The DOW just hit 25,000 for the first time in its 132 year history. Ahead of tomorrow’s Jobs Report, the ADP Payroll Report shows Private Payrolls rise by 250,000, which is 24% higher than expectations. The 10 Year Note opened this morning at 2.48%, a level not seen since last March. The markets are rolling ahead with little hesitation.
Looking ahead to a few forecasts, the Atlanta Fed sees GDP at 3.2% to end the year. The Mortgage Bankers Association anticipates the 30 year mortgage rate to end the year at 4.6% and the National Association of Realtors expects 4.5% for the same criteria. If the economy maintains its current momentum, rates will blow by those estimates fairly handily.
There are only ten more days until Christmas. Fortunately, the charts show that the cost of purchasing those meaningful expressions of love has risen less that the average paycheck, just in case you don’t have an army of elves helping you out this year.
This week the Fed raised their Funds Rate by 0.25%, making that index now 1.5%. Three percent is tacked onto that rate to give a Prime Rate of 4.5%. and banks tack loads of profit on top of Prime to make their credit card offering rates significantly higher still. If you didn’t know any better, you’d think that the holidays were sponsored by Master Card and Visa. Borrowing on a credit card is not going to get any cheaper either if the Fed adds another 0.75% in 2018 as they hope. So be wise with your Christmas giving, and if you need some help making that debt more manageable, mortgage rates are now less than even Prime :).
Have a wonderful, festive, loving week!
The uncertainty of the future level of taxation in the United States is still being debated by Congress today. 20%, 30%, 50%? Corporate, personal, long term, and estate rates? Will it pass? Will we need to raise the debt ceiling? Chinese take-out or pizza delivery for lunch? Pretty serious stuff. Mortgage rates have held fairly steady for the last ten weeks while these matters have echoed around the hallowed halls that house our elected officials. In the meantime, the stock market continues to soar to new highs every other day.
Though you wouldn’t know it by the weather, it’s now December, and that means Christmas shopping is on everyone’s mind. American consumers did a good job of budgeting last month: Personal Spending rose 0.3%, just under the 0.4% rise in Personal Income. It’s always a good practice to spend less than you earn. Remember that this month 🙂
It feels like the winds of change could soon be blowing, and I am not just referring to the weather. The outcome of the new and allegedly improved tax code, the path of the stock market, and the Fed decision to raise rates in 12 days may be enough to kick mortgage rates back up above 4.0%
Goldman Sachs this morning warned that “pain” is coming to the stock market. Low paying bonds and cheap borrowed money have produced an average valuation that’s higher that at any point since 1900 (the year, not the index). That’s a long time ago. And speaking of “a long (long) time” and an Elton John song with those lyrics, “Rocket Man” Kim Jong-un is testing an intercontinental ballistic missile that has the ability to reach the United States.
These two points should be enough to pull money into bonds and lower interest rates. However, Pending Home Sales for the month jumped from a 0.6% gain to a 3.5% gain, and a 2nd Q3 GDP reading showing 3.3% growth in the U.S. are keeping traders hands off the “sell” button for now.
Prices on oil, stocks, and bonds are all “falling” this morning. The Consumer Price Index has also fallen from 2.2% to 2.0% on a year-over-year basis. Retail Sales on the other hand rose by 0.1%–which is great if your prices have dropped.
With a new Fed Chair, and the top three slots at the Federal Reserve most likely changing hands in the next 12 months, we may start seeing the role of the Central Bank change. It’s hard to say what they’ll do, and what impact that might have for interest rates and the U.S. economy in general. Sometimes, big and powerful can be a good thing, and at times it’s better to take a less imposing position. From my perspective, over the last six years or so, the Fed has taken on that subordinate role, and let the economy grow back its legs, as it were. I think that they’ve done a decent job of getting us out of a recession. I know that it hasn’t been as swift or as powerful as everyone, myself included, expected. Heroes come in all shapes and sizes.
An unyielding, heartfelt salute to those who serve our country in the military. They keep me safe and I am grateful for their service. Happy Veterans Day.
Despite turmoil in world affairs, and notwithstanding the prolonged stagnation to see improvement in many key economic indicators, American consumers are feeling pretty good about spending their hard earned cash. We are a resilient bunch–short sighted at times to be sure, but able to maintain positivism all the same. The Consumer Sentiment report this morning shows the index popped just over 100.0 for only the second time since the 1990’s. The other time was in 2004 when (relatively) low interest rates helped a similar euphoric attitude toward spending obscene amounts of money to flourish.
I believe that we can learn from history and the boom-to-bust pattern concerns me as a conservative provider of food and shelter for a wife and four hungry boys. As an arm-chair economist though I say bring on the spending! The holiday season is just around the corner and the men and women in uniform need a vibrant country to protect. God bless America, whatever lies around the corner.
Bond prices are starting to slip back down after hitting the ceiling of resistance yesterday. The technical picture has rates jumping back up 1/8% over the next week, and the 30 day rollover after the close of trading this afternoon will make the chart look even worse. Watch for traders to start shorting Bonds. The good news is that this purely technical move will be easily reversed by real economic data–or it could be perpetuated…
It’s been a year since President Trump was elected. The DOW is up 28% from this time last year and doesn’t seem to be slowing down. It’s difficult to argue against the speed and strength of a freight train in motion. In the Bond market however, The 2-10 year Treasury yield curve is at its lowest point in a decade, which is a sign of little growth and upcoming weakness. If (when?) the Fed’s hike the overnight rate another 0.25% next month, that will flatten out the curve even further.
Core Logic’s Home Price Index shows an average 0.9% appreciation rate across the country last month, raising the year-over-year jump to an even 7.0%. The same entity anticipates a 4.7% price jump over the next 12 months.
Mortgage Bonds have bounced back up against a ceiling of resistance that will prove a difficult barrier to pierce, so don’t expect rates to sink any lower. Stocks are taking a breather today after yet again seeing the indices reach all-time-highs again yesterday.