Market Update for the Week of May 6, 2019

MARKET UPDATE

After dipping 15 months in a row, Pending Home Sales rebounded 3.8% in March, up in the West, Midwest, and South, down a tick in the Northeast. “Lower mortgage rates and more inventory won out,” as one economist explained.

Plus, home price gains slowed in the latest Case-Shiller Home Price Index. First American says, “declining mortgage rates, ongoing household income growth and moderating unadjusted home prices have boosted affordability.”

Their Real House Price Index reports that when consumer home buying power is factored in, home prices are 39% below their 2006 peak, and 14% below where they were in January 2000.

REVIEW OF LAST WEEK

THE FED BEHAVES, JOBS GO WILD… The Fed played nice and left rates alone, but April jobs staged a wild blowout–263,000 new Nonfarm Payrolls sent the Unemployment Rate down to 3.6%, a 50-year low.

More than half the country hadn’t been born when unemployment was last at that level. Investors’ renewed confidence in U.S. economic growth sparked risk-on sentiment that sent stocks up, though the Dow ended off a bit.

PCE (Personal Consumption Expenditures), the Fed’s favorite inflation measure, stayed well below their 2% target, while Q1 Productivity surprised to the upside, another worthy indicator of economic health.

The week ended with the Dow down 0.1%, to 26505; the S&P 500 UP 0.2%, to 2946; and the Nasdaq UP 0.2%, to 8164.

A fairly volatile week kept bond prices in check. The 30YR FNMA 4.0% bond ended down .03, to $102.66. After inching up a few weeks, the national average 30-year fixed mortgage rate fell 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?

Capital Economics reports “the rise in [personal] earnings growth to a 10-year high looks to have given landlords some latitude to increase rents,” up 3.7% from last year, to a 12-month high.

THIS WEEK’S FORECAST

INFLATION STAYS CALM… The Fed keeps an eye on inflation, and so do we. Happily, it’s forecast to stay under control. The Core Consumer Price Index (Core CPI) should remain within the central bank’s target range. The same goes for wholesale price inflation, measured by the Producer Price Index (PPI).

NOTE: Weaker 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… The market still sees no rate changes through the summer, though sentiment grows for a rate cut toward the fall. Note: In the lower chart, a 13% probability of change is an 87% probability the rate will stay the same.

Current Fed Funds Rate: 2.25%-2.50%

AFTER FOMC MEETING ON: CONSENSUS
Jun 19 2.25%-2.50%
Jul 31 2.25%-2.50%
Sep 18 2.25%-2.50%

 

Probability of change from current policy:

AFTER FOMC MEETING ON: CONSENSUS
Jun 19    13%
Jul 31    22%
Sep 18    38%
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Jim Passi
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