Market Update for the week of October 2, 2017 – Vol. 15, Issue 39

QUOTATION OF THE WEEK…”Always listen to experts. They’ll tell you what can’t be done, and why. Then do it!.” –Robert A. Heinlein, American science fiction writer

INFO THAT HITS US WHERE WE LIVE… Hurricane damage continues to appear in the housing market, the latest example being last week’s report that New Home Sales dropped 3.4% in August to a 560,000 unit annual rate. This monthly glitch sent sales 1.2% below where they were a year ago. But new home sales are counted at contract signing, not closing, and it’s likely Hurricane Harvey delayed many buyers ready to sign in August. It’s expected Hurricane Irma will have a similar effect on September’s New Home Sales numbers. The Census Bureau tells us the areas hit by the storms accounted for 14% of single-family homes authorized in 2016.
August’s Pending Home Sales measure of contract signings on existing homes, showed similar storm damage, slipping 2.6%. This points to a September sales skid, although analysts expect a Q4 rebound. And hey, consumer sentiment is rising. A National Association of Realtors survey reports: the share of homeowners who say now is a good time to sell hit 80%, a new high; the share of renters who think now is a good time to buy went from 52% in Q2 to 62% in Q3; and the share of households who feel the economy is improving grew to 57%, from 48% a year ago. The chief economist noted, “the typical household looks as [financially] healthy as it’s been since the recession.”

BUSINESS TIP OF THE WEEK… Studies show people prefer doing business with people they like, and what they like most from people in business is authenticity and honesty.

>> Review of Last Week
LOWER TAXES, HIGHER STOCKS… The long-awaited tax reform announcement from President Trump’s administration contained the anticipated features of significantly lower taxes for corporations and the middle class. The proposal promises to grow businesses and jobs, especially small businesses that support the majority of our payrolls, and to boost consumer spending which drives 70% of our economy. Wall Street felt this bodes well for faster economic growth, so stocks went higher. The three major indexes scored weekly, monthly and quarterly gains, with the S&P 500 hitting its 39th record high this year, and the Nasdaq posting its 50th new benchmark.
Even though lower taxes are not yet the law of the land, the economy steadily improves. The final GDP read showed economic growth in Q2 “exploded,” as one report put it, to a 3.1% annual rate. O.K.! We also had the Chicago PMI showing Midwest manufacturing surged in September, while the Philadelphia Fed index reported a similar boost in manufacturing activity in that region. Durable Goods Orders rose 1.7% in August. Personal Income and Personal Spending also improved. But the Fed’s favorite measure of inflation, Core PCE Prices, went up only 0.1% in August, and is up just 1.3% the past year, a long way from the central bankers’ 2% inflation target.
The week ended with the Dow UP 0.2%, to 22405; the S&P 500 UP 0.7%, to 2519; and the Nasdaq UP 1.1%, to 6496.
It was a down week again in the bond market as Fed Chair Janet Yellen gave a speech Tuesday that bolstered expectations for a December rate hike. The 30YR FNMA 4.0% bond we watch finished the week down .09, at $105.22. National average 30-year fixed mortgage rates were unchanged from the week before in Freddie Mac’s Primary Mortgage Market Survey for the week ending September 28. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… Since its inception, the University of Michigan Consumer Sentiment average reading is 85.4, during recessions, 69.3. It was 95.1 this September.
>> This Week’s Forecast

MANUFACTURING, SERVICES GROW, IRMA BLOWS DOWN NONFARM PAYROLLS… Monday we get the ISM Index of manufacturing activity for September. That sector continues to strengthen, with the read predicted to stay well north of 50, indicating solid expansion. The services sector, which generates most of our jobs, should also look good, with the ISM Services Index forecast well above 50. Friday’s September Employment Report is expected to deliver a smaller Nonfarm Payrolls number, thanks to Irma’s impact on the major Florida market. But Hourly Earnings should keep creeping up.

>> 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 2 – Oct 6
Date Time (ET) Release For Consensus Prior Impact
M
Oct 2 10:00 ISM Index Sep 57.8 58.8 HIGH
W
Oct 4 10:00 ISM Services Index Sep 55.3 55.3 Moderate
W
Oct 4 10:30 Crude Inventories 09/30 NA -1.8M Moderate
Th
Oct 5 08:30 Initial Unemployment Claims 09/30 265K 272K Moderate
Th
Oct 5 08:30 Continuing Unemployment Claims 09/23 NA 1.934M Moderate
Th
Oct 5 08:30 Trade Balance Aug -$42.6B -$43.7B Moderate
F
Oct 6 08:30 Average Workweek Sep 34.3 34.4 HIGH
F
Oct 6 08:30 Hourly Earnings Sep 0.2% 0.1% HIGH
F
Oct 6 08:30 Nonfarm Payrolls Sep 75K 156K HIGH
F
Oct 6 08:30 Unemployment Rate Sep 4.4% 4.4% HIGH

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…The Fed futures market is still looking for a quarter percent rate hike in December, but nothing more come January. 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 78%
Jan 31 78%

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