Market Update for the week of October 30, 2017 – Vol. 15, Issue 43

QUOTATION OF THE WEEK…”When love and skill work together, expect a masterpiece.” –John Ruskin, English writer and artist

INFO THAT HITS US WHERE WE LIVE… Last Wednesday we got the nice surprise that New Home Sales unexpectedly shot up 18.9% in September, hitting a 667,000 unit annual rate, and a solid 17% ahead of where they were a year ago. The median price was up just 1.6% from a year ago, so builders are paying attention to affordability. September’s gain was the fastest monthly pace in the last 25 years and the highest annual level since 2007. Sure, new home numbers are volatile month-to-month, and a big part of the gain came from the South, where hurricanes hit sales hard the month before. But many analysts expect the upward trend to continue.
Thursday we learned Pending Homes Sales were unchanged in September, leaving them 3.5% below their level the year before, according to the National Association of Realtors (NAR). This measure of contracts signed on existing homes foretells a drop in those sales, though that should be offset by the strong New Home Sales reported above. The NAR chief economist said, “most of the country except for the South, did see minor gains.” But activity lags “because new listings aren’t keeping up with what’s being sold.” Nonetheless, the Mortgage Bankers Association’s chief economist forecasts purchase mortgage volume to go up 7% next year.

BUSINESS TIP OF THE WEEK… Put your focus on the high-value tasks, many of which only you can do. Delegate the low-value tasks to others on your team, or outsource them.

>> Review of Last Week
LET’S GO, GEEKS!… The week on Wall Street began with investors taking profits on Monday following the prior week’s record highs. But by the end of the week, an impressive batch of earnings from technology companies pushed the S&P 500 and the Nasdaq to new record highs. And the good news went beyond the geeks. Last week more than 35% of S&P 500 companies reported Q3 earnings, and, as one analyst put it, “announcements so far have been fairly solid, providing the support for the recent market gains.” Though not setting a record, the Dow finished ahead for the seventh week in a row, its longest winning streak in almost three years.
Even better than the earnings was the economic data, starting with the unexpected surge in New Home Sales covered above, and ending on Friday when the GDP – Advanced read showed the economy growing in the third quarter at a 3.0% annual rate. This is up 2.3% from a year ago and the second straight quarterly read at 3% or above. And this growth came despite two hurricanes, expected to push some economic activity into the fourth quarter. Finally, with the U.S. economy starting to pick up the pace, it shouldn’t be too surprising that the University of Michigan reported consumer sentiment in October at the strongest level in 13 years.
The week ended with the Dow UP 0.5%, to 23434; the S&P 500 UP 0.2%, to 2581; and the Nasdaq UP 1.1%, to 6701.
A down week in the bond market finished on a bit of an upswing prompted by reports that President Trump is leaning toward appointing someone who favors low rates as the new head of the Fed. The 30YR FNMA 4.0% bond we watch finished the week down .07, at $104.81. After falling the week before, national average 30-year fixed mortgage rates ticked up in Freddie Mac’s Primary Mortgage Market Survey for the week ending October 26. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW?… Fannie Mae Chief Economist Doug Duncan’s three rules of forecasting: 1) if you give a number, don’t give a date; 2) if you give a date, don’t give a number; 3) if you get it right, don’t look surprised.

>> This Week’s Forecast
INFLATION, CONSUMER SPENDING, LABOR COSTS ALL UP, MANUFACTURING AND JOBS GROW, THE FED HOLDS… This week features a pile of data. Inflation measured by Core PCE Prices should be up mildly, and Personal Spending up considerably. The Employment Cost Index is expected to show labor costs up in Q3, another harbinger of higher inflation. Manufacturing is forecast to continue expanding by both the Chicago PMI and the national ISM Index. Finally, they’re predicting the October jobs report will show Nonfarm Payrolls exploding, but Hourly Earnings up only a bit.

>> 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 30 – Nov 3
Date Time (ET) Release For Consensus Prior Impact
M
Oct 30 08:30 Personal Income Sep 0.3% 0.2% Moderate
M
Oct 30 08:30 Personal Spending Sep 0.8% 0.1% HIGH
M
Oct 30 10:00 Core PCE Prices Sep 0.1% 0.1% HIGH
Tu
Oct 31 08:30 Employment Cost Index Q3 0.6% 0.5% HIGH
Tu
Oct 31 09:45 Chicago PMI Oct 61.0 65.2 HIGH
Tu
Oct 31 10:00 Consumer Confidence Oct 121.5 119.8 Moderate
W
Nov 1 10:00 ISM Index Oct 59.0 60.8 HIGH
W
Nov 1 10:30 Crude Inventories 10/28 NA -5.7M Moderate
W
Nov 1 14:00 FOMC Rate Decision Nov 1.00%-1.25% 1.00%-1.25% HIGH
Th
Nov 2 08:30 Initial Unemployment Claims 10/28 235K 233K Moderate
Th
Nov 2 08:30 Continuing Unemployment Claims 10/21 NA 1.893M Moderate
Th
Nov 2 08:30 Productivity – Prelim. Q3 2.8% 1.5% Moderate
Th
Nov 2 08:30 Unit Labor Costs Q3 0.0% 0.2% Moderate
F
Nov 3 08:30 Average Workweek Oct 34.4 34.4 HIGH
F
Nov 3 08:30 Hourly Earnings Oct 0.1% 0.5% HIGH
F
Nov 3 08:30 Nonfarm Payrolls Oct 300K -33K HIGH
F
Nov 3 08:30 Unemployment Rate Oct 4.3% 4.2% HIGH
F
Nov 3 08:30 Trade Balance Sep -$43.5B -$42.4B Moderate
F
Nov 3 10:00 ISM Services Oct 58.5 59.8 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… The Fed futures market doesn’t expect a rate hike on Wednesday, but sees a quarter percent gain in December and no change in January. Note: In the lower chart, a 1% probability of change is a 99% 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 1%
Dec 13 98%
Jan 31 98%

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