All Things in Moderation

Vital Statistics:

Stocks are lower this morning after Apple cut guidance. Bonds and MBS are up.

Apple cut its profit forecast last night after the close, which added fuel to the “risk off” trade. Declining iPhone sales in China were the issue, which is adding to the slowing global growth story. Tesla also cut its forecast, so some of the darlings of the 2018 stock market are beginning 2019 in the hole. The 10 year bond yield is at 2.64% the lowest level in almost a year.

The economy added 271,000 jobs in December, according to the latest ADP jobs report. This is the strongest reading over the past year, and indicates that 2018 finished on a strong note, despite the turmoil in the markets. This print is also well above the Street estimate for payrolls (177k) in tomorrow’s jobs report.

Speaking of labor data, initial jobless claims came in at 231k last week. This is a touch higher than the previous numbers we have been seeing, but there probably is some seasonal noise in the number. Challenger and Gray noted 43,884 job cuts in December, and said that total job cuts in 2018 were 29% higher than 2017, largely driven by retail bankruptcies.

Mortgage applications were down about 10% last week as purchases fell 12% and refis fell 8%. The number includes an adjustment for the Christmas holiday, so there probably is some noise baked in, however it shows that (so far) mortgage applications aren’t really reacting much to the drop in rates. Again, this is the seasonally slow period so it is hard to read too much into it. The spring selling season begins in about a month.

Realtor.com sees continued tough sledding for the luxury end of the market, as excess supply, higher rates and tax changes all contribute to weakness. FWIW, the luxury end of the market had been outperforming for years, and supply has finally caught up with demand.

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