Trade The Journey

Trade The Journey

Markets bounce!

Top of the Morning! This week will go down in history as the supreme court overturned roe v wade. This decision was leaked a few months ago, however it became official on Friday. Twenty-six states with some issuing an immediate abortion ban will ban abortion altogether. Some states have imposed criminal charges for people who aid and abet abortions. Protests across the country continue as the United States now joins Iran, Russia, and North Korea in its stance against abortion.

Not only is this disheartening but it could be a sign of things to come. A couple of days before the overturn of Roe v Wade, the supreme court expanded gun rights making it possible for concealed carry outside the home.

During the week, the Fed pledged to fight inflation with possibly another seventy-five-basis point hike on the table for the next meeting. Chairman Powell stated that achieving a soft landing will be challenging and a recession is quite possible. Europe is also facing its own inflationary pressures and is in the process of continued tightening.

Japan is only the country that has remained accommodative as it tries to help spur the growth of its economy. The yen is facing new lows.

China is still battling Covid adding to supply chain issues, however, China is in the process of easing some of its restrictions. China has provided fiscal stimulus to help combat the slowdown its economy faced due to its zero-tolerance policy.

Here in the United States, whispers of a Recession are growing louder due to the increasing cost of money. Consumers are beginning to pull back on their spending although they are still spending. The increased cost of products and services is weighing down on consumer sentiment. An economic indicator worth watching is Copper because it’s used in products, building structures, cars, and many other things. It’s a commodity that can be used as a gauge of health in the US economy along with crude oil.

Copper has given back most of its gains from 2021 and has returned to levels just before it made its break above resistance in 2020. While copper is struggling, the dollar is at its strongest level in over eighteen years, close to matching its 2003 highs. While a strong dollar is good for consumers buying products abroad, it’s harmful to companies selling abroad because their products become more expensive for consumers outside the U.S.

Tech companies are already feeling the pinch, and they are adjusting quickly by either freezing hiring or laying off workers altogether. You can’t help but wonder how soon companies in other industries will follow suit.

These are some of the variables facing the economy as we move forward. As the earnings season nears, it’ll be interesting to read the earnings reports to see how companies manage their margins.


Economy

Existing home sales declined for the fourth consecutive month and fell close to ten percent from last year’s level. The median existing-home sales price is $407,600 and currently, there’s an existing supply of 2.6 months.

First-time home buyers made up 27% of sales. Single-family home sales are down close to 4% from the previous month. New home sales are up 10.7% from the previous month. The median price for new houses was $449,000 and the average sales price was $511,400.

There’s an existing supply of 7.7 months for new homes. New homes for sales increased across the price levels, except for the $500,000 to $749,000 in which there was a slight decrease. Construction on new homes increased for sold during the period and for sale a the end of the period. There are three construction stages monitored: Not started, under construction, and completed construction.

Mortgage applications increased from the previous week as did the purchase index while the refinance index fell.  Mortgage rates for a thirty-year fixed came in at 5.98, heavily influenced by the Fed’s recent seventy-five basis point rate hike. Homebuyers are opting for adjustable-rate mortgages evidenced by the increase of 10% from the previous week.

Potential homebuyers continue to be priced out of the market, forcing them to become renters instead of homeowners. Rent continues to rise because of the affordability issues involved in purchasing a home.

Lennar released its earning reports in which they cited the changing mortgage landscape. They believe that pricing pressure will remain for the foreseeable future. They reduced prices in many communities and offered mortgage programs to assist with home buying. Lennar listed demand as reasonably strong but also stated that supply remains tight and affordable workforce housing is still at crisis levels. So far, Lennar has been able to manage higher labor, materials, and land costs to remain profitable. Lennar was able to beat its earnings forecasts.

Inflation is a definite concern for consumers. The release of the latest the University of Michigan consumer sentiment report shows the lowest readings on record. Regardless of income, education, region, or status, consumers across the board expect the bad times to continue. Nearly half of the consumers voiced inflation as the cause of their financial challenges. Consumers have high uncertainty about the future and forecast the inflation rate ahead to be 5.3%.

Initial claims decreased slightly and seemed to have reached a standstill. Initial claims are still at their lowest levels in years. Continuing claims showed a slight increase. The labor market is still tight.


Markets

Bond buyers stepped in this past week to push yields lower across maturities. Bond investors are having a challenging time navigating the market environment with inflation at record highs and a Fed committed to fighting inflation even if a recession results. It’s become increasingly difficult to see where rates may end as no one knows how high rates need to go before inflation is contained.

This makes for a volatile market in bonds and especially in risk assets. Markets rallied this past week in what many are calling a bear market rally. Indices moved to fill the gaps made last week. Volatility remains high across the indices and shows cause for concern. One question, investors should ask themselves is, do they see markets making a full recovery from where there are now?

Looking at the charts, I find a full recovery highly unlikely. I think the indices will break through their recent lows as economic data continues to show how inflation is affecting consumers’ and companies’ margins alike.

For traders, this is an opportune time to be involved in the markets. Although options may be priced a little higher due to volatility, to me they still offer the trader a great way to take advantage of these volatile markets.


The past week in Review:

With a new job on the horizon, I’m beginning to take a serious look at my spending habits. I want to take full advantage of this salaried position. Within the next few years, I expect the housing market prices to cool. With that in mind, I want to be in a position to take advantage of falling home prices. I’m in the process of constructing a budget that I’ll post to this blog next week.

Grade: D+

Reason: I made some ill-conceived purchases

Leave a Comment

Your email address will not be published. Required fields are marked *