We were certainly traveling on happy trails last week following two upward trending housing market reports.
September New Home Sales went up 3.1%, compared to a year ago, sales are up 29.8%. If that doesn't make you happy, consider this - after experiencing a summer lull in August, new home sales in September posted their fastest sales since 2008 excluding July's excellent numbers.
The biggest obstacle to higher sales remains low inventories. As those slid in September, it shows builders are falling behind demand so there is a lot of room to increase construction activity.
The other happy housing report? The Pending Home Sales index of contracts signed on existing homes was up 1.5% in September following its August dip. Combined readings from recent months indicate existing home sales, in coming months, should continue the gains made in September. The index is 2.4% ahead of September last year, this is the 25th month in a row of year-over-year increases. The national Case Shiller home price index was up 0.6% in August and up 5.3% versus a year ago. The FHFA index of prices for homes bought with conforming mortgages gained 0.7% in August and 6.4% over a year ago. This should make more homeowners happy enough to list their properties.
Review of Last Week
For four days, stocks traded in a fairly narrow range, then came Friday's surprises. The first was the slightly positive surprise that the first estimate for Q3 GDP growth came in at a 2.9% annual rate. This follows dismal Q2 GDP growth of just 1.4% and was the first time in two years that a quarterly first estimate of GDP surprised to the upside. All this was overshadowed by another surprise - the report the FBI will reopen its investigation into Hillary Clinton's emails. Political turmoil of any kind does not play well on Wall Street and as a result, ended lower on the day, with the S&P 500 and the Nasdaq finishing down for the week, the Dow barely up.
You would think Wall Street would be used to uncertainty by now having weathered eight years of up and down economic reports. Last week continued the exercise with housing numbers beating expectations, just like that estimate for Q3 GDP but then we had the disappointments. Durable Goods Orders were down in September, while October Consumer Confidence fell noticeably short of estimates and lest we think the latter report was an aberration - it was followed Friday by the Michigan Consumer Sentiment index getting revised down for its final reading for October, ending up below its lackluster September level.
The week ended with the Dow UP 0.1%, to 18161; the S&P 500 down 0.7%, to 2126; and the Nasdaq down 1.3%, to 5190.
Bond traders did not seem to know whether to play off the positive or the weaker economic data, as Treasuries gained, while other issues dipped a bit. The 30YR FNMA 4.0% bond we watch finished the week down .10, at $107.06. National average 30-year fixed mortgage rates slid back from last week's blip up, according to Freddie Mac's Primary Mortgage Market Survey for the week ending October 27.
This Week’s Forecast
Expect to see Personal Spending making a move up in September. Core PCE Prices should show inflation at a mild 0.1%, not what the Fed wants to see (they need it higher to hike rates!.) This week's FOMC Rate Decision is expected to keep rates on hold. Manufacturing is also on hold with the Midwest Chicago PMI down a bit and the national ISM Index up a little although both still in expansion territory. September Nonfarm Payrolls are predicted to stay well below 200,000, barely more than we need to cover population growth.
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 Oct 31 – Nov 4
Oct 31 08:30 Personal Income
Oct 31 08:30 Personal Spending
Oct 31 08:30 Core PCE Prices
Oct 31 09:45 Chicago PMI
Nov 1 10:00 ISM Index
Nov 2 10:30 Crude Inventories
Nov 2 14:00 FOMC Rate Decision
Nov 3 08:30 Initial Unemployment Claims
Nov 3 08:30 Continuing Unemployment Claims
Nov 3 08:30 Productivity - Preliminary
Nov 3 10:00 ISM Services
Nov 4 08:30 Average Workweek
Nov 4 08:30 Hourly Earnings
Nov 4 08:30 Nonfarm Payrolls
Nov 4 08:30 Unemployment Rate
Nov 4 08:30 Trade Balance
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
Last week's higher first estimate of Q3 GDP made no difference to Fed watchers who don't see the central bank touching rates this week but December looks like a different story.
Note: In the lower chart, an 8% probability of change is a 92% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Nov 2 0.25%-0.50%
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Nov 2 8%
Dec 14 74%
Feb 1 76%
Have a great week!
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