Market Update for the Week of February 4, 2019


The delayed report was worth the wait, as it showed November New Home Sales shot up 16.9%, to a 657,000 annual rate. That’s down from a year ago, but inventory is up by 2,000 units for the month.

It was also good to see the median price of a new home is nearly 12% below a year ago. Not so good were Pending Home Sales, down 2.2% in December, indicating lower existing home sales a few months out.

Freddie Mac’s January Forecast says “early 2019 data signals a possible turnaround for the year,” with total home sales rising to 6.09 million, thanks to home price gains and interest rates taking a breather.


FED UP… Far from discouraging traders, the Fed sent the S&P 500 up to its best January since 1987 by declaring a newly “patient” stance on future rate hikes after leaving present rates unchanged.

The market got a further boost from the resumption of U.S.-China trade talks in Washington, stronger than expected corporate earnings, and a spectacular 304,000 jump in Nonfarm Payrolls in January.

Unemployment went to 4.0%, but that’s because of furloughed government workers (who will get paid), and the highest labor force participation rate in six years.  January ISM Manufacturing also surprised to the upside.

The week ended with the Dow UP 1.3%, to 25064; the S&P 500 UP 1.6%, to 2707; and the Nasdaq UP 1.4%, to 7264.

The strong economic data hammered some bonds on Friday, but the 30YR FNMA 4.0% bond ended UP .38, at $102.05. In Freddie Mac’s Primary Mortgage Market Survey, the national average 30-year fixed mortgage rate increased a barely perceptible tick. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.


First American’s Real House Price Index reports that with consumer house-buying power factored in, home prices are 35.3% below their 2006 peak and 9% lower than January 2000.


SERVICES, PRODUCTIVITY GROW… The ISM Non-Manufacturing Index should show healthy January gains for the services sector that creates most of our jobs. Productivity, closely watched by the Fed, is also expected up in Q4.

NOTE: Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.


Forecasting Federal Reserve policy changes in coming months… After no hike from the Fed last week, the Street now sees no rate changes through the beginning of summer. Note: In the lower chart, a 1% probability of change is a 99% probability the rate will stay the same.

Current Fed Funds Rate: 2.25%-2.50%

Mar  20 2.25%-2.50%
May   1 2.25%-2.50%
Jun  19 2.25%-2.50%


Probability of change from current policy:

Mar  20    1%
May   1     2%
Jun  19     4%
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