For the week of April 19, 2010 – Vol. 8, Issue 16

INFO THAT HITS US WHERE WE LIVE Friday, March Housing Starts came in above expectations, UP 1.6%, at an annual rate of 626,000 units. Throw in revisions to February and starts were UP 8.9%. Single-family starts were down a tad for the month, but for all of Q1, they were UP at a 41% annual rate versus the Q4 average. New Building Permits for March also beat estimates, UP 7.5% to a 685,000 annual rate. Some experts feel we’re in the early stage of a substantial rebound in home building. And they point out that the pace of building is still slow enough that inventories can come down even as new construction increases.

As you know, the home buyer tax credit for qualified purchases requires a signed contract by April 30 and a closing by June 30. However, for members of the military, the Foreign Service and the intelligence community who have been on official extended duty, these dates have been extended one full year — to April 30, 2011, for a signed contract and June 30, 2011, for the closing. If you have clients in these services, please have them contact us right away to see if they meet the specific provisions to qualify for this valuable benefit.

>> Review of Last Week

FINE TILL FRIDAY… Right through Thursday, investors felt pretty good about the start of corporate earnings season, as the Dow soared past 11,000 for the first time in about two years. Then Friday the SEC announced civil-fraud charges against Goldman Sachs and one of its vice presidents for how they sold subprime securities. The Dow dropped 125 points but did end the week above 11,000. Goldman denies wrongdoing and some pundits say this is just the government putting pressure on Wall Street to kowtow to regulatory reform. We’ll see.

As far as corporate earnings go, they pretty much justified investors’ positive feelings. Intel, a bellwether for computers if not the whole tech sector, reported earnings that beat expectations and a bullish forecast. JPMorgan Chase and Bank of America bested expectations before the Goldman news spoiled the party for all the financials. Google, GE and UPS also did well with Q1 earnings.

Economic data revealed March CPI was up 0.1%, showing consumer prices are holding. Core CPI, excluding volatile food and energy, is up just 1.1% from a year ago. Consumers must be happy with prices, since Retail Sales shot up 1.6% in March and are up at an 11.7% annual rate for the last six months. Industrial Production is up at a 6.0% annual rate the last six months. Capacity Utilization is up to 73.2% for March from 68.3% last June, the fastest 9-month increase since 1984! Both the Empire State and the Philadelphia Fed indexes are also up, reflecting manufacturing growth in two key regions.

For the week, the Dow ended UP just 0.2%, to 11018.66; the S&P 500 was down just 0.2%, to 1192.13; while the Nasdaq went UP solidly 1.1%, to 2481.26.

Friday’s down day in the stock market sent investors to bonds, where prices moved up nicely heading into the weekend. The FNMA 30-year 4.5% bond we watch closed strongly UP 81 basis points for the week, at $100.50. After inching up four weeks in a row, average mortgage rates fell last week, as reported in Freddie Mac’s survey, and still remain at historically low levels!

>> This Week’s Forecast

FOCUS ON HOME SALES… The week begins with the Leading Economic Indicators Index on Monday giving us another broad read on the economy. Then Thursday brings weekly jobs data, the PPI numbers for inflation at the wholesale level and Existing Home Sales for March. Friday we wind up with Durable Goods and March New Home Sales. Q1 corporate earnings season will bring more major players reporting the data investors watch most closely.

>> 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 April 19 – April 23

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months The economy is recovering and investors are bullish, but fewer experts now think the Fed will start pushing rates up. That’s because Fed Chairman Bernanke was very cautious before Congress last week. To keep the recovery going, he wants to hold rates down as long as inflation remains in check. 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%

Probability of change from current policy: