Last week stock investors had another somewhat wild ride as the DJIA traded in a range of 25,244 to 25,818 before finally closing at 25,444. The 10 year treasury traded in a range of 3.14 to 3.21% before closing the week at 3.20%. The 10 year is acting like it wants to close above 3.20% and there is no reason to think that it will drift down too much this week.
Last week we had mixed economic signals–although tending more toward strength. Retail sales for September were weak with a gain of .1% against consensus of plus .6%. The Empire State Manufacturing report was a fair amount above consensus and Industrial Production for September was also fairly strong. The Housing Market Index was up a tic after being weak in recent months. The strongest indicator of the week was the JOLTS report (job openings and labor turnover) which showed a very solid 7.1 million job openings with just 6.2 million job seekers available to fill the positions–this should scream wage inflation, but we haven’t seen it yet. Housing starts remain fairly tepid and mortgage applications continue to fall–as I would expect as interest rates of mortgages rise. Also on Wednesday last week the FOMC minutes for last months meeting were released and struck a hawkish tone as there is discussion of higher rates above the neutral level (whatever one believes this level to be). Lastly Existing Home sales were released on Friday and were weaker than consensus. I don’t think anyone should believe that housing will be overly helpful in keeping the economy afloat–interest rates and in particular crazy high prices are really going to pinch the markets over the winter and as we enter next spring we may be looking at some pretty soft numbers.
For the coming week all eyes are focused on GDP for the 3rd quarter. This number will be released Friday morning and consensus pegs it at a plus 3.3%. The range of ‘guesstimates’ is pretty wide with the low end being at 2.6% with an upper limit of 3.8%–of course a release out of this range will move markets. Beyond this economic release the stock market will be watching earning releases as there is a very earnings calendar this week. Interest rates should remain fairly tame, but there are 10 Fed presidents giving speeches and markets will be somewhat sensitive to the baloney any one of them may spew.
The Fed balance sheet fell by just $1.5 billion last week which is the 2nd week in a row that there has been no (or little) run off. We expect that the run off will in turn show some larger run offs in the weeks ahead adding a little pressure to interest rates.
The new issue offerings last week were fairly sparse with CEF Priority Income Fund offering a new term preferred with a maturity date in 2025 and a coupon of 6.25%–we find no OTC temporary ticker for this issue yet. LNG ship owner Dynagas (NASDAQ:DLNG) offered a fixed to floating preferred with an initial coupon of 8.75% and a floating rate of 3 month Libor plus 5.59% starting in 2023. Both of these coupons seem a bit low to us (every issue is low to us). This new issue is trading with a OTC temporary ticker of DGAGF and is trading at $24.67 at this time.
The average $25 preferred share rose last week to $24.27 and there are now 234 issues trading at $25 or below. This is a pretty typical price pattern after sharp selloffs. 1st comes the sharp selloff and then a week later shares tend to stabilize and move slightly higher as calmer heads prevail and investors way for further news on the economic front.