For the week of May 3, 2010 – Vol. 8, Issue 18
|>> Market Update INFO THAT HITS US WHERE WE LIVE Last Tuesday’s S&P Case-Shiller home price index reported that homes in 20 major U.S. cities were WORTH MORE in February 2010 than they were in February 2009 — the first year-to-year INCREASE in values in over three years! The good news of this 0.6% annual gain was tempered by a small monthly decline in prices from January to February. But remember, February’s unusually stormy weather make it a tough month for real estate in much of the country. ??Corroborating Case-Shiller, a second home price index also showed a national gain in home prices for February 2010 compared to February 2009. This was the First American CoreLogic HPI, an index including distressed sales, which reported a home price increase of 0.3% for the year.
>> Review of Last Week
IT’S ALL GREEK TO WALL STREET… The stock market ended down after a volatile week whose off-putting news ranged from Greece to Washington to the Gulf of Mexico. Greek bonds were downgraded to junk, while Portugal and Spain got downgrades too. Goldman Sachs execs were grilled in Washington, then Friday came news of a federal criminal probe into the firm. Finally, energy stocks got hammered following a terrible oil spill in the Gulf of Mexico.
In spite of these unfortunate events, the economy continued to offer up signs of recovery. On Tuesday, following the Case-Shiller annual home price INCREASE reported above, we got a big boost in the Conference Board’s consumer confidence number for April. The 57.9 reading put it at its highest level since August 2008. The week ended with a great Chicago PMI measure of Midwest manufacturing. Then Advanced Q1 GDP came in UP 3.2%, marking the third straight quarter of economic growth, with that all-important consumer spending UP 3.6%!
Things weren’t too shabby on the corporate earnings front either. Of the 170 S&P 500 companies reporting Q1 results, 130 of them beat earnings-per-share estimates. Even better, 106 of these companies topped revenue expectations, showing that strong earnings performance didn’t just come from belt-tightening.
For the week, the Dow ended down 1.7%, to 11008.61; the S&P 500 was down 2.5%, to 1186.69; and the Nasdaq was off 2.7%, to 2461.19.
Down-sliding stocks and off-putting news at home and abroad sent investors scurrying to bonds which sent prices up even after Friday’s positive economic reads. The FNMA 30-year 4.5% bond we watch closed UP 75 basis points for the week, ending at $100.84. National average mortgage rates are holding steady, still at historically low levels, according to Freddie Mac’s weekly survey.
>> This Week’s Forecast
INCOME, INFLATION, JOBS… A slight gain in Personal Income is expected today, along with a tick up in the PCE inflation measure. ISM Manufacturing and ISM Services numbers should show those sectors continuing to expand. Tuesday, March Pending Home Sales will be interesting, as we’ll see if lots of people signed contracts to get in on the tax credit. The week’s biggie is Friday’s April Employment Report. Jobs should continue to be added at a modest pace, although the monthly increase in workforce will probably keep the Unemployment Rate level.
>> 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 May 3 – May 7
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months Coming out of last week’s FOMC meeting, the Fed didn’t change its policy to keep interests rates at the current level for an “extended period.” Economists are now pushing off any rate hike to the end of this year. 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: