Fed Hikes Rates
The FOMC raised rates by 25 basis points, the first hike in three years, led by Kevin Warsh. The vote was unanimous. Stocks fell after the decision, since the market expects another hike later this year. Rates are now in a hiking environment, higher for longer.
Mortgage Demand and Housing
Home buyer mortgage demand dropped sharply as higher rates hurt affordability. Purchase mortgage applications fell 19% from a year ago. The average 30-year fixed mortgage rate rose to about 7.22% this week, its highest in more than a year, as the 10-year Treasury yield topped 5%. Higher borrowing costs keep buyers waiting even though housing inventory is improving, adding pressure to an already weak housing market. The open question is whether mortgage rates can steady or whether higher-for-longer rates keep buyers on hold.
Consumer Spending Stays Strong
Retail sales jumped 1.2% in August, far above the 0.2% economists expected. The gain was broad, led by auto dealers, electronics and appliance stores, and online retailers. Consumers keep spending despite high prices and borrowing costs, a sign of a resilient economy.
JB Hunt Warning
JB Hunt (JBHT) was one of the worst performers on the S&P 500 (SPX) after a rare earnings warning. The CFO, aiming to be transparent with investors, said rising costs, including record high diesel prices, will cut earnings by 5 to 10%. A floor trader warned not to dismiss it, calling it troubling and possibly the start of earnings weakness driven by higher energy costs. It is a key thing to watch going into Q3 earnings. Energy stocks are expected to keep benefiting from those higher energy prices.
S&P Target Cut
Ed Yardeni cut his year-end S&P 500 (SPX) target from 8,400, one of the most bullish calls, to 7,900, and pushed the previous target out to the middle of next year. He keeps his 10,000 target for the end of the decade, which he calls the roaring 20s. He still expects the economy to grow without a recession over the next four years, but says the risk of a downturn has risen over the next 3 to 6 months, citing geopolitics.
What to Watch Next
Thursday brings a lighter data day: housing starts and pending home sales in the morning, both expected to fall, plus weekly jobless claims for a read on employment and the Fed's path. The Bank of Japan starts a two-day meeting, with its decision due late Thursday night. A hike from 1% to 1.25% is largely priced in, which would be the highest rate in 31 years. The dollar is worth watching over the next 48 hours.
