A DATA DRIVEN RALLY

An index of home price growth slowed the most on record as Federal Reserve interest rates hikes and lofty prices has decimated demand. This deceleration ignited a strong advance in the bond market sending yields lower across the entire spectrum.

Many are asking is this rally in the bond market sustainable given the Federal Reserve’s absolute insistence that it will crush inflation from 8.5% to 2.0%? Federal Reserve officials have taken every opportunity to state a pivot is nowhere in sight.

Equites advanced again off the data, also under the simple premise a pivot may be coming shortly.

Tomorrow is the release of third quarter GDP and its associated inflation data points. Will the core personal consumption expenditure (PCE) index decline to 4.5% from last quarter’s 4.7% rate? The Fed is adamant that this rate must slow to 2.0% before a pivot is at hand.

As noted earlier in the week, OER (owners’ equivalent rent) and COLAs (Cost of living adjustments) suggests a significant slowing in inflation is far off in the future.

Because of yesterday’s data, the “market” is now suggesting the terminal fed funds rate is 4.90% down from 5.0%. Will this change again tomorrow following the release of the PCE?

After yesterday’s close, technology heavy weights GOOG and MSFT released results. GOOG disappointed while MSFT initially met expectations, but its guidance was “lackluster at best.”. Shares are down about 6.8% and 6.9%, respectively.

Last night the foreign markets were up. London was down 0.39%, Paris up 0.01% and Frankfurt up 0.51%. China was up 0.78%, Japan up 0.67% and Hang Seng up 1.0%.

Dow futures are flat, but NASDAQ futures are down about 2.0% following disappointing quarterly updates from MSFT and GOOG.

Mortgage rates are now the highest since 2001 as yields rose 22 bps to 7.16%, a record 10th weekly consecutive increase according to the Mortgage Bankers Association. Mortgage applications fell to the lowest level since 1997. The 10-year is up 8/32 to yield 4.07%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.