As both President Barack Obama and losing candidate Hillary Clinton said, we must come together to support the President-elect Donald Trump as he prepares to take on the world's most powerful and difficult job. Bond traders are viewing a Trump presidency as one that will create very positive economic growth and the economic growth may be accelerated due to lower tax rates, repatriation of corporate cash parked overseas, regulatory reform, a national budget etc., however it is not our job to speculate. The truth is that it is too early for anyone to come up with anything more than pure speculation on any specific issue.
However, it is comforting to note that most observers expect the overall recovery in housing to continue. Some even see it speeding up. Switching to present data, a home price index reports sellers in October priced their homes only 1.15% higher than the appraised value, the fourth month in a row that gap has narrowed. Finally, the National Association of Realtors expects existing home sales to end 2016 at a 5.36 million pace, their best since 2006.
Review of Last Week
When it came to predicting the election, pundits and pollsters and got it wrong. Wall Streeters who warned that a Trump victory would be negative for stocks also got it wrong. Once it became clear that Mr. Trump would win, Dow futures slid 800 points however when the market opened Wednesday, after an initial hiccup, stocks bumped up 257 points. Similar deal on Thursday, and even after a quieter Friday, the blue-chip Dow ended at a new all-time record high, posting its best week in five years. The broadly-based S&P 500 and tech-y Nasdaq also notched serious upward moves for the week.
Basically, investors realized that a Republican president and Congress could lead to lower tax rates, less regulation and fiscal stimulus around infrastructure spending, all positive moves for businesses, jobs and the economy. Let's hope so. What little economic data we got was okay, as Initial Unemployment Claims fell to 254,000 and Continuing Claims were up a bit but still down near the 2 million mark. University of Michigan Consumer Sentiment spiked up in its initial November reading but the Federal Deficit was -$44 billion in October. Finally, the election upset did not upset rate hike expectations, as a few Fed members said they were ready to move in December.
The week ended with the Dow UP 5.4%, to 18848; the S&P 500 UP 3.8%, to 2164; and the Nasdaq UP 3.8%, to 5237.
Friday, Veterans Day, the bond market was closed and it sure needed a breather after prices fell for two days straight as investor money shot back into surging stocks. The 30YR FNMA 4.0% bond we watch finished the week down .92, at $106.22. Freddie Mac's Primary Mortgage Market Survey for the week ending November 10 reported national average 30-year fixed mortgage rates edging up. Remember, mortgage rates can be extremely volatile, so call me direct at 303.668.3350 to help navigate through the process.
This Week’s Forecast
The important Retail Sales report is expected to show growth in October. That month's Housing Starts are also forecast up, heading toward 1.2 million. The Consumer Price Index of inflation is also predicted up, which is what the Fed wants to see for a December rate hike. But manufacturing still is not too solid, with the Philadelphia Fed Index looking to decline, although national Industrial Production and Capacity Utilization numbers should be slightly up.
Economic Calendar for the Week of Nov 14 – Nov 18
Nov 15 08:30 Retail Sales
Nov 15 08:30 NY Empire Manufacturing Index
Nov 15 10:00 Business Inventories
Nov 16 08:30 Producer Price Index
Nov 16 08:30 Core PPI
Nov 16 09:15 Industrial Production
Nov 16 09:15 Capacity Utilization
Nov 16 10:30 Crude Inventories
Nov 17 08:30 Initial Unemployment Claims
Nov 17 08:30 Continuing Unemployment Claims
Nov 17 08:30 Consumer Price Index
Nov 17 08:30 Core CPI
Nov 17 08:30 Housing Starts
Nov 17 08:30 Building Permits
Nov 17 08:30 Philadelphia Fed Index
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months.
Nothing in the results of the election or its aftermath has dissuaded economists from thinking the Fed would finally pull the trigger on a small rate hike in December, then stop there for a while.
Note: In the lower chart, an 81% probability of change is only a 19% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%
Mar 15 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Dec 14 81%
Feb 1 82%
Mar 15 84%
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