Last Wednesday we got the nice surprise that New Home Sales unexpectedly shot up 18.9% in September, hitting a 667,000 unit annual rate, a solid 17% ahead of where they were a year ago. The median price was up just 1.6% from a year ago so builders are paying attention to affordability. September's gain was the fastest monthly pace in the last 25 years and the highest annual level since 2007. Keep in mind new home numbers are volatile month-to-month and a big part of the gain came from the South, where hurricanes hit sales hard the month before, however, many analysts expect the upward trend to continue.
Thursday we learned Pending Homes Sales were unchanged in September, leaving them 3.5% below their level the year before, according to the National Association of Realtors (NAR). This measure of contracts signed on existing homes foretells a drop in those sales, though that should be offset by the strong New Home Sales reported above. The NAR chief economist said, "most of the country except for the South, did see minor gains." activity lags "because new listings aren't keeping up with what's being sold." Nonetheless, the Mortgage Bankers Association's chief economist forecasts purchase mortgage volume to go up 7% next year.
Review of Last Week
The week on Wall Street began with investors taking profits on Monday following the prior week's record highs, but, by the end of the week, an impressive batch of earnings from technology companies pushed the S&P 500 and the Nasdaq to new record highs. The good news went beyond the geeks - last week more than 35% of S&P 500 companies reported Q3 earnings, and, as one analyst put it, "announcements so far have been fairly solid, providing the support for the recent market gains." Though not setting a record, the Dow finished ahead for the seventh week in a row, its longest winning streak in almost three years.
Even better than the earnings was the economic data, starting with the unexpected surge in New Home Sales covered above, and ending on Friday when the GDP - Advanced read showed the economy growing in the third quarter at a 3.0% annual rate. This is up 2.3% from a year ago and the second straight quarterly read at 3% or above. This growth came despite two hurricanes, expected to push some economic activity into the fourth quarter. Finally, with the U.S. economy starting to pick up the pace, it shouldn't be too surprising that the University of Michigan reported consumer sentiment in October at the strongest level in 13 years.
The week ended with the Dow UP 0.5%, to 23434; the S&P 500 UP 0.2%, to 2581; and the Nasdaq UP 1.1%, to 6701.
A down week in the bond market finished on a bit of an upswing prompted by reports that President Trump is leaning toward appointing someone who favors low rates as the new head of the Fed. The 30YR FNMA 4.0% bond we watch finished the week down .07, at $104.81. After falling the week before, national average 30-year fixed mortgage rates ticked up in Freddie Mac's Primary Mortgage Market Survey for the week ending October 26.
Where are interest rates headed?
This Week's Forecast
This week features a pile of data. Inflation measured by Core PCE Prices should be up mildly and Personal Spending up considerably. The Employment Cost Index is expected to show labor costs up in Q3, another harbinger of higher inflation. Manufacturing is forecast to continue expanding by both the Chicago PMI and the national ISM Index. Finally, they're predicting the October jobs report will show Nonfarm Payrolls exploding but Hourly Earnings up only a bit.
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 October 30th - November 3rd
Oct 30 08:30 Personal Income
Oct 30 08:30 Personal Spending
Oct 30 10:00 Core PCE Prices
Oct 31 08:30 Employment Cost Index
Oct 31 09:45 Chicago PMI
Oct 31 10:00 Consumer Confidence
Nov 1 10:00 ISM Index
Nov 1 10:30 Crude Inventories
Nov 1 14:00 FOMC Rate Decision
Nov 2 08:30 Initial Unemployment Claims
Nov 2 08:30 Continuing Unemployment Claims
Nov 2 08:30 Productivity - Prelim.
Nov 2 08:30 Unit Labor Costs
Nov 3 08:30 Average Workweek
Nov 3 08:30 Hourly Earnings
Nov 3 08:30 Nonfarm Payrolls
Nov 3 08:30 Unemployment Rate
Nov 3 08:30 Trade Balance
Nov 3 10:00 ISM Services
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
The Fed futures market doesn't expect a rate hike on Wednesday, but sees a quarter percent gain in December and no change in January.
Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 1.00%-1.25%
After FOMC meeting on:
Nov 1 1.00%-1.25%
Dec 13 1.25%-1.50%
Jan 31 1.25%-1.50%
Probability of change from current policy:
After FOMC meeting on:
Nov 1 1%
Dec 13 98%
Jan 31 98%
Where are interest rates headed?
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