Market Watch

by : Sharon Campbell

QUOTE OF THE WEEK… “We don’t know who we are until we see what we can do.” —Martha Grimes, American writer

INFO THAT HITS US WHERE WE LIVE… Last week saw that the housing market can put up some pretty impressive New Home Sales numbers. Sales of new single-family homes shot up in October by 25.4% over September to a seasonally adjusted annual rate of 444,000. This put new home sales up 21.6% versus a year ago. One research firm pointed out that these numbers provide evidence that the edging up of mortgage rates has not seriously hurt the housing recovery.

These analysts noted that October New Home Sales are about equal to those recorded from January to June this year, in spite of the fact that average mortgage rates had drifted up a bit. In fact, the 12-month moving average for new home sales is now at its highest level since March 2009. Inventory is up 25.5% over a year ago, giving buyers more choice, but the faster sales pace dropped the months’ supply to 4.9. For the past 20 years, the average supply of new homes has been 5.7 months. 

… To improve your creativity and mental performance, a study has found that exercise helps. Writers like Henry David Thoreau, Henry James, and Thomas Mann apparently knew this. They all liked a brisk walk before starting work.

>> Review of Last Week

JOBS UP, STOCKS DOWN… A better than expected monthly Employment Report sparked a stock rally on Friday, but it wasn’t big enough to prevent the Dow and S&P 500 from ending down for the week, after eight weekly gains in a row. The good news jobs report featured 203,000 nonfarm payrolls added in November, plus a drop in the unemployment rate from 7.3% to 7.0%, and this one wasn’t driven by a decrease in the labor force participation rate. Investors were delighted to see that the labor market is improving, but not strongly enough to cause the Fed to start tapering its bond buying this month.

Earlier in the week, upbeat economic news had the opposite effect, raising tapering fears that sent stocks down. Better-than-expected data included: the November ISM Index of manufacturing, October New Home Sales, Michigan Consumer Sentiment, and lower-than-expected Initial Unemployment Claims. The GDP-2nd Estimate for Q3 surprised at 3.6%, but analysts cautioned that 1.68% of the uptick came from the change in inventories. The Fed Beige Book opined: “The economy continued to expand at a modest to moderate pace from early October through mid-November.” We’ll take that. 

The week ended with the Dow down 0.4%, to 16020; the S&P 500 down less than a point, to 1805; and the Nasdaq up 0.1%, to 4063.

Fear that the Fed would soon start to taper its bond buying program sent bond prices south. The FNMA 3.5% bond we watch ended the week down .21, to $100.04. Freddie Mac’s Primary Mortgage Market Survey reported national average fixed mortgage rates increased for the week ending December 5. Reasons given were the better jobs and home sales numbers. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

… Activities the Fed may engage in while tapering include reducing its asset purchases and adjusting the Funds rate. Tapering usually only happens when the Fed feels confident about the economy’s direction.

>> This Week’s Forecast

RETAIL SALES AND INVENTORIES INCH UP, WHOLESALE PRICES HOLD… The forecast says November Retail Sales will edge upward, showing consumers are still doing their part to help the economic recovery. Both overall retail sales and the number excluding volatile auto sales should continue north.

October Business Inventories are also predicted up. Lastly, we note that wholesale inflation (the prices businesses pay) should stay under control, as measured by theProducer Price Index (PPI).

>> 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 Dec 9 – Dec 13

 Date Time (ET) Release For Consensus Prior Impact
Dec 11
10:30 Crude Inventories 12/7 NA –5.585M Moderate
Dec 11
14:00 Federal Budget Nov NA –$172.1B Moderate
Dec 12
08:30 Initial Unemployment Claims 12/7 315K 298K Moderate
Dec 12
08:30 Continuing Unemployment Claims 11/30 2.750M 2.744M Moderate
Dec 12
08:30 Retail Sales Nov 0.6% 0.4% HIGH
Dec 12
08:30 Retail Sales ex-auto Nov 0.3% 0.2% HIGH
Dec 12
10:00 Business Inventories Oct 0.3% 0.6% Moderate
Dec 13
08:30 Producer Price Index(PPI) Nov –0.1% –0.2% Moderate
Dec 13
08:30 Core PPI Nov 0.1% 0.2% Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… No matter what the Fed does about tapering its asset purchases, experts say that the Funds Rate should remain at its super low level for quite some time. 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
Dec 18 0%–0.25%
Jan 29 0%–0.25%
Mar 19 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Dec 18      <1%
Jan 29      <1%
Mar 19      <1%