Well the day started softly for equities but then rallied hard for a number of hours before investors (traders) starting thinking about the ‘what if’ of the CPI report coming out later this week. What if it is ‘hot’?
The last CPI report was 8.3% year over year and the forecast for the report Thursday is for 8.1%. The core rate is forecast at 6.5% which is above last months 6.3%. I don’t need to tell you what will happen if the number is hot–above forecast and/or above last month.
Markets are searching for a ‘sign’ anything that will give them hope–thus far there really hasn’t been any sign of softening so I am expecting more of the same.
Once again my accounts are off just a tiny amount–a few hundred dollars. I haven’t even pondered a purchase today. Not that aren’t plenty of ‘bargains’ to buy, but with a low cash level I am being fussy thinking I can squeeze 20-30 basis points of incremental yield out of a few buys in a week or two.
Tomorrow we have 3 Fed ‘yakkers’ spouting off as well as the release of minutes from the last FOMC meeting.
Markets have been red all day–not in a plunging sort of way, but one can see that there are plenty of folks looking to get more cash in their accounts–each time the S&P500 starting moving a bit higher selling moves in slowly to drive prices lower.
Watching my preferreds and baby bonds is a bit like watching paint dry–down about $200 (a rounding error).
I was not planning to do a thing today–and probably won’t, but I did see 1 interesting issue that I am going to watch. Federal Agricultural Mortgage (AGM)–has 5 preferred issues outstanding. 1 issue is a fixed to floating issue with a 5.49% current yield while the other 4 issues are fixed rate with current yields of 6.37% to 6.71%. These are all non-cumulative.
The reason these are potentially interesting to me is because most of their loans are backed by the USDA–not your typical mortgage REIT (this is not a REIT at all). Thus something in the 6.7% area looks pretty attractive. We’ll see.
What a wild week in the stock market–we could use a bit of a break this week, although with the CPI release on Thursday that is unlikely to happen.
The S&P500 closed up by 1.4%—but traded in the wide range of 3605 to 3807–giant rally’s early in the week with plunging markets late in the week.
The 10 year treasury traded in a range of 3.56% to 3,91% before closing near the high at 3.88% which is 8 basis points higher than the close the previous Friday. So we are just 12 basis points below the high yield which occurred on 9/27/2022. No doubt we will see movement in bonds on Wednesday and Thursday as we have Producer Prices (PPI) released on Wednesday and then Consumer Prices (CPI) on Thursday. Right now there will be a 75 basis point Fed Funds rate hike on 11/2/2022–and it is highly unlikely that inflation cools enough to make any expectations of a smaller hike realistic. Reminder–treasury markets are closed today for Columbus Day.
The Fed balance sheet fell by about $45 billion last week—one of the bigger reductions in Fed assets that we have seen. This puts the balance sheet reduction at just over $200 billion from the all time high near $9 trillion.
Last week the average $25/share preferred stock and baby bond fell by 21 cents. Investment grade issues fell by 20 cents, banks by 16 cents and CEF issues by 19 cents. Insurance issues were off by 34 cents while BDC baby bonds were up by 3 cents.
