Market Update: Traders Unusually Calm by Ron Schulz

For the week of May 15, 2017 – Vol. 15, Issue 19

>> Market Update

QUOTATION OF THE WEEK… “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” –Winston Churchill, British statesman

INFO THAT HITS US WHERE WE LIVE … More consumers must be seeing opportunities in today’s housing market, since they grew more optimistic about it last month. Fannie Mae’s Home Purchase Sentiment Index went up 2.2 percentage points in April, and those who said now is a good time to buy a home rose five percentage points. A healthy jobs situation drives a healthy housing market, so it was very encouraging that Fannie also found 77% of consumers are more optimistic about the stability of their jobs, a 7% bump over the month before. And folks reporting their household income significantly higher than a year ago went up two percentage points.

Those good feelings do seem to be affecting home sales. The Mortgage Bankers Association Mortgage Applications Survey reported their weekly Purchase Index at its highest level since October 2015. And their Conventional Purchase Index reached its highest level since April 2009. A study from a national real estate site says the majority of homes are still priced below their pre-recession peaks, with just 34.2% surpassing those values. In line with this, the National Association of Home Builders reports 60.3% of new and existing homes that sold in the first quarter were affordable to families earning the U.S. median income of $68,000.

BUSINESS TIP OF THE WEEK… Make a list of the prospects you haven’t contacted in a month or more. Call, text or email them this week.

>> Review of Last Week

TECHS UP, OTHERS DOWN… Well, if you had money in tech stocks, you probably had a nice week in the markets again, as the tech-heavy Nasdaq logged its fourth straight weekly gain. Not so good for the blue-chip Dow or the broadly based S&P 500. Both suffered small setbacks after heading higher the last four weeks in a row. Centrist candidate Emmanuel Macron won Sunday’s presidential election in France, so Wall Street concerns about that country leaving the European Union evaporated. Traders in fact were unusually calm, as the CBOE Volatility Index (VIX), also known as the “investor fear gauge,” on Monday hit its lowest mark since December 1993.

One thing folks are fearing less is an aggressive rate-hike path from the Fed.
The President of the Chicago Fed said two more rate hikes this year may not be necessary after the Consumer Price Index (CPI) report showed inflation pressures moderated a bit in April. Retail Sales went up 0.4% for that month, while the March number was upwardly revised from -0.3% to 0.1%. Best of all, the University of Michigan Consumer Sentiment report revealed consumers had some of the most favorable real income expectations in twelve years. Even though their buying plans came in mixed, this is good news for the housing market.

The week ended with the Dow down 0.5%, to 20897; the S&P 500 down 0.3%, to 2391; and the Nasdaq UP 0.3%, to 6121.

The bond market reacted to the lower inflation outlook by pushing prices up and yields down on Treasuries, although the 30YR FNMA 4.0% bond we watch finished the week down .06, to $105.14. In Freddie Mac’s Primary Mortgage Market Survey for the week ending May 11, national average 30-year fixed mortgage rates stayed near lows for the year. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… Housing market activity is increasing. News Corp. reports its site “achieved record traffic in the [first] quarter,” and their digital real estate services enjoyed 16% growth the last nine months. 

>> This Week’s Forecast

BUILDERS ACTIVE, FACTORIES OK… Analysts are forecasting home building to continue its upward trek in April, with both Housing Starts and Building Permits nicely ahead for the month. Manufacturing should be good overall. The national outlook is expected to show Industrial Production and Capacity Utilization both up in April. And analysts expect the Philadelphia Fed Index to reveal factory activity in that region dipped just a bit, but is still in positive growth territory.

>> The Week’s Economic Indicator Calendar

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

Economic Calendar for the Week of May 15 – May 19

 Date Time (ET) Release For Consensus Prior Impact
May 15
08:30 NY Empire Manufacturing Index May 7.5 5.2 Moderate
May 16
08:30 Housing Starts Apr 1.255M 1.215M Moderate
May 16
08:30 Building Permits Apr 1.270M 1.260M Moderate
May 16
09:15 Industrial Production Apr 0.3% 0.5% Moderate
May 16
09:15 Capacity Utilization Apr 76.2% 76.1% Moderate
May 17
10:30 Crude Inventories 05/13 NA -5.25M Moderate
May 18
08:30 Initial Unemployment Claims 05/13 240K 236K Moderate
May 18
08:30 Continuing Unemployment Claims 05/06 NA 1.918M Moderate
May 18
08:30 Philadelphia Fed Index May 18.5 22.0 HIGH
May 18
10:00 Leading Economic Index (LEI) Apr 0.4% 0.4% Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… About three out of four expert observers feel sure we’ll see a quarter percent rate hike next month. But they expect the rate to stay there until September. Note: In the lower chart, a 74% probability of change is only a 26% certainty the rate will stay the same.

Current Fed Funds Rate: 0.75%-1.0%

After FOMC meeting on: Consensus
Jun 14 1.0%-1.25%
Jul 26 1.0%-1.25%
Sep 20 1.0%-1.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jun 14       74%
Jul 26       76%
Sep 20       84%
Ron Schulz
Senior Loan Officer
NMLS# 266128
13140 Coit Rd # 502
Dallas, TX 75240
Office: 214-346-5279
Mobile: 214-794-4014
Fax: 972-284-0715

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