Market Update Las Campanas Santa Fe, NM

For the week of February 21, 2016 – Vol. 15, Issue 7

QUOTE OF THE WEEK… “Pessimism leads to weakness, optimism to power.” –William James, American philosopher and psychologist

INFO THAT HITS US WHERE WE LIVE … One could be pessimistic if one only paid attention to the headline numbers of some economic reports. Take Housing Starts, which declined 2.6% in January. But there was plenty to be optimistic about. First, January’s 1.246 million unit annual rate handily beat expectations. Next, the dip was all due to multifamily starts, which are volatile from month to month. Single family starts actually increased in January and are up 6.2% the past year. And all this follows a big surge for starts in December. Looking ahead, Building Permits were up 4.6% in January, to a 1.285 million annual rate, with single family permits up 11.1% over a year ago.

The National Association of Home Builders (NAHB) confidence index dipped a tick to a still high 65. The chairman explained: “Regulatory burdens remain a major challenge,” but added, “NAHB looks forward to working with the new Congress and administration to help alleviate some of the pressures that are holding small businesses back and making homes less affordable.” Their chief economist noted, “overall housing market fundamentals remain strong.” The Mortgage Bankers Association Builder Application Survey had mortgage applications for new home purchases up 22% in January and up 9.2% from a year ago. Now that’s cause for optimism.
>> Review of Last Week
ANOTHER WEEK, ANOTHER SET OF RECORDS… Friday ended with the three major stock indexes setting new records going into the holiday weekend. The blue chip Dow broke records seven sessions in a row, while the broadly-based S&P 500 posted its fourth straight weekly gain, heading up five of the first seven weeks of 2017. The markets are a leading indicator of the economy, and investors clearly see stronger growth coming from the new President’s proposed economic policies, including tax cuts, de-regulation and fiscal stimulus. Even Fed Chair Janet Yellen, a cautious forecaster, told Congress rates may have to go up faster because of a boost in economic growth.

Economic reports are indeed starting to portray a more vibrant economy. The Producer Price Index (PPI) showed wholesale prices heating up in January. Plus, the Core Consumer Price Index (Core CPI), excluding volatile food and energy prices, is now up 2.3% the past year. Overall Industrial Production tailed off in January, although manufacturing, excluding mining and utilities, was up 0.3%. The New York Empire Manufacturing Index surged from +6.5 to +18.7 in February, while the Philadelphia Fed Index of manufacturing jumped from 23.6 to 43.3. Retail Sales also gained more than expected, terrific, since consumer spending is the biggest driver of the economy.

The week ended with the Dow UP 1.7%, to 20624; the S&P 500 UP 1.5%, to 2351; and the Nasdaq UP 1.8%, to 5839.

With investors focused on stocks, bond prices suffered. But they recovered a bit on Friday as stocks digested some of their gains and money flowed back into bonds. The 30YR FNMA 4.0% bond we watch finished the week down just .03, to $104.92. In Freddie Mac’s Primary Mortgage Market Survey for the week ending February 16, national average 30-year fixed mortgage rates dipped for the second week in a row. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… The world’s largest bank isn’t based in New York, London, Singapore or Tokyo. It’s in Beijing. The Industrial and Commercial Bank of China (ICBC) is also the world’s largest public company on the Forbes Global 2000 list.
>> This Week’s Forecast
HOME SALES GAIN NICELY, FED MINUTES REVEALED… This week we see a complete picture of how the housing market did in January. Economists expect nice gains in both Existing Home Sales and New Home Sales. We’ll also get to examine the FOMC Minutes from the Fed’s February 1 meeting. Analysts will be looking for signs of when we’ll see the next rate hike.

U.S. stock and bond markets were closed yesterday in observance of Presidents’ Day
>> 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.