This morning, you have to give a nod to those who say the bull market is cooling off.
We've now had three losing weeks in a row for the blue-chip Dow and the broadly based S&P 500, while the tech-heavy Nasdaq has given us four down weeks.
Traders saw another batch of first quarter corporate earnings, and with 92% of the S&P 500 companies reporting, earnings are down 7.6% year-over-year. Investors were also worried about crude oil prices moving lower and Chinese banks pulling back on lending. But those clouds had a silver lining: Fed Governor Lael Brainard indicated the "challenging" global environment keeps her from voting for a rate hike.
Retail Sales in April took their biggest jump in a year, up a very strong 1.3%. Curiously, this report contrasted sharply with disappointing earnings and forecasts from a couple of flagship brick-and-mortar stores. But a big part of April's gain came from online and mail-order retailers, so the contradictory data can be explained by shifting channels, rather than slowing sales. Wages are gradually improving, allowing consumers to spend more at retail--and on housing! They're clearly feeling better, as the Michigan Consumer Sentiment index shot up surprisingly to 95.8 in May from its disappointing 89.7 in April.
The week ended with the Dow down 1.1%, to 17540; the S&P 500 down 0.5%, to 2047; and the Nasdaq down 0.4%, to 4719.
The week's stock rout sent investor money to the safe haven of bonds. The 30YR FNMA 4.0% bond we watch finished the week UP .02, at $106.91. In Freddie Mac's Primary Mortgage Market Survey for the week ending May 12, national average 30-year fixed mortgage rates fell for the third week in a row, to their low point for the year. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
This Week’s Forecast
This week's economic reports are expected to show two major components of the housing market moving in the proper direction. Housing Starts and Existing Home Sales should show gains for April. But inflation is forecast to be up too, as measured by the Consumer Price Index (CPI) and Core CPI, which takes out volatile food and energy prices. Wednesday's release of FOMC Minutes from the Fed's last meet will have pundits prognosticating when we'll see the next rate hike, as if anybody knows.
This 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 16th – May 20th
May 16th 08:30 NY Empire Manufacturing Index
May 17th 08:30 Consumer Price Index (CPI)
May 17th 08:30 Core CPI
May 17th 08:30 Housing Starts
May 17th 08:30 Building Permit
May 17th 09:15 Industrial Production
May 17th 09:15 Capacity Utilization
May 18th 10:30 Crude Inventories
May 18th 14:00 FOMC Minutes
May 19th 08:30 Initial Unemployment Claims
May 19th 08:30 Continuing Unemployment Claims
May 19th 08:30 Philadelphia Fed Index
May 19th 10:00 Leading Economic Index (LEI)
May 20th 10:00 Existing Home Sales
This week’s scheduled economic reports include the National Association of Home Builders Housing Market Index and Commerce Department reports on housing starts and building permits issued. Monthly reports on inflation are also expected.The National Association of Realtors® will release its report on existing home sales. Weekly reports on new jobless claims and mortgage rates will also be released.
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months:
There may be more conversation in the media about a June rate hike, but most economists don't see the Fed touching rates through September.
Note: In chart below, a 4% probability of change is a 96% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
June 15th 0.25%-0.50%
July 27th 0.25%-0.50%
September 21st 0.25%-0.50%
Probability of change from current policy:
After FOMC meeting on:
June 15th 4%
July 27th 20%
September 21st 39%
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