Today's Scoop:

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Here’s what you need to know…

1. Mortgage rates surged last week.

2. Millions of Americans have mortgages locked in at much cheaper rates.

3. Big-money investors are turning more positive on the market.

S&P 500: 4,467.71
1Mo: +1% | 1Yr: +6% | 5Yr: +58%

The market drifted lower today in its sideways trend of the past couple of weeks. Corporate financial reports have been mixed. Investors are waiting for tomorrow's important inflation data release.

Mortgage rates keep rising, deterring home buyers. The Mortgage Bankers Association reported applications to purchase a home plunged 3% last week, down 27% from a year ago. The average 30-year fixed-rate mortgage rose to 7.1%. The rate on Federal Housing Administration loans, meant to be more affordable for first-time or lower-income borrowers, hit 7%, the highest in over two decades.

Sellers are also staying out of the market, hoping to hang on to their cheaper mortgage rates. Many people refinanced to lower rates over the past few years. Mortgage data provider Black Knight said 39 million US homes have a mortgage rate below 4.4%.

Institutional investors have turned more optimistic about the market. Hedge fund short sellers [🤓] have scrambled this summer to close their bets against the market. Goldman Sachs reported the highest volume of short covering in seven years. US and Canadian investors have already lost over $175B betting the market would fall this year, according to S3 Partners.

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Short Selling

Selling a stock short, often called shorting, means betting a stock's price will fall.

Logistically, a short seller will borrow shares of a company's stock from a third-party investor or financial institution at the current price and wait for the price to fall. If the stock price drops, the short seller will buy the same quantity of stock at the lower price and use those shares to pay back the third party. They basically buy low and sell high but reverse the order by borrowing the shares upfront.

Hedge funds, which are institutional investment managers, use short selling to hedge their bets. They bet that some stocks will go up while also betting some might go down in order to limit the swings in their portfolio.

Certain investment firms adopt short selling as their primary strategy and focus on uncovering hidden problems at particular companies. They produce research reports of their investigations that might spur a drop in the stock price so they can profit.

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