>> Market Update INFO THAT HITS US WHERE WE LIVE Last week saw the year finish on a high note for the housing market with Pending Home Sales for November coming in UP 3.5%, after this figure was expected to be down slightly for the month. This reading measures homes under contract, and therefore should point to an increase in closings in the January-February time frame.
The positive Pending Home Sales report was particularly welcome after Tuesday's Standard & Poor's/Case-Shiller Home Price Index for October. Their 20-City Composite Index registered a 0.8% price decline year-over-year. Some say this threatens a "double dip" in housing prices, an interesting observation now that the "double dip" recession threat has all but evaporated.
The negative talk ignored the facts that 4 of the 20 cities showed annual price GAINS and the index is still above its spring 2009 low. In addition, the Case-Shiller 10-City Index showed a year-over-year price gain. It's important to remember that real estate is local and these indexes average only 10 or 20 metro areas. Some analysts feel home prices have bottomed in most markets and a few intrepid observers are even predicting a strong comeback for housing in 2011! >> Review of Last WeekUP TWO YEARS IN A ROW... Investors have been encouraged by recent signs of improvement in the economic situation. Not surprisingly, the stock markets closed out the year UP for the second year in a row. For 2010, the Dow Jones Industrial Average posted an 11% gain. The broader-based S&P 500 index ended UP 12.8%, and the Nasdaq Composite moved UP a hefty 16.9% from where it was 12 months ago. For the week, all three indexes were basically flat with light trading volumes.
Not all the economic signs were rosy, however, as Consumer Confidence for December dropped to 52.5 from its 54.1 level in November. This was also well below the consensus estimate. As covered above, the October Case-Shiller home price index had its disappointments as well, although November Pending Homes Sales numbers gave us hope about a boost in closings in the next month or two.
Other good news included the Chicago PMI index for December, unexpectedly UP well above estimates, reaching 68.6 versus November's 62.5. This indicates continued strong growth in manufacturing in that part of the country. Initial weekly jobless claims dropped below the 400,000 level, coming in way better than consensus forecasts, at 388,000. This was well under the prior week's 420,000 initial claims and continues the downward trend of the last few weeks. We're of course still not where we should be with jobs, although finally moving in the right direction.
For the week, the Dow ended up 5 points, at 11,578; the S&P 500 edged up a point, to 1,258; and the Nasdaq was off 0.5%, ending at 2,653. (Note: we've dropped the decimals and rounded the indexes to their nearest whole numbers.)
The bond market swung up and down like a yo-yo all week. But the FNMA 30-year 4.0% bond we watch ultimately finished UP 101 basis points, closing at $99.18. Average fixed-rate mortgage rates also ticked up, but stayed "incredibly low," according to Freddie Mac's weekly survey of conforming mortgages. Their chief economist observed that for the year, 30-year fixed mortgage rates reported "...the lowest annual average since 1955, when the average price of a home was $22,000." But with possible rate increases, people who want to buy or refinance should not waste time. >> This Week’s ForecastWHAT THE FED SAID AND EMPLOYERS DID... We start the new year by finding out Tuesday what the Fed said about the economic situation as recorded in the Minutes of their December 14 FOMC meeting. Subsequently, we'll find out what employers did about creating new jobs in Friday's December Employment Report. An increase of 132,000 jobs is expected, although that won't be enough to lower the unemployment rate, with new people coming into the labor force.
We'll also have a look at the health of US manufacturing in Monday's ISM Index and the non-manufacturing sector in Wednesday's ISM Services Index. Both should remain comfortably above 50, indicating continued business expansion. Hopefully, a happy new year begins. >> The Week’s Economic Indicator CalendarWeaker 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 January 3 – January 7 Date | Time (ET) | Release | For | Consensus | Prior | Impact | M
Jan 3 | 10:00 | ISM Index | Dec | 57.3 | 56.6 | HIGH | Tu
Jan 4 | 14:00 | FOMC Minutes | 12/14 | NA | NA | HIGH | W
Jan 5 | 10:00 | ISM Services | Dec | 55.7 | 55.0 | Moderate | W
Jan 5 | 10:30 | Crude Inventories | 1/1 | NA | -1.26M | Moderate | Th
Jan 6 | 08:30 | Initial Unemployment Claims | 1/1 | 405K | 388K | Moderate | Th
Jan 6 | 08:30 | Continuing Unemployment Claims | 12/25 | 4.070M | 4.128M | Moderate | F
Jan 7 | 08:30 | Average Workweek | Dec | 34.3 | 34.3 | HIGH | F
Jan 7 | 08:30 | Hourly Earnings | Dec | 0.1% | 0.0% | HIGH | F
Jan 7 | 08:30 | Nonfarm Payrolls | Dec | 132K | 39K | HIGH | F
Jan 7 | 08:30 | Unemployment Rate | Dec | 9.8% | 9.8% | HIGH |
>> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months Economists still expect the Fed to keep the Funds Rate at its super low level for the first few months of the new year. Things could change in the second half, with a strengthening economy or the threat of inflation. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: | Consensus | Jan 26 | 0%–0.25% | Mar 15 | 0%–0.25% | Apr 27 | 0%–0.25% |
Probability of change from current policy:
After FOMC meeting on: | Consensus | Jan 26 | <1% | Mar 15 | <1% | Apr 27 | 2% |
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