Market Watch

by: Sharon Campbell

QUOTE OF THE WEEK… “Do not even listen, only wait.” —Franz Kafka, novelist and short story writer

INFO THAT HITS US WHERE WE LIVE… The early 20th century author of nightmarish tales certainly had the best advice for getting through the scares coming out of Washington last week. Much of the housing “news” consisted of fearful warnings about what might happen to the real estate recovery if the debt limit weren’t raised or the partial government shutdown continued. These nightmares proved not worth listening to, as an agreement came, although we had to wait until the very last minute. We’ll still have to wait for the reports on September Housing Starts and Building Permits, delayed by the government shutdown.

Real housing news, when it appeared, wasn’t so bad. The day things went back to normal, Fannie Mae’s monthly outlook said the shutdown and debt ceiling debates seem to have had a “minimal effect” on housing. They pointed out rising home prices may actually help cushion any negative economic impacts by raising household net worth. People are clearly still buying, as Ellie Mae reported that purchase mortgages made up 58% of the closed loans in September. Here’s a great link to pass on to prospects: To view, click here.

BUSINESS TIP OF THE WEEK
… To make the day more productive, prioritize your tasks. Ask yourself first thing: “What single accomplishment will let me sleep better tonight?”

>> Review of Last Week

THE CAN IS KICKED… A half hour into the day the Treasury said it would hit its borrowing limit, the President signed a bill approved by both houses of Congress that raises the debt ceiling through February 7 and funds the government through January 15. Nothing was resolved beyond those dates, so this is what’s known in economic parlance as “kicking the can down the road.” Nonetheless, stocks ended the week solidly ahead, with the S&P 500 posting its best weekly gain since mid-July. Were investors celebrating the reopening of some non-essential government functions and the fact that Treasury wouldn’t default on the debt? 

Not exactly. Some observers felt the stock market advance came on the assumption that the Fed would continue its $85 billion a month of bond purchases to keep interest rates low and stimulate the economy. That’s because the future remains uncertain: the budget standoff wasn’t resolved, it was merely postponed. In any case, the Fed would find it difficult to start tapering bond buying at this month’s meeting, since many of the reports it uses to monitor the economy didn’t come out during the shutdown. We did have weekly Initial Unemployment Claims dipping to 358,000.

The week ended with the Dow up 1.1%, to 15400; the S&P 500 up 2.4%, to 1745; and the Nasdaq up 3.2%, to 3914.

Once the possibility of default evaporated, investors flocked to the safe haven of bonds, made even more attractive by the political shenanigans. The FNMA 3.5% bond we watch ended the week up .97, at $102.00. For the week ending October 17, Freddie Mac’s Primary Mortgage Market Survey reported national average mortgage rates edging higher as we approached the debt limit deadline. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?
… The Wall Street Journal reports that with today’s home prices and mortgage rates, homes are more affordable now than at any time between 1989 and late 2008.

>> This Week’s Forecast

EXISTING HOMES SALES SLOW, NEW HOMES SALES GROW, SEPTEMBER ADDS JOBS… Analysts predict Existing Home Sales will slow a bit for September, but still stay well above the 5 million unit annual rateThe New Home Sales report for that month may be delayed but is forecast up a tad.

The September Employment Report, delayed since October 4, is expected on Tuesdayto show jobs inching up, though still below 200,000 added payrolls for the month. This should not be enough to push the Unemployment Rate below 7.3%.

>> The Week’s Economic Indicator Calendar

 

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Oct 21 – Oct 25

 

 Date Time (ET) Release For Consensus Prior Impact
M
Oct 21
10:00 Existing Home Sales Sep 5.30M 5.48M Moderate
M
Oct 21
10:30 Crude Inventories 10/12 NA 6.807M Moderate
Tu
Oct 22
08:30 Average Workweek Sep 34.5 34.5 HIGH
Tu
Oct 22
08:30 Hourly Earnings Sep 0.2% 0.2% HIGH
Tu
Oct 22
08:30 Nonfarm Payrolls Sep 183K 169K HIGH
Tu
Oct 22
08:30 Unemployment Rate Sep 7.3% 7.3% HIGH
W
Oct 23
10:30 Crude Inventories 10/19 NA NA Moderate
Th
Oct 24
08:30 Initial Unemployment Claims 10/19 341K 358K Moderate
Th
Oct 24
08:30 Continuing Unemployment Claims 10/12 2.860M 2.859M Moderate
Th
Oct 24
10:00 New Home Sales (tentative) Sep 432K 421K Moderate
F
Oct 25
08:30 Durable Goods Orders (tentative) Sep 3.5% 0.1% Moderate
F
Oct 25
09:55 Univ. of Michigan Consumer Sentiment–Final Oct 74.5 75.2 Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… In the absence of long term budget and debt ceiling solutions, economists now expect the Fed to keep the Funds Rate at its super low level through next year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on: Consensus
Oct 30 0%–0.25%
Dec 18 0%–0.25%
Jan 29 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Oct 30      <1%
Dec 18      <1%
Jan 29      <1%