Market Watch

QUOTE OF THE WEEK… “The only thing that should surprise us is that there are still some things that surprise us.” —Francois de La Rochefoucauld, French author of maxims and memoirs
… Some observers were indeed surprised to seesales of new single-family homes jumped 35% from December to January. This put them at a seasonally adjusted annual rate of 543,000, according to the Mortgage Bankers Association (MBA). Their chief economist explained, “While the big jump may appear to conflict with other data,…our Builder Application Survey estimate is consistent with reports of homebuilder sentiment that show strength in the market for new homes.” In line with this, the MBA put mortgage applications for new home purchases up 27% over December.
Also surprising, particularly to those fearing another home price bubble, the National Association of Realtors (NAR) reported that nationally, the NAR housing affordability index shows that, excluding the last five years, homes in the U.S. as a whole are still more affordable than at any time since at least 1981. This was part of an article in the Wall Street Journal, which also said that the NAR found, “…the monthly mortgage payment as a share of median incomes remains unusually low. On a payment-to-income basis, then, home prices still look undervalued.”    BUSINESS TIP OF THE WEEK… Don’t buy into the idea that cold calls are a thing of the past, because today’s customers will always find you. Adopt new marketing approaches, but don’t abandon successful lead generation tactics like cold calls.

>> Review of Last Week

BEST WEEK SO FAR… Stocks posted their best gains of the year last week, as investors who feel good about our economic prospects prevailed over those with the opposite point of view. All three major stock indexes saw solid gains, with the tech-heavy Nasdaq leading the way, hitting its highest level since July 2000. That was right after the Nasdaq closed at its all-time high on March 10, 2000. Those who shrugged off the week’s largely disappointing economic data blamed it on the winter weather, ignoring the fact that many reports are seasonally adjusted!
The disappointments were led by Retail Sales, down 0.4% in January, following a 0.1% dip in December. But if you excluded volatile auto sales, January retail came in unchanged, after increasing 0.3% the month before. Initial weekly jobless claims were up a little and continuing claims were down a bit, so there were no signs of any new strength building in the labor market. Industrial Production and Capacity Utilization were both down in January, but University of Michigan Consumer Sentiment impressed to the upside for February.
The week ended with the Dow up 2.3%, to 16154; the S&P 500 up 2.3%, to 1839; and the Nasdaq up 2.9%, to 4244.
As usual, the stock buying was accompanied by bond selling. This drove prices down, as Treasuries logged their first weekly loss in six and the FNMA 3.5% bond we watch finished the week down .87, to $100.30. Nevertheless, following a week of light economic reports, national average fixed mortgage rates were largely unchanged in Freddie Mac’s Primary Mortgage Market Survey for the week ending February 13. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. DID YOU KNOW?… Barclays Securitized Products Research reports that since 2011-12, there’s been a sustained recovery in the housing market, with prices up 20-25% over Q1 2012 and existing and new home inventories now below pre-crisis levels.

>> This Week’s Forecast

FEWER HOUSING STARTS AND EXISTING HOME SALES, INFLATION OK, A LOOK AT FED MINUTES… Economists expect Housing Starts to moderate in January, along with Existing Home Sales. But, hey, they’re also forecasting inflation to stay in check, both for businesses (Producer Price Index) and for the rest of us (Consumer Price Index). Wednesday, we’ll see if the FOMC Minutes from the Fed’s last meeting reveal anything that new Chairman Janet Yellen didn’t share with Congress last week.
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 17 – Feb 21

 Date Time (ET) Release For Consensus Prior Impact
Tu Feb 18 08:30 NY Empire Manufacturing Index Feb 7.5 12.5 Moderate
W Feb 19 08:30 Housing Starts Jan 964K 999K Moderate
W Feb 19 08:30 Building Permits Jan 980K 986K Moderate
W Feb 19 08:30 Producer Price Index (PPI) Jan 0.2% 0.4% Moderate
W Feb 19 08:30 Core PPI Jan 0.1% 0.3% Moderate
W Feb 19 14:00 FOMC Minutes 1/29 NA NA HIGH
Th  Feb 20 08:30 Initial Unemployment Claims 2/15 335K 339K Moderate
Th  Feb 20 08:30 Continuing Unemployment Claims 2/8 2.973M 2.953M Moderate
Th  Feb 20 08:30 Consumer Price Index (CPI) Jan 0.1% 0.3% HIGH
Th  Feb 20 08:30 Core CPI Jan 0.1% 0.1% HIGH
Th  Feb 20 10:00 Philadelphia Fed Index Feb 7.4 9.4 HIGH
Th  Feb 20 10:00 Leading Economic Indicators (LEI) Jan 0.4% 0.1% Moderate
Th  Feb 20 11:00 Crude Inventories 2/15 NA 3.267M Moderate
F Feb 21 10:00 Existing Home Sales Jan 4.70M 4.87M Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Fed Chairman Yellen told Congress last week that she was committed to keeping the Funds Rate near zero “well past the time” unemployment falls below 6.5%. 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%