Market Watch

QUOTE OF THE WEEK… “I don’t care too much what happened in the past. I prefer to focus on what is coming next and I am really looking forward to it.” –Sebastian Vettel, World Champion Formula One driver

INFO THAT HITS US WHERE WE LIVE… It would do us good to not focus too much on the past month’s housing data. Housing Starts were down 16.0% in January, to an 880,000 unit annual rate. But this report really can be blamed on the weather. When it’s wet, cold, and snowy, it’s pretty hard to move dirt. And that was the weather in much of the U.S. Looking forward, many observers see home price increases moderating and inventory building, which should keep buyers interested. Compared to a year ago, the number of homes under construction is up 27% and new Building Permits are up 2.4%, so builders are clearly planning to stay active.

Existing Home Sales were down 5.1% in January, to a 4.62 million annual rate, only slightly below expectations. This was put to both the unusually harsh weather in much of the country and the lack of inventory, which could lead buyers to new home purchases. In fact, there are now just 1.9 million existing homes in inventory, relatively low for our population and the total number of homes. But median prices for existing homes are up 10.7% versus a year ago, which should encourage more sellers to come into the market. Analysts are saying that the underlying trends in housing remain “positive” to “strong.”

BUSINESS TIP OF THE WEEK… Athletes at the Winter Olympics got there by setting very high goals and then persistently pursuing them when setbacks came. Those same actions will get us where we want to go in business.
>> Review of Last Week

NOT BAD… The holiday shortened week saw two stock indexes end a little off and one a little up, so overall it wasn’t a bad time on Wall Street. The Dow slipped but remained above 16,000, and the broadly based S&P 500 also slid but remained within a whisker of its record close on January 15. The tech-y Nasdaq scored its third straight weekly gain. The markets are recovering from their recent slump, as investors are simply taking the disappointing economic data in stride, chalking it up to the unusually severe winter weather. They’re basically looking ahead to what many believe will be a stronger period of economic growth ahead. Let’s hope they’re right!

The Empire Manufacturing Index for the New York region dipped from +12.5 to +4.5 in February, but still signals growth. January Housing Starts and Existing Home Sales were off and the Producer Price Index showed wholesale prices up a little more than expected. But January’s Consumer Price Index matched expectations and gauged inflation up just 1.6% from a year ago. Initial weekly jobless claims dropped by 3,000, while continuing claims grew 37,000 yet remain comfortably under 3 million. The Philadelphia Fed Index of manufacturing dropped from a positive to a negative reading in January but weather was blamed for that slowdown too.

The week ended with the Dow down 0.3%, to 16103; the S&P 500 down 0.1%, to 1836; and the Nasdaq up 0.5%, to 4263.

As stocks moved both ways, Treasuries were flat and the FNMA 3.5% bond we watch slipped a bit, finishing the week down .06, to $100.24. National average fixed mortgage rates edged up in Freddie Mac’s Primary Mortgage Market Survey for the week ending February 20. Their chief economist cited “minutes of the Federal Reserve’s last meeting indicated little possibility of a pause in the central bank’s reduction of bond purchases.” This pushes bond prices down and interest rates up. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… Jumbo loans, whose size exceeds Fannie and Freddie’s conventional limits, showed signs of life in 2013, with $12 billion worth of jumbo mortgages securitized as of September, up from $3.5 billion for all of 2012.
>> This Week’s Forecast

NEW HOME AND PENDING HOME SALES SLIP, GDP SLIDES, CONSUMERS OK… An interesting set of reports this week, expected to show us a no doubt weather-related dip in New Home Sales and Pending Home Sales for January. The Pending Homes number gauges contracts signed on existing homes, so it forecasts sales a few months out. The GDP – 2nd Estimate is predicted to be down, registering only modest economic growth in Q4. But Consumer Confidence and Michigan Consumer Sentiment are expected to show that folks remain undaunted by all this.

Stock and bond markets are closed Monday, February 17, for Presidents’ Day.
>> 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 Feb 24 – Feb 28
Date
Time (ET)
Release
For
Consensus
Prior
Impact
Tu
Feb 25
10:00
Consumer Confidence
Feb
80.8
80.7
Moderate
W
Feb 26
10:00
New Home Sales
Jan
400K
415K
Moderate
W
Feb 26
10:30
Crude Inventories
2/22
NA
0.973M
Moderate
Th
Feb 27
08:30
Initial Unemployment Claims
2/22
335K
336K
Moderate
Th
Feb 27
08:30
Continuing Unemployment Claims
2/15
2.975M
2.981M
Moderate
Th
Feb 27
08:30
Durable Goods Orders
Jan
-1.1%
-4.2%
Moderate
F
Feb 28
08:30
GDP – 2nd Estimate
Q4
2.6%
3.2%
Moderate
F
Feb 28
08:30
GDP Chain Deflator – 2nd Estimate
Q4
1.3%
1.3%
Moderate
F
Feb 28
09:45
Chicago PMI
Feb
56.0
59.6
HIGH
F
Feb 28
09:55
U. of Michigan Consumer Sentiment – Final
Feb
81.5
81.2
Moderate
F
Feb 28
10:00
Pending Home Sales
Jan
-1.0%
-8.7%
Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The majority of Fed members have said the first rate hike will likely come in the second half of the year. For now, the super low Fed Funds Rate will stay right where it is. 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
Mar 19
0%–0.25%
Apr 30
0%–0.25%
Jun 18
0%–0.25%

Probability of change from current policy:

After FOMC meeting on:
Consensus
Mar 19
<1%
Apr 30
<1%
Jun 18
<1%