Weekly Update 11/14/2023
STOCKS BULL!
Cooling Inflation Report!
Tesla Stock Rallies on Price Hikes
S&P 500 Notches best day since April
Dow Leaps 500 points
NVDA AI CRAZE CONTINUES
BULL TRAP?
Weekly Meetings:
INVESTMENT CLUB THURSDAYS 6 PM (BPC188)
INVESTMENT FUND THURSDAYS 7 PM (BPC188)
—Market Madness—
Dow Jones Surges 500 Points On Cool Inflation Report; Tesla Stock Rallies On Price Hike
The Dow Jones Industrial Average surged more than 500 points Tuesday, as Wall Street cheered a cooler-than-expected report on inflation. Meanwhile, Tesla stock raced higher after the electric-vehicle giant hiked the prices of some of its cars in China.
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October’s Consumer Price Index was unchanged from September, cooler than the expected 0.1% monthly increase. Annual consumer prices increased 3.2%, below the 3.3% estimate. Core prices, excluding food and energy, rose 0.2% on the month, with a 4% annual rise. Both readings were below estimates.
Tesla (TSLA) rallied more than 4% in morning trades after the company raised the prices of its China-made Model 3 and Model Y cars. Tesla increased the price of its Model 3 basic edition by 1,500 yuan, or 0.6%. The Model Y entry-level version was upped by 2,500 yuan, or 0.95%.
Key earnings movers for the session include Home Depot (HD), On Holdings (ONON), Tencent Music (TME) and Vipshop (VIPS).
Home Depot shares climbed more than 6% in early trade, while On Holdings tumbled over 6%. Tencent Music sold off 6%, as Vipshop gained nearly 6% in morning action.
Dow Jones Today: Oil Prices, Treasury Yields
After Tuesday’s opening bell, the Dow Jones Industrial Average climbed 1.5%, while the S&P 500 moved up 1.8%. The tech-heavy Nasdaq composite gained 2.3% in morning action.
Among U.S. exchange traded funds, the Nasdaq 100 tracker Invesco QQQ Trust (QQQ) rose 2.3%, while the SPDR S&P 500 ETF (SPY) moved up 1.8% early Tuesday.
The yield on the 10-year U.S. Treasury bond sank to 4.45% after the CPI inflation report. On Monday, the benchmark had settled at 4.63%.
Oil prices added to Monday’s gains, as West Texas Intermediate futures rose nearly 1%, trading at $79 a barrel. WTI prices are bouncing back from their lowest levels since late July.
Stock Market Rally
On Monday, the Dow Jones index rose 0.2%, while the S&P 500 moved down 0.1%. The Nasdaq lost 0.2%.
Monday’s Big Picture column commented, “Even if the current interest-rate hiking cycle looks to be coming to a close, the potential for more inflation and the knock-on effects to Federal Reserve policy continue to weigh on the stock market.”
Now is an important time to read IBD’s The Big Picture column after the recent gains. Be sure to read how to invest during the early stages of a stock market uptrend.
Tesla is the biggest A.I. play in the world, says ARK Invest CEO Cathie Wood
Nvidia’s stock tracks toward new record high as AI fervor keeps building
Nvidia Corp. shares were continuing to cruise Tuesday, pacing toward a new record close.
Shares of the company NVDA, +2.13% were up 1.8% shortly after Tuesday’s open, changing hands at $495.01. The stock was on track to surpass its all-time closing high of $493.55, established Aug. 31.
The stock was also on pace to rack up its 10th session in a row of gains, which would make for its longest winning streak since it advanced for 10 trading days during the stretch that ended Dec. 27, 2016, according to Dow Jones Market Data.
BofA Securities analyst Vivek Arya weighed in positively Monday on the company’s newly announced H200 chip for artificial-intelligence workloads.
“H200 is compatible with its predecessor H100 installations, enabling faster time to market,” he wrote. “We view the latter point as critical, as hyperscalers do not need to invest to reconfigure their existing hardware platform, incentivizing customers to remain key partners of [Nvidia].”
The ease of upgrading “only adds to the competitive portfolio {Nvidia] holds,” he added, while maintaining a buy rating and $650 price objective on the stock.
Nvidia is due to report fiscal third-quarter earnings after the close of trading Nov. 21. While expectations are high going into the report, Arya still expects to see another beat-and-raise quarter from Nvidia and will be watching for commentary on the impact of new China restrictions and any competitive concerns stemming from Advanced Micro Devices Inc.’s AMD, +2.65% MI300 product.
Bets that ‘Fed Is Done’ Sink US Yields: Markets Wrap
(Bloomberg) — Stocks climbed while bond yields tumbled as an unexpected inflation slowdown bolstered bets the Federal Reserve’s aggressive hiking cycle is now over — and the next move will be a rate cut next year.
The S&P 500 rose nearly 2%, the most since April. Tesla Inc. led gains in megacaps and Nvidia Corp. rallied for a 10th straight session. Regional banks jumped almost 6%. The Russell 2000 index of small caps added over 5%. Goldman Sachs Group Inc.’s basket of the most-shorted stocks beat the broader market in a sign some traders are preparing to cover bearish wagers. Two-year yields plunged over 20 basis points. The dollar fell 1.2%.
Read: Wall Street Bears Submit as Slowing Inflation Forces Hard Pivot
While Wall Street’s rally could risk further easing of financial conditions — and ultimately complicate the Fed’s job — bets on a “pivot” next year have increased. Fed swaps indicate the odds of another hike have fallen to almost zero — with the market pricing in a 50 basis-point rate cut by July.
“The last of investors not convinced the Fed is done are likely ‘throwing in the towel’,” said Bryce Doty at Sit Fixed Income Advisors. “The next Fed action is more likely to be a cut next summer than another rate increase.”
To Chris Larkin at E*Trade from Morgan Stanley, while the cooler-than-expected numbers will likely encourage some investors to start planning for 2024 rate cuts, the Fed will probably continue to fight that narrative.
“They’ve run a long race, and they won’t quit just because the finish line appears to be a little closer,” Larkin noted.
—REAL ESTATE WORLD—
How the cost of homebuying and selling will change after landmark court loss over real estate commissions
A recent jury verdict against the National Association of Realtors and large residential brokerages could upend the residential real estate industry.
The real estate compensation model is at the heart of the issue. Plaintiffs contend that commission rates are too high, buyer brokers are being overpaid, and NAR rules, along with the corporate defendants’ practices, lead to fixed pricing. By contrast, NAR contends the rules promote competition and efficient, transparent and equitable local broker marketplaces.
NAR, whose CEO left shortly after the landmark court loss, is appealing the $1.8 billion jury verdict, so it could be several years before the case — which covers the Missouri markets of Kansas City, St. Louis, Springfield and Columbia — is resolved. But coupled with similar lawsuits that are in process, the potential for policy changes that could impact realtors’ pocketbooks is palpable.
The impact on the market continues to spread. Shares of Re/Max Holdings, for example, were down over 8% on Tuesday amid fears of litigation, even though it had settled with plaintiffs before the recent NAR case verdict.
Here’s what real estate agents, homebuyers and sellers need to know about potential changes in residential real estate economics.
A bad time for bad news in real estate
The jury verdict comes at a time when many real estate agents are already feeling a pinch.
The rapid rise in interest rates caused by the Federal Reserve’s fight against inflation recently led to the 30-year fixed mortgage average rate topping 8% — though rates have come back down a little since — exacerbating an existing affordability crisis in the U.S. housing market. Potential sellers don’t want to move if they have to contemplate a mortgage rate as much if not more than double their current one, while millions of potential homebuyers can’t make the monthly payment and are currently shut out of the market.
Existing home sales recently dropped to their lowest level since 2010. According to an October report from University of Colorado Boulder scholar-in-residence Mike DelPrete, existing home sales are on pace for 4.15 million transactions this year, based on NAR data, which would be down from over 6 million in 2021 and 5 million in 2022.
At a time when home sales are already under pressure, “this lawsuit is just another punch in the gut for real estate franchises,” said Bill Gross, a self-employed real estate broker associate in California with eXp Realty.
Thus far, there’s been little-to-no trickle-down effect for individual brokers and agents as a result of the legal proceedings, but that may not be the case forever, depending on how legal battles, taking place on multiple fronts, shape up. An analysis from Keefe, Bruyette & Woods analyst Ryan Tomasello published last month, before the jury verdict was reached, estimated a 30% reduction in the $100 billion paid in real-estate commissions annually and as many as 1.6 million agents losing their source of income.
Pressure on transaction fees will increase
Fees generally have been under pressure for the past number of years, with technology leading to more transparency and the recent court battles intensify that industry pressure.
Also, as home prices have gone up, the fees are more apparent relative to the deal size, said Gilbert J. Schipani, founder of Tempus Fugit Law, which represents buyers, sellers, realtors, lenders and businesses through commercial and residential real estate transactions.
Lawsuits focused on fees reinforce the general trend of trying to lower fees in the real estate market, Schipani said.
“It’s another step in the direction that we’ve been going for the past 10 years,” he said.
As the court cases progress, there’s likely to be more disclosure around fees in the future, for transparency purposes, he said.
As Glenn Kelman, CEO of tech-led real estate brokerage firm Redfin, recently wrote, “In the weeks leading up to the verdict, the National Association of Realtors already updated its guidelines to let agents list homes for sale that don’t offer a commission to the buyer’s agent. … Traditional brokers will undoubtedly now train their agents to welcome conversations about fees. … This is as it should be.”