Rate hikes are already squeezing these businesses

1. Tapping the brakes: The American economy is soaring, but yellow lights are flashing in t...

Posted: Oct 29, 2018 10:37 AM
Updated: Oct 29, 2018 10:37 AM

1. Tapping the brakes: The American economy is soaring, but yellow lights are flashing in two critical industries that boomed during the era of easy money.

Auto and home sales have sputtered in recent months despite high consumer confidence and low unemployment.

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The slowdowns have been driven at least in part by the Federal Reserve's efforts to wean the economy off near-zero rates. Higher borrowing costs are squeezing the auto and real estate industries that benefited from a decade of cheap money.

"It's very clear that higher interest rates are having an effect on the economy," said Nicholas Colas, co-founder of DataTrek Research. "The two most expensive purchases a consumer makes are a house and a car. Both are credit sensitive."

Now that the economy has recovered from the Great Recession, the Fed is trying to take the training wheels off. That delicate task is even trickier now because of how low rates got -- and how long they stayed there.

The auto and real estate industries are at the frontlines of this shift in borrowing costs. Mortgage rates recently topped 5% for the first time since 2011. Even though mortgage rates are still low historically, homebuyers are taking notice.

New home sales tumbled 5.5% in September to the lowest level in nearly two years, the Commerce Department said last week. Sales plunged nearly 41% in the Northeast and dropped 12% in the West, though they rose modestly in the Midwest. New home sales are now 22% below their recent peak in November 2017, according to Barclays.

And it's tough to blame the slump on tight supply, which rose to the most since 2011.

"With rising mortgage rates and high prices, conversations about the possible benefits of renting over buying have begun to pop up," Lawrence Yun, the chief economist of the National Association of Realtors, said in a report last week.

The S&P Case-Shiller Home Price Index, due out on Tuesday, is expected to show price gains decelerated in August.

Wall Street has punished housing stocks. The SPDR S&P Homebuilders ETF (XHB) has plunged nearly 30% since late January. Toll Brothers (TOL), a luxury homebuilder, has tumbled 31%, KB Home's (KBH) stock has been nearly halved.

Prominent auto stocks are also in a bear market. Ford (F) has lost a third of its value since January, while General Motors (GM) is down 28% from its peak last October.

Higher borrowing costs have added to the headaches in the auto world, which is also grappling with rising costs caused by tariffs.

GM suffered a 16% plunge in sales in September, while Ford's sales dropped 11%. Toyota and Honda also experienced declines. October sales figures are set to be released on Thursday. GM is scheduled to report earnings on Wednesday.

The auto and housing slumps underscore the growth fears at the heart of the recent market mayhem. Is the Fed moving too fast? Are the best days of the recovery over?

"It's not a death knell for the bull market or the economy," said Colas, "but it does give people concern that we are beyond the peak of the economic cycle."

2. Jobs report: Fresh numbers on the state of the economy are due out on Friday when the Bureau of Labor Statistics releases its October jobs report.

If last month is any indication, the economy is maintaining its strong momentum. The US economy added 134,000 jobs in September and the unemployment rate fell to 3.7%, the lowest level since December 1969. The bad news, however, was wage growth isn't growing as fast.

3. General Electric earnings: Recently named CEO Larry Culp's first earnings report arrives on Tuesday. The struggling multinational company desperately needs new direction -- it has shed half a trillion dollars from its market value over the past 18 years.

Wall Street is cautiously optimistic Culp is the right person for the job. GE shareholders are anxious to hear about whether Culp plans to cut the dividend and go forward with plans to break up the conglomerate.

4. Food earnings: Set the table for a platter of edible earnings from food companies. IHOP-owner Dine Brands, Denny's, Yum! and Cheesecake Factory will all report next week.

But the biggest shaker will be Starbucks, which reports on Thursday. Investors will be seeing if Starbucks' new-ish CEO Kevin Johnson is turning the brand around, which has been marred with controversy, sluggish sales and saddled with underperforming stores. Its stock is up just 1% for the year.

5. Apple event: Apple is hosting an event on Tuesday in Brooklyn. The company is expected to announce more product updates before the holiday shopping season kicks into high gear. Expected to debut are new iPads, Macs and perhaps second-generation AirPods.

On Thursday, Apple will report its fourth quarter earnings with expected revenue between $60 and $62 billion -- a sizable increase of its 2017 fourth quarter earnings when it reported $53 billion in revenue. Investors will also get a glimpse of how its new batch of iPhones are selling.

6. Coming this week:

Monday — Mondelez (MDLZ), Rockwell Collins (COL) and Wingstop (WING) earnings

Tuesday — Electronics Arts (EA), Under Armour (UAA), Aetna (AET), Caesars Entertain Group (CZR), Tribune (TPCO), Coca-Cola (KO), Hyatt (H), Denny's (DENN), Fiat Chrysler (FCAU), Cheesecake Factory (CAKE), eBay (EBAY), Herbalife Nutirtion (HLF), GE (GE), Yelp (YELP), T-Mobile (TMUS), Sony (SNE) earnings; Apple product event in Brooklyn

Wednesday — Allstate (ALL), Anthem (ANTM), Yum! Brands (YUM), Dine Brands (DIN), Express Scripts (ESRX), Clorox (CLX), General Motors (GM), Fitbit (FIT), Pandora Media (P), NXP Semiconductors (NXPI) earnings

Thursday — Apple (AAPL), AMC Networks (AMC), Progressive (PGR), CBS Corp. (CBS), Cigna (CI), Starbucks (SBUX), Shake Shack (SHAK), Kraft Heinz (KHC), GoPro (GPRO), Wayfair (W), IHeartMedia (IHRTQ), and Spotify (SPOT) earnings

Friday — Chevron (CVX), Exxon (XOM), Newell Brands (NWL), United States Steel Corp (X), MSG Networks (MSGN), and Seagate Technology (STX) earnings; Jobs report

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 512632

Reported Deaths: 10262
CountyCasesDeaths
Harrison34853555
DeSoto33162432
Hinds32556641
Jackson24830389
Rankin22442402
Lee16238242
Madison14874283
Jones14086247
Forrest13741259
Lauderdale12249324
Lowndes11286193
Lamar10644140
Pearl River9707244
Lafayette8827143
Hancock7835132
Washington7550169
Oktibbeha7204138
Monroe6989179
Pontotoc6970109
Warren6849178
Panola6746134
Neshoba6726210
Marshall6653141
Bolivar6440151
Union633897
Pike5924156
Alcorn5862107
Lincoln5525136
George510180
Prentiss500884
Tippah490282
Itawamba4829107
Scott477499
Adams4766125
Tate4748116
Leflore4723144
Copiah455895
Yazoo455591
Simpson4543117
Wayne442772
Covington432895
Sunflower4299106
Marion4265112
Coahoma4227109
Leake413790
Newton395581
Tishomingo381793
Grenada3775109
Stone365666
Jasper340166
Attala337790
Winston317792
Chickasaw313367
Clay311878
Clarke301195
Calhoun284449
Holmes271289
Smith268952
Yalobusha243747
Tallahatchie231453
Greene224749
Walthall221366
Lawrence217840
Perry213356
Amite209557
Webster205148
Noxubee188642
Montgomery181557
Carroll174441
Jefferson Davis173643
Tunica163239
Benton152639
Kemper144941
Choctaw136527
Claiborne134238
Humphreys131139
Franklin124929
Quitman107528
Wilkinson105939
Jefferson96834
Sharkey65121
Issaquena1957
Unassigned00

Alabama Coronavirus Cases

Cases: 844594

Reported Deaths: 16115
CountyCasesDeaths
Jefferson1160612006
Mobile741651379
Madison53255732
Shelby38313368
Baldwin38061589
Tuscaloosa35996641
Montgomery34473781
Lee25541263
Calhoun22582518
Morgan22441406
Etowah20009517
Marshall18771316
Houston17723425
St. Clair16863358
Limestone16123218
Cullman16032303
Elmore15902294
Lauderdale14945306
Talladega14186299
DeKalb12957269
Walker12011380
Blount10700192
Autauga10512157
Jackson10151194
Coffee9412192
Colbert9325208
Dale9013191
Tallapoosa7248201
Russell707465
Chilton7015170
Escambia6951143
Covington6926195
Franklin6337108
Chambers5778142
Marion5400130
Dallas5283209
Pike5114109
Clarke484986
Lawrence4826129
Winston4777110
Geneva4640136
Bibb434094
Barbour369180
Butler3433100
Marengo342393
Monroe336666
Randolph334067
Pickens333188
Fayette329885
Henry320566
Hale317989
Cherokee316963
Crenshaw260477
Washington256952
Cleburne254360
Lamar251253
Clay250869
Macon244764
Conecuh192762
Coosa184647
Lowndes178168
Wilcox177438
Bullock152545
Perry141840
Sumter139041
Greene130245
Choctaw93228
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