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|For the week of October 31, 2016 – Vol. 14, Issue 44|
>> Market Update
QUOTE OF THE WEEK… “Remember that happiness is a way of travel, not a destination.” –Roy Goodman, American politician
INFO THAT HITS US WHERE WE LIVE … We were certainly traveling on happy trails last week following two upward trending housing market reports. New Home Sales in September went up 3.1%, just shy of a 600,000 unit annual rate. Compared to a year ago, sales are up 29.8%. If that doesn’t make you happy, consider this. After experiencing a summer lull in August, new home sales in September posted their fastest sales pace since 2008, excluding July’s excellent numbers. The biggest obstacle to higher sales remains low inventories. As those slid in September, it shows builders are falling behind demand, so there’s lots of room to increase construction activity.
The other happy housing report? The Pending Home Sales index of contracts signed on existing homes was up 1.5% in September following its August dip. Combining readings from recent months indicates existing home sales in coming months should continue the gains made in September. The index is 2.4% ahead of September last year, its 25th month in a row of year-over-year increases. The national Case-Shiller home price index was up 0.6% in August and up 5.3% versus a year ago. The FHFA index of prices for homes bought with conforming mortgages gained 0.7% in August and 6.4% over a year ago. Should make more homeowners happy enough to list their properties.
BUSINESS TIP OF THE WEEK… Never stop learning. Maintain a mindset that’s open to new knowledge and ideas. The best students of the game are the ones who win it most often.
>> Review of Last Week
SURPRISE!… For four days, stocks traded in a fairly narrow range. Then came Friday’s surprises. The first was the slightly positive surprise that the first estimate for Q3 GDP growth came in at a 2.9% annual rate.This follows dismal Q2 GDP growth of just 1.4% and was the first time in two years that a quarterlyfirst estimate of GDP surprised to the upside. All this was overshadowed by another surprise–the report that the FBI will reopen its investigation into Hillary Clinton’s emails. Political turmoil of any kind doesn’t play well on Wall Street, so stocks ended lower on the day, with the S&P 500 and the Nasdaq finishing down for the week, the Dow barely up.
You’d think Wall Street would be used to uncertainty by now, having weathered eight years of up and down economic reports. Last week continued the exercise, with those good housing numbers beating expectations, just like that estimate for Q3 GDP. But then we had the disappointments. Durable Goods Orders were down in September, while October Consumer Confidence fell noticeably short of estimates. And lest we think the latter report was an aberration, it was followed Friday by the Michigan Consumer Sentiment index getting revised down for its final reading for October, ending up below its lackluster September level.
The week ended with the Dow UP 0.1%, to 18161; the S&P 500 down 0.7%, to 2126; and the Nasdaq down 1.3%, to 5190.
Bond traders didn’t seem to know whether to play off the positive or the weaker economic data, as Treasuries gained, while other issues dipped a bit. The 30YR FNMA 4.0% bond we watch finished the week down .10, at $107.06. National average 30-year fixed mortgage rates slid back from last week’s blip up, according to Freddie Mac’s Primary Mortgage Market Survey for the week ending October 27. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW?… The chief economist of a real estate data firm said that if you adjust for inflation and the purchasing power provided by low interest rates, home prices have actually dropped in the last 16 years. In other words, housing has become more affordable.
>> This Week’s Forecast
CONSUMER SPENDING UP, INFLATION OK, FACTORIES, JOBS, THE FED HOLDING… Expect to see Personal Spending making a move up in September. Core PCE Prices should show inflation at a mild 0.1%, not what the Fed wants to see (they need it higher to hike rates!). This week’s FOMC Rate Decision is expected to keep rates on hold. Manufacturing is also on hold, with the Midwest Chicago PMIdown a little and the national ISM Index up a little, although both still in expansion territory. September Nonfarm Payrolls are predicted to stay well below 200,000, barely more than we need to cover population growth.
>> 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 Oct 31 – Nov 4
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… Last week’s higher first estimate of Q3 GDP made no difference to Fed watchers, who don’t see the central bank touching rates this week. But December looks like a different story. Note: In the lower chart, an 8% probability of change is a 92% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
Probability of change from current policy: