Trade The Journey

Trade The Journey

Short Post Vii

Top of the Morning! The week ended with a nice rally, as the general sentiment toward the market seemed to be opportunity and overreaction. All sectors rallied to end the week with the energy sector reaching a new all-time high. Yields across maturities drifted sideways as the market rallied.

New home sales dropped 16.6% from the previous month and 27% (rounding up) from the previous year. The average sales price for a new home is over $500,000. There is currently a nine-month supply at the current sales rate. Sales for homes dropped across price ranges except for the $750,000 and over range which has held steady from January. Homes for sale at the end of the period increased in each category which includes: not started, under construction, and completed.

Mortgage applications and loan applications both fell 1.2% from the week before. Refinancing also slowed. There was some relief in mortgage rates for a second straight week, as the rate for a thirty-year fixed mortgage, dropped to 5.46% albeit still high. Prospective buyers are still being priced out of the market, as rates and prices remain high and supply remains low.

New orders for Durable goods rose in the last six out of seven months although they increased less than in the previous month by 0.2%. Transportation equipment led to an increase in new orders, inventories, and unfilled orders. Unfilled orders were up another month making it close to two years of a steady increase. Shipments for durable goods also increased led by primary metals. Shipments have held steady for most of the year. Nondefense Capital goods or business capital goods increased in new orders, shipments, inventories, and unfilled orders.

FOMC minutes review

Trading liquidity declined among numerous sectors. “Market depth-a gauge of the ability to transact in large volumes at quotes posted by market makers-deteriorated in U.S. Treasury, U.S. equity, and crude oil markets.” The banking system continues to maintain a high level of reserves and backstop facilities are still in place. Central banks of advanced economies maintained their intentions of removing policy accommodations once in place to help soften the blow of the Pandemic and hopefully stiffen rising inflation by raising rates. Futures are pricing in 170 basis points increase in rates by year-end. The balance sheet run-off is expected to begin in July and money market rates are expected to rise.

A faster balance sheet runoff than the 2017-19 runoff should be expected. Monthly caps, participants agreed, should be $60 billion for Treasury securities and $35 billion for agency Mortgage-Backed securities. Agency MBS holdings are still expected to remain in the Federal Reserves’ holdings for many years. Participants remain cautious of the execution of the runoff so that it does not destabilize the market for treasuries or mortgage markets. Participants also discussed pausing after gradually reducing the balance sheet runoff to ensure that ample reserves are available in case any policy shifts need to be made.

Labor markets remain tight and supply chain disruptions continue to influence sectors. Shortages of construction materials, electronic components, truck drivers and aluminum, and other materials were mentioned in the report. Real PCE appeared to be rising at a faster pace affected by the loosening of social distancing and removal of mask mandates. The Russian invasion of Ukraine continues to affect commodity and energy resources.

Corporate bond issues slowed due to rising borrowing costs. Nonmortgage and mortgage credit remained accommodative in both households. Credit card balances increased notably. Consumer energy and food prices are expected to rise, while PCE is expected to moderate to 2.3% in 2023 and 2.1% in 2024. The Russian/Ukraine continues to add uncertainty to projections in the near future. Inflation is spreading from goods to services, extending into education, apparel, and health care.

The committee is committed to remaining nimble due to evolving geopolitical events and supply/demand imbalances as they increase rates to help cool down inflation. The US economy is viewed as strong and able to handle the increase in rates now. One member of the committee favored a basis point increase of seventy-five basis points instead of the agreed-upon fifty basis point increase.

Initial claims fell slightly from the previous week while continuing claims increased. Based on the four-week average continuing claims remain at multi-year lows.

GDP second revised estimate showed a decrease of 1.5% instead of the preliminary release which showed GDP falling 1.4%. According to the report, consumer spending increased by way of services while goods remained flat. The Personal Consumption Expenditures Price Index decreased from the previous month by 0.3%. Disposable personal income and Personal Income fell in current dollars by 0.1% from the previous month. Could the increases in wages by topping out, as employers start to feel the pinch of high labor costs in their bottom line?
Best Buy fell on its falling sales and profits last quarter but still ended the week higher, testing its 20 SMA. Most likely, Best Buy rose alongside the market but according to the CEO, there are tough times ahead. Highlighted in numerous retail earnings reports are higher costs and shifting consumer habits. Apparently, consumers are shifting towards travel, attempting to make up for lost time due to the Coronavirus.

Did the Market overact to Recession fears?

All of the indices rallied to end the week, as participants sought to “Buy the dip”. I would say that I am cautiously optimistic regarding the end-of-the-week rally. There are still some deterrents to a continued rally like higher prices, shaky forward guidance issued by companies, rising costs to employers, and a housing market that looks to be slowing.

There’s also concern that China may impose further lockdowns if the Coronavirus continues to remain and of course, the Russia/Ukraine conflict continues.

I still think that there are some great deals available to the diligent investor and right now the market action favors traders with its heightened volatility. In the coming weeks, I plan on listing weekly option trades to assist me in picking trades and helping others find profitable opportunities.

Indices Reference Levels


This past week in review:
With an influx in income, I can say that week was smooth. I was able to add money to my savings and investment accounts and I also continued reducing the amount of credit I hold. Nearly all of my investments both in stocks and cryptocurrencies have lost value. I haven’t sold any of my holdings in either of those assets.
The week ahead should be interesting as I plan to shift careers once again. I’m both excited and nervous about the near future. To prepare for my new job, I plan on creating a budget to track new expenses and growing income. Grade: C-
Reason: Made some silly purchases.

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