Weekly Market update

>> Market Update
QUOTE OF THE WEEK… “It is good news, worthy of all acceptation; and yet not too good to be true.” –Matthew Henry, English Presbyterian minister

INFO THAT HITS US WHERE WE LIVE… There were several items of good news in the real estate market last week starting with a Census Bureau report on construction. Despite all the yack about winter weather slowing things down, it turns out construction spending during the first four months of the year was 8.9% above the same period in 2013. The $274.5 billion worth of activity was good news indeed. This level of spending appears to be growing, as the ADP Employment Report showed the construction industry adding 14,000 jobs in May.

Other good news included the research data that demand for purchase mortgages in the last three months gained a cumulative 9%. On the pricing front, a national listing site said prices are beginning to stabilize. Their chief economist explained: “…home price changes are looking more balanced, sustainable and widespread than at any point since the price recovery began.” With home prices still rising, but in a more controlled fashion, there are now more than 43 million homes with equity. This should encourage more people to put their properties on the market, improving the inventory situation.

BUSINESS TIP OF THE WEEK… Take a technology break at least once a week. Turn off all technology for three to four hours and focus on something important. Finish an existing project, start a new one, or call all your best referral sources.
>> Review of Last Week
NICE JOBS… Everyone appreciates a nice job but Wall Street appreciates nice jobs numbers even more. That’s exactly what investors got last Friday, as the May Employment Report registered 217,000 new nonfarm payrolls added for the month, with the unemployment rate holding at 6.3%, even with 192,000 more people entering the labor force. The S&P 500 ended the week with its 18th record close for the year while the Dow finished with its eighth new record in 2014. The tech-y Nasdaq notched its fourth straight weekly advance. Traders were delighted to see the fourth straight month of new payrolls above 200,000. That hasn’t happened since 1999–2000.

More encouraging details in the report included total hours worked and average hourly earnings, each up 0.2%, for a combined 0.4% increase. This reading of total cash wages is up 4.2% the last year, a good sign for continued gains in consumer spending. However, the Trade Balance did balloon to more than $47 billion in April and Productivity dropped 3.2% in Q1. Back to the good news, both ISM indexes showed the manufacturing and services sectors of the economy expanding. Nonetheless, the Fed’s Beige Book painted a picture of the economy growing at a modest to moderate pace around the country.

The week ended with the Dow up 1.2%, to 16924; the S&P 500 up 1.3%, to 1949; and the Nasdaq up 1.9%, to 4321.

The economic data was mixed, so you’d think bonds would have done better. But investors stayed focused on stocks and bond prices suffered. The 30YR FNMA 4.0% bond we watch finished the week down .09, at $105.20. After last week’s record lows, national average fixed mortgage rates were up only slightly in Freddie Mac’s Primary Mortgage Market Survey for the week ending June 5. They’re also only slightly higher than a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… The ISM manufacturing index reported new single-family and multifamily housing construction up 1.6% in April and up 17% in the last year. Construction spending has now been up three months in a row.
>> This Week’s Forecast
RETAIL SALES INCH UP, WHOLESALE PRICES OK, CONSUMERS FEEL GOOD… A quiet-ish week of economic reports does include May Retail Sales. This important take on the consumer’s contribution to the recovery is expected to move ahead for another month. Inflation should stay under control at the wholesale level, with just a modest gain in the Producer Price Index (PPI) and Core PPI excluding volatile food and fuel. The University of Michigan Consumer Sentiment index is forecast to show people are maintaining a positive outlook going forward.
>> 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 Jun 9 – Jun 13

Date Time (ET) Release For Consensus Prior Impact
Jun 11 10:30 Crude Inventories 6/7 NA –3.431M Moderate
Jun 11 14:00 Federal Budget May NA –$138.7B Moderate
Jun 12 08:30 Initial Unemployment Claims 6/7 315K 312K Moderate
Jun 12 08:30 Continuing Unemployment Claims 5/31 2.638M 2.603M Moderate
Jun 12 08:30 Retail Sales May 0.7% 0.1% HIGH
Jun 12 10:00 Business Inventories Apr 0.4% 0.4% Moderate
Jun 13 08:30 Producer Price Index (PPI) May 0.2% 0.6% Moderate
Jun 13 08:30 Core PPI May 0.1% 0.5% Moderate
Jun 13 09:55 Univ. of Michigan Consumer Sentiment Jun 82.9 81.9 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… There’s been more talk among economists about the Fed easing monetary policy, but the central bank is still expected keep the Funds Rate at its super low level into 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
Jun 18 0%–0.25%
Jul 30 0%–0.25%
Sep 17 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jun 18 <1% Jul 30 <1% Sep 17 <1%