INFO THAT HITS US WHERE WE LIVE… Last Thursday the National Association of Realtors (NAR) came through with the encouraging report that sales of existing single-family homes and condominiums in Q4 of 2010 increased over Q3 in 49 out of 50 states — a 15.4% rise for the three-month period. However, sales were down 4.78% for the year, to an estimated 4.91 million, from their 5.16 million level the year before. Fueled by the homebuyer tax credit, that higher 2009 sales rate was deemed “unsustainable” in 2010 by the NAR.

Home prices, on the other hand, appear to be stabilizing. The NAR revealed that the national median existing single-family home price in Q4 of 2010 stayed essentially flat versus Q4 a year ago, coming in at $170,600. Here’s a good sign that prices are beginning to climb off the bottom: median prices in Q4 of 2010 rose in 78 of 152 metro areas compared to Q4 a year ago. The NAR’s chief economist added the pleasant thought, “An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth.” Let’s hope he’s right!

>> Review of Last Week

BULLS STILL IN CHARGE… The Wall Street bulls aren’t yet on a charge, but they’re definitely in charge, as they sent stocks higher for another week. The Dow-Jones Industrial Average stayed above the 12,000 threshold it crossed the prior week, the broadly-based S&P 500 shot up 1.4% and the tech-heavy Nasdaq saw a 3.1% gain, which would be impressive in any economic environment. Investors are feeling better about the economy, even though last week included some things which certainly would cause economic worry in more bearish settings.

We can start with Egypt, which was all over the news media, but had little visibility to the investment community. Before the market closed Friday, President Mubarek stepped down, as stocks tapered off with a 44-point gain on the day. We also had China increasing its lending rates to slow down inflation and its economy. Here on our shores tech giant Cisco surprised analysts with a disappointing outlook. Their downside guidance came because they see pressure on their profit margins in the coming year.

The Cisco situation was especially interesting in light of the fact that the main impetus for the strongly upside week came from some compelling corporate news. Walt Disney reported upside results that sent its stock to a record high. Coca-Cola met its earnings estimates on very strong volume growth. 3M boosted its quarterly dividend by 5% and told of a $7 billion share repurchase plan. A sparse week of economic indicators was highlighted by December’s trade report showing imports UP 12.8% and exports UP 13.7% in the last year. We also had initial jobless claims dropping to 383,000, their lowest level since July 2008, while continuing claims fell to 3.89 million. University of Michigan Consumer Sentiment showed an increase over the prior month. 

For the week, the Dow ended UP 1.5%, at 12,273; the S&P 500 was UP 1.4%, to 1,329; and the Nasdaq shot UP 3.1%, ending at 2,809.

Bond prices suffered a bit as stocks continued to soar, all thanks to the positive economic news. Yields were up on most bonds as prices dipped though not too severely. The FNMA 4.0% bond we watch ended down just 22 basis points for the week, closing at $97.00. Mortgage rates did increase, with Freddie Mac’s weekly survey of conforming mortgages showing national average fixed-rate mortgage rates up a bit but still in attractive territory, about the level they were at a year ago.

>> This Week’s Forecast

RETAIL, MANUFACTURING, HOME BUILDING, INFLATION… Happy Valentine’s Day! Whatever parts of the economy you love, this week will have something to say about it. Tuesday’s January Retail Sales are expected to continue their slow but steady growth, evidence the consumer is showing up to help out. February manufacturing should be up in both the New York Empire State Index and the Philadelphia Fed Manufacturing Index. January Industrial Production and factory Capacity Utilization are also projected to grow.

Home building is forecast to stay close to its present annual rate when we see Wednesday’s Housing Starts and Building Permits reports for January. Inflation should remain in check at the wholesale level in Wednesday’s January PPI report and also under control for us consumers in Thursday’s CPI numbers. We may gain insight into the Fed’s views on inflation, as well as the economy in general, when the Fed Meeting Minutes from January 26  are released on Wednesday.

>> 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 February 14 – February 18

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Observers now talk with greater certainty about a hike in the Funds Rate during the second half of the year, which some Fed members seem willing to do. But Fed Chairman Bernanke continues to assert that the Funds Rate will stay at its rock bottom level for a decent while longer. 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: