Market Watch

by: Sharon Campbell

QUOTE OF THE WEEK… “Society is always taken by surprise at any new example of common sense.” —Ralph Waldo Emerson, American essayist, lecturer and poet

INFO THAT HITS US WHERE WE LIVE… The Fed took the markets by surprise last week when it announced it would NOT begin tapering its Treasury and mortgage bond buying. But this was just common sense. Since May, the Fed’s been hinting it could start tapering bond purchases in September, which sent bond prices south and mortgage rates north. People then worried this might hurt housing, a bright spot in our slow overall recovery. So it makes perfect sense for the Fed to keep buying billions a month worth of bonds to, in their words, “maintain downward pressure on longer-term interest rates.”

This is all great for the real estate market, although its recovery hasn’t faltered just yet. Existing Home Sales in August hit their highest level in more than six years: a 5.48 million annual rate, up 13.2% from a year ago. Builders are on the bandwagon too. Single-family Housing Starts climbed 7% in August and are up 16.9% from a year ago. Single-family Building Permits reached a five-year high, and the home builders confidence index is at its best level in nearly 8 years. So if, thanks to the Fed, mortgage rates edge back down, things should really get interesting.

BUSINESS TIP OF THE WEEK
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>> Review of Last Week

FED, UP…  All week, investors focused on Fed news and stocks finished up. Monday, former Treasury Secretary Larry Summers withdrew from consideration as the next Fed Chairman. The markets rallied, since it was feared Summers would quickly raise interest rates. Wednesday, we had the Fed’s surprise announcement it would not taper its bond buying program: “the Committee decided to await more evidence that [economic] progress will be sustained before adjusting the pace of its purchases.” Stocks hit an all-time high, then fell back Friday when two Fed members left the door open for tapering at the October meeting.

Meanwhile, the economy slowly moved ahead. Industrial Production and factory Capacity Utilization were up nicely in August. The Empire Manufacturing index dipped slightly for September but continued to show growth in the New York area, while the Philly Fed index of manufacturing in that region rose to its best reading in more than two years. Inflation stayed well under control, the Consumer Price Index up just 0.1% in August. Existing Home Sales, single-family Housing Starts and Building Permits, all up in August, show the real estate market continues to recover.

The week ended with the Dow up 0.5%, to 15451; the S&P 500 up 1.3%, to 1710; and the Nasdaq up 1.4%, to 3775.

Bonds benefited from the Fed’s commitment to keep buying them at the same healthy pace, as well as from Friday’s stock selloff. The FNMA 3.5% bond we watch ended the week up 1.91, to $100.21. Average fixed mortgage rates moved lower in Freddie Mac’s Primary Mortgage Market Survey for the week ending September 19 and mortgage applications were up 11.2% for the week ending September 13, according to the Mortgage Bankers Association. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?
… The median price of an existing home sold in August was $212,100, up 14.7% from a year ago, the largest gain since October 2005.

>> This Week’s Forecast

HOME SALES MIXED, Q2 GDP HOLDS, INFLATION QUIET… New Home Sales are forecast up a notch for August, although Pending Home Sales are predicted off for another month. That measure of contracts signed indicates a dip in Existing Home Sales a few months out.

The economy still grows at a modest pace, with the GDP, Third Estimate, expected to remain at 2.5%. Inflation, however, should be benign, as Core PCE Prices are predicted to stay well within the Fed’s target range. 

>> 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 Sep 23 – Sep 27

 

 Date Time (ET) Release For Consensus Prior Impact
Tu
Sep 24
10:00 Consumer Confidence Sep 80.0 81.5 Moderate
W
Sep 25
08:30 Durable Goods Orders Aug 0.4% –7.4% Moderate
W
Sep 25
10:00 New Home Sales Aug 416K 394K Moderate
W
Sep 25
10:30 Crude Inventories 9/21 NA –4.368M Moderate
Th
Sep 26
08:30 Initial Unemployment Claims 9/21 325K 309K Moderate
Th
Sep 26
08:30 Continuing Unemployment Claims 9/14 2.775M 2.787M Moderate
Th
Sep 26
08:30 GDP – 3rd Estimate Q2 2.5% 2.5% Moderate
Th
Sep 26
08:30 GDP Deflator – 3rd Est. Q2 0.8% 0.8% Moderate
Th
Sep 26
10:00 Pending Home Sales Aug –2.3% –1.3% Moderate
F
Sep 27
08:30 Personal Income Aug 0.4% 0.1% Moderate
F
Sep 27
08:30 Personal Spending Aug 0.2% 0.1% HIGH
F
Sep 27
08:30 PCE Prices – Core Aug 0.1% 0.1% HIGH
F
Sep 27
09:55 U. of Michigan Consumer Sentiment – Final Sep 77.3 76.8 Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… With the Fed continuing its big bond buying program, many economists now expect the Fed Funds Rate to stay at its super low level through most of 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%