Market Update for the week of October 23, 2017 -Vol. 15, Issue 42

QUOTATION OF THE WEEK…”You can’t turn back the clock, but you can wind it up again.” –Bonnie Prudden, American physical fitness pioneer, expert rock climber and mountaineer

INFO THAT HITS US WHERE WE LIVE… Housing Starts were predicted to dip in September, just not as much as they actually did. Starts fell 4.7% for the month, to a 1.127 million annual rate, although they’re expected to bounce back sharply the next few months. The drop was blamed on a 5.1% slide in normally volatile multi-family starts, plus a 15.3% decline in single-family starts in the South after Hurricanes Harvey and Irma. Single-family starts gained in every other region and are up 6.1% over a year ago. The National Association of Home Builders confidence index rebounded from September’s reversal, to a healthy 68 read for October.
Friday, the National Association of Realtors (NAR) reported that Existing Home Sales unexpectedly headed up 0.7% in September, to a 5.39 million annual rate. This follows three straight monthly declines, plus the NAR chief economist opined, “sales activity likely would have been somewhat stronger if not for the fact that parts of Texas and South Florida…saw temporary but notable declines.” Those, again, were from the hurricanes. Sales, however, are down 1.5% from a year ago and inventories remain low in many regions. Hopefully, as more Baby Boomers enter the rental market (see DID YOU KNOW below), more homes will be offered for sale.

BUSINESS TIP OF THE WEEK… It’s not a tragedy if you don’t succeed, as long as you “fail forward.” Don’t get discouraged. Instead, make an effort to learn at least one thing from the failure that moves you closer to your goal.

>> Review of Last Week
BREAKING RECORDS ON A BUDGET… Thursday, the Senate passed a budget blueprint for the next fiscal year. Friday, investors sent the three main stock benchmarks to simultaneous record closes for the 24th time in 2017. Why? Analysts say the budget blueprint is a key step on the way to the tax cuts many investors feel are vital to keeping the bull market going. Stocks are also getting plenty of help from rising corporate earnings. We’ll see the bulk of these in the next two weeks, but of the companies who’ve reported, three out of four beat expectations. Add in some very decent economic data, and the Dow hit 23,000 for the first time in history.
In addition to the surprise gain in Existing Home Sales covered above, we saw Industrial Production head up 0.3% in September, with Capacity Utilization reaching 76%. Staying with the manufacturing sector, the New York Empire State index shot up from 24.4 in September to 30.2 in October. The Philly Fed index, measuring sentiment among East Coast manufacturers, went from +23.8 to +27.9 in October, indicating further optimism. The best news was on the employment front, where Initial Unemployment Claims dropped by 22,000 to 222,000, the lowest level in more than 40 years. Plus, Continuing Claims diminished by 16,000, to 1.89 million.
The week ended with the Dow UP 2.0%, to 23329; the S&P 500 UP 0.9%, to 2575; and the Nasdaq UP 0.4%, to 6629.
It was a down week in the bond market, with rallying stocks and good economic news creating bad news, as usual, for bond prices. The 30YR FNMA 4.0% bond we watch finished the week down .37, at $104.88. In Freddie Mac’s Primary Mortgage Market Survey for the week ending October 19, national average 30-year fixed mortgage rates ticked down after edging up two weeks in a row. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… From 2009 to 2015, the share of renters over 55 years old shot up 28%, while the share aged 34 or younger increased just 3%. That’s right, Baby Boomers, not Millennials, are entering the rental market in droves.

>> This Week’s Forecast
NEW HOME SALES BLOWN DOWN, CONSUMERS STAY UPBEAT… Hurricanes Harvey and Irma are expected to inflict damage on New Home Sales too, though there’s only a 5,000 unit falloff forecast for September. Consumers remain optimistic, however, as the University of Michigan Consumer Sentiment – Final read for October is predicted to land at a very high 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 Oct 23 – Oct 27
Date Time (ET) Release For Consensus Prior Impact
Oct 25 08:30 Durable Goods Orders Sep 1.3% 1.7% Moderate
Oct 25 08:30 Durable Goods Orders – ex transportation Sep 0.5.% 0.2% Moderate
Oct 25 10:00 New Home Sales Sep 555K 560K Moderate
Oct 25 10:30 Crude Inventories 10/21 NA -5.7M Moderate
Oct 26 08:30 Initial Unemployment Claims 10/21 235K 222K Moderate
Oct 26 08:30 Continuing Unemployment Claims 10/14 NA 1.888M Moderate
Oct 26 10:00 Pending Home Sales Sep NA -2.6% Moderate
Oct 27 08:30 GDP – Advanced Q3 %2.4 3.1% Moderate
Oct 27 10:00 U. of Michigan Consumer Sentiment – Final Oct 101.0 101.1 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… Virtually no one on Wall Street expects a rate hike at the Fed’s November 1 meeting, but almost everyone sees a quarter percent rise at the December 13 confab. 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 93%
Jan 31 94%

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