Market Update for the week of October 9, 2017 – Vol. 15, Issue 40

QUOTATION OF THE WEEK…”The only person wise about the future is the person who keeps silent.” –John Kenneth Galbraith, Canadian-born American economist, public official and diplomat

INFO THAT HITS US WHERE WE LIVE… Home prices continued to rise in August, up 0.9% from July, in the latest Home Price Index and HPI Forecast from CoreLogic, a global information and analytics firm. Prices are up 6.9% from the year before, but are forecast to rise only 4.7% by August next year. Lack of inventory has stalled sales in many markets, but according to CoreLogic’s chief economist, “the tight inventory has actually helped stabilize price growth.” The First American Real House Price Index (RHPI) reported that “while affordability is lower than a year ago, it remains high by historic standards.” The RHPI is 38.4% below its housing boom peak of July 2006.
The RHPI adjusts for the impact of income and interest rate changes on consumer house-buying power. One property database noted “Falling interest rates in the third quarter provided enough of a cushion to counteract rising home prices in most U.S. markets.” Further helping affordability, the firm reported that “wage growth is outpacing home price growth in about half of all local markets so far this year.” We’re even seeing Millennials becoming a bigger factor in housing demand. A study by a national real estate site says Millennials put about $514 billion into the U.S. housing market in the past year, becoming the largest generation of home buyers.

BUSINESS TIP OF THE WEEK… Once a month, take time to evaluate what is and isn’t working in your business. Going forward, put 90% of your time against the top 50% of your revenue producing activities.

>> Review of Last Week
JOBS DOWN, WAGES AND STOCKS UP… The September jobs report showed Nonfarm Payrolls shrank by 33,000, but wages were up a solid 0.5%, so stocks went in the same direction. All three major market indexes scored weekly gains. Wages grew 2.9% year-over-year, the highest level since the financial crisis and a welcome increase over the 2.6% average wage gain of the past two years. Higher wages boost personal spending, the largest contributor to growth. The payroll decline was blamed on hurricanes Harvey and Irma, since workers in the affected areas couldn’t get to jobs. For example, restaurant and bar payrolls fell by 105,000, versus 20,000 gains in prior months.
In any case, payroll gains are averaging 148,000 a month this year, as 1.3 million jobs have been added the last nine months. The unemployment rate fell to 4.2%, a 16-year low, even though there are more workers, with the labor force participation rate now at 63.1%. The U-6 unemployment rate, which includes part-timers who would prefer full-time work and workers not actively looking, dropped to 8.3%, its lowest level since 2007. In addition, the ISM manufacturing index shot up to 60.8 in September, its highest level since 2004. And the ISM services index grew to a 59.8 read, its fastest pace since 2005. Finally, the August trade deficit was a lower-than-expected $42.4 billion.
The week ended with the Dow UP 1.6%, to 22774; the S&P 500 UP 1.2%, to 2549; and the Nasdaq UP 1.5%, to 6590.
The week saw modest losses in the bond market, as the wage growth spike in the jobs report firmed up expectations for a December rate hike. The 30YR FNMA 4.0% bond we watch finished the week down .09, to $105.13. Freddie Mac’s Primary Mortgage Market Survey for the week ending October 5 reported national average 30-year fixed mortgage rates went up a tick after holding steady the week before. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… Experts say living in a home more than seven years could lower home buyers’ exposure to market fluctuations. But among Millennials, only 37% plan to live in their next home more than six years.

>> This Week’s Forecast
RETAIL REBOUNDS, INFLATION MILD… After its negative dip in August, Retail Sales should bounce back into positive territory for September. Inflation doesn’t seem to be firing up to what the Fed wants to see for a rate hike. The Consumer Price Index (CPI) is forecast to edge up just a little, and Core CPI, which excludes volatile food and energy prices, is expected to stay at the same low level.
Today, in observance of Columbus Day, the U.S. Treasury market is closed but the stock market is open.

>> 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 9 – Oct 13
Date Time (ET) Release For Consensus Prior Impact
Oct 11 10:30 Crude Inventories 10/07 NA -6.0M Moderate
Oct 12 08:30 Initial Unemployment Claims 10/07 255K 260K Moderate
Oct 12 08:30 Continuing Unemployment Claims 09/30 NA 1.938M Moderate
Oct 12 08:30 Producer Price Index (PPI) Sep 0.4% 0.2% Moderate
Oct 12 08:30 Core PPI Sep 0.2% 0.1% Moderate
Oct 12 14:00 Federal Budget Sep NA $33.4B Moderate
Oct 13 08:30 Retail Sales Sep 1.5% -0.2% HIGH
Oct 13 08:30 Retail Sales ex-auto Sep 0.8% 0.2% HIGH
Oct 13 08:30 Consumer Price Index (CPI) Sep 0.6% 0.4% HIGH
Oct 13 08:30 Core CPI Sep 0.2% 0.2% HIGH
Oct 13 10:00 U. of Michigan Consumer Sentiment – Prelim. Oct 95.6 95.1 Moderate
Oct 13 10:00 Business Inventories Aug % 0.2% Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…Wall Street feels a quarter percent rate hike in December is pretty much a certainty, but that should be it for a while. Note: In the lower chart, a 2% probability of change is a 98% certainty the rate will stay the same.
Current Fed Funds Rate: 1.00%-1.25%
After FOMC meeting on: Consensus
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: Consensus
Nov 1 2%
Dec 13 91%
Jan 31 91%

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