Market Update for the Week of March 4, 2019


Home building took a breather in December, as Housing Starts dipped 11.2% for the month, to a 1.078 million annual rate. But looking at the 2018 versus 2017 annual average, starts are up 3.0% overall.

Building permits were up 0.3% in December, and are up 2.2% in 2018 versus 2017. About 187,000 units were authorized but not started, the most since 2007, while the number of units under construction stayed at a post-recession high.

The Pending Home Sales measure of contracts signed on existing homes gained 4.6% in January following their December dip. This points to more closed sales on existing homes come February. All good stuff.


HAPPY NEW YEAR… As February ended on Thursday, the S&P 500 posted the best two-month start to the year in more than 30 years, up 11.8%. It was also up for the week, along with the Nasdaq, while the Dow finished flat.

Traders liked the news that the U.S. and China could reach a deal in as little as two weeks, consumer confidence rose in February, PCE inflation stayed under 2%, and the Chicago PMI showed strong manufacturing sentiment.

Pundits itching for a recession had to be disappointed to see GDP growth came in at a better-than-expected 2.6% for Q4 and 2.9% for the year, making 2018 the best year of growth for this economic expansion.

The week ended with the Dow down 5 points, to 26026; the S&P 500 UP 0.4%, to 2804; and the Nasdaq UP 0.9%, to 7595.

Positive economic data drove bonds lower. The 30YR FNMA 4.0% bond ended down .33, to $101.81. Freddie Mac’s Primary Mortgage Market Survey reported the national average 30-year fixed mortgage rate unchanged after three weeks of declines. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.


The Census Bureau reports that the homeownership rate hit 64.8% in the last quarter, continuing a steadily increasing trend after sinking to a nearly all-time low in Q2 of 2016.


DECEMBER NEW HOME SALES, JANUARY STARTS REBOUND, JOBS GAIN… The government shutdown delayed some data, so this week we get December New  Homes Sales, expected up, then January Housing Starts rebounding hot on the heels of  last week’s disappointing December Starts. More Nonfarm Payrolls are forecast for February, as well as continued wage gains.

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… The central bankers keep saying they’ll be “patient” about hiking rates this year, and the Fed Funds Futures market continues to believe them. 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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Jim Passi
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