Weekly Market Update
>> Market Update
QUOTE OF THE WEEK… “Learn from yesterday, live for today, hope for tomorrow.” –Albert Einstein, German-born theoretical physicist
INFO THAT HITS US WHERE WE LIVE… Einstein’s scientific genius provides some smart advice for today’s housing market. “Learn from yesterday”: we recently learned that the home price decline a few years ago was not as severe as originally thought. Property values nationally, from their February 2007 peak to their December 2011 trough, only dropped 26%, not the 34% originally reported. This finding comes from analysts at the well-regarded S&P/Case-Shiller Home Price Index, who just spent more than a year re-working their model with a bigger, higher quality set of data.
“Live for today”: consider a recent report from a major real estate information company. They found that despite the challenges faced by first-time home buyers under age 35, 96% of the U.S. housing market the company measured is still affordable for recent graduates making the median household income, even if they have student loans. This flies in the face of the rampant media speculation that student loan debt is holding back home buying among recent graduates. “Hope for tomorrow”: we can all find this in the report that construction spending in July made its biggest jump in two years.
BUSINESS TIP OF THE WEEK… Don’t wait until the last minute to start thinking about a problem. Give yourself time to let your subconscious mull it over. This is why people can literally sleep on a problem and wake up with the answer.
>> Review of Last Week
BACK TO WORK, CAUTIOUSLY… The abbreviated first week back to work after summer vacations ended with stocks barely ahead. Investors were cautious, yet determined to maintain a positive attitude going forward, as they pretty much ignored the downer of Friday’s weak August Employment Report. This told us the economy added just 142,000 new jobs, the tiniest gain since December 2013. The unemployment rate dipped from 6.2% to 6.1%, but so did the labor force participation rate, as more people were discouraged from looking for work. But this negative report was a positive to Wall Streeters who felt it would delay a Fed rate hike.
The ISM Index of manufacturing scooted up to 59.0 in August from 57.1 the prior month. This was the highest level for the index since March 2011! And ISM Services, a survey measuring the economic sector providing more than 80% of our jobs, also topped estimates with a strong 59.6 reading. Unfortunately, Factory Orders and Q2 Productivity missed estimates. And the Fed’s Beige Book of anecdotal reports from around the U.S. said that although economic activity expanded, “none of the Districts pointed to a distinct shift in the overall pace of growth.” So, the painfully slow growth continues.
The week ended with the Dow up 0.2%, to 17137; the S&P 500 up 0.2%, to 2008; and the Nasdaq up 0.1%, to 4583.
Treasuries and other bonds lost ground as the European Central Bank lowered rates and began its own QE-style bond buying program. The 30YR FNMA 4.0% bond we watch finished the week down .02, to $105.28. Freddie Mac’s Primary Mortgage Market Survey showed national average fixed mortgage rates moved very little for the week ending September 4. Rates remain well below where they were 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?… Hispanic buyers accounted for almost half (47%) of the overall growth in homeownership during 2013.
>> This Week’s Forecast
STORE SALES BACK ON TRACK, CONSUMERS FEEL BETTER.. This full week of work isn’t very full of economic data. At least we’ll see how well consumers are helping the economy. A good measure of that, Retail Sales, should be up for August. The University of Michigan Consumer Sentiment Index, a gauge of attitudes, is also expected to edge forward. Other points of interest include the Federal Budget, forecast to continue running at a deficit in August, no big surprise there.
>> 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 8 – Sep 12
Date Time (ET) Release For Consensus Prior Impact
Sep 10 10:30 Crude Inventories 9/6 NA –0.905M Moderate
Sep 11 08:30 Initial Unemployment Claims 9/6 300K 302K Moderate
Sep 11 08:30 Continuing Unemployment Claims 8/30 2.495M 2.464M Moderate
Sep 11 14:00 Federal Budget Aug NA –$147.9B Moderate
Sep 12 08:30 Retail Sales Aug 0.6% 0.0% HIGH
Sep 12 08:30 U. of Michigan Consumer Sentiment Index Sep 83.5 82.5 Moderate
Sep 12 08:30 Business Inventories Jul 0.4% 0.4% Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… The consensus among economists is that the central bank will keep the Fed Funds Rate at its rock bottom 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
Sep 17 0%–0.25%
Oct 29 0%–0.25%
Dec 17 0%–0.25%
Probability of change from current policy:
After FOMC meeting on: Consensus
Sep 17 <1% Oct 29 <1% Dec 17 <1%