweek fell by 0.2 hours to 40.2 hours. Overtime in manufacturing declined by 0.1 hours.

The average hourly earnings rose by 0.6% or 18 cents, while the hourly average earnings for the private sector rose by 19 cents or 0.7%.

The PCE index came in line with expectations at 0.3%, bringing the twelve-month total 0.3% lower than the previous month, at 6.0%. Excluding food and energy, the PCE total was 0.3% lower than the previous month, at 0.2%. The yearly total for PCE excluding food and energy was 5%. Prices for nondurable goods led the increase, with prices rising led by gasoline and other energy goods. Price increases in services was led by food services & accommodations, and housing services. Personal income and current dollars both increase 0.7% in current dollars for the month of October.

The beige book echoed some of the information given above so I won’t go into too much detail. Some of the highlights include weakening bank lending, slowing hiring, and layoffs in the technology, finance, and real estate sectors. Restaurants and high-end hospitality remain on an upward trend while travel and tourism slowed a bit.  Low-to-moderate-income consumers began substituting their purchases for lower-priced goods. Prices rose moderately in most of the districts.

It also looks like the railroad strike will be avoided due to the government’s intervention. Clearly, the economy is slowing as the rate hikes have had a noticeable effect on the economy. Some industries have voiced concern with the pace of the rate hikes and have asked the Fed to slow or pause its rate hikes. Consumers are weathering the increase in prices with credit and savings but for how long?

Exercise caution if you’re trading in this market as the market is on shaky grounds although markets have recovered a bit.

This past week in Review:

This past week was a bit of a challenge, as I’m still recovering from the trip to San Diego. Unfortunately, I had to dip into my savings account to cover some expenses. This past week wasn’t all bad as I received some extra money to replace what I withdrew from my savings account. I still feel like I need to do a much better job managing my expenses. I tend to be frivolous when it comes to certain purchases.

Grade: D+

Reason: No improvement from last week

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