MARKET UPDATE
There’s no way to sugar coat the data. Existing Home Sales fell in January for the third straight month, down 1.2%, to a just under 5 million unit yearly rate. But the big sales problem, lack of supply, has finally turned the corner.
Year-over-year inventories are now up six months in a row. This should ultimately boost sales and slow price growth, which is already down to just 2.8% annually, as of January.
Also encouraging, wages are rising faster than home prices for the first time since 2012, boosting affordability. And homebuilders pushed the NAHB Housing Market Index to 62 in February, up from its December three-year low.
REVIEW OF LAST WEEK
STREAKING… The Dow ended ahead now nine weeks in a row, its longest streak since 1995, the Nasdaq was also up nine straight weeks, its best streak since 2009, while the S&P 500’s streak hit four weeks.
Investor optimism continues to be fueled by positive signs of a trade deal with China; the Fed‘s rate hike pause and willingness to be “patient” about future “adjustments”; and way better than feared Q4 corporate earnings.
Wall Street liked Durable Goods Orders up 3.5% the past year, more signs of a strong labor market, and the economy on track to the fastest yearly growth in more than a decade. Yet some pundits fear recession–though others disagree.
The week ended with the Dow UP 0.6%, to 26032; the S&P 500 UP 0.6%, at 2793; and the Nasdaq UP 0.7%, to 7528.
Bonds closed the week with gains, despite rising stocks. The 30YR FNMA 4.0% bond ended UP.12, to $102.14. The national average 30-year fixed mortgage rate fell for the third straight week in Freddie Mac’s Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW?
The Bureau of Labor Statistics reported 52,000 construction jobs were added in January, up from 38,000 in December. Home building should rise accordingly.
THIS WEEK’S FORECAST
HOME BUILDING, PENDING SALES, GDP OFF A TAD, INFLATION MILD, FACTORIES HUM… Housing Starts, Building Permits and Pending Home Sales are all forecast down a bit for the month. The Q4 GDP-Advanced read is predicted to be lower than Q3, but still solidly above 2%, while Core PCE Prices should show inflation remains at bay. Factory activity is expected to keep expanding according to the ISM and Chicago PMI reports.
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.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months… Few Wall Streeters think the Fed will touch rates during the next three meetings. Note: In the lower chart, a 5% probability of change is a 95% probability the rate will stay the same.
Current Fed Funds Rate: 2.25%-2.50%
| AFTER FOMC MEETING ON: | CONSENSUS |
| Mar 20 | 2.25%-2.50% |
| May 1 | 2.25%-2.50% |
| Jun 19 | 2.25%-2.50% |
Probability of change from current policy:
| AFTER FOMC MEETING ON: | CONSENSUS |
| Mar 20 | 5% |
| May 1 | 9% |
| Jun 19 | 14% |
