market commentary Archives - Page 16 of 17

Market Commentary 12/20/19

Posted on December 20, 2019 by Damon Germanides

The U.S. equity markets traded at all-time highs on the last full trading week of the year. The market’s soaring prices were propelled to record levels by accommodative monetary policy, positive news on the U.S. – China trade deal, a strong consumer, and unwinding of recession fears. Final GDP 3^rd quarter numbers were also released on Friday and were not revised, showing economic growth growing at a respectable 2.1%. Overall, the U.S. economy is in good shape and the recent stock market gains are a vote of confidence, supporting that narrative.

Homebuilders remain confident and housing starts surprised to the upside earlier in the year. Most economists had predicted the 10-year U.S. Treasury would end 2019 at above 3.000%. The plunge lower in rates (10-year U.S. Treasury currently at ~1.92%) has been a big factor in spurring home purchases and refinances, as well as underpinning the surge in equities and other asset prices. If rates remain low, we would expect the consumer to remain bullish and continue to spend on autos, homes, and other high-cost durable goods.

Banks remain aggressive on pricing and mortgage banks continue to serve the demand by self-employed borrowers who face challenges documenting their income. Rates are low and should be locked-in. Continued positive data both in the U.S. and abroad could lift rates higher. Then again, maybe they won’t.

Market Commentary 6/21/19

Posted on June 21, 2019 by Damon Germanides

Equities surged this week with the S&P 500 reaching a record high in response to an accelerated fall in global bond yields. The 10-year U.S. Treasury benchmark fell to 2.00% for the first time since 2016 while German government yields went further negative. All bonds issued by first world nations are trading well below where most economists predicted just a few months ago as the ongoing trade tensions and tariffs with China, as well as a sputtering European economy, and low inflation readings weigh on central bankers.

With rates already low, Fed Chairman Powell commented on the need to be pro-active (dovish) with a potential rate cut should the data support further accommodation in order to stave off a recession. Earlier in the week, the ECB reiterated a willingness to push yields lower through QE measures in order to spur economic activity. With bloated government balance sheets that were amassed during the Great Recession, the drop in bond yields reflects the difficult position the Fed and other Central Banks are in as the path to more normalized monetary policy has stalled. The real fear is that with rates already so low all over the world, there is not much more the monetary policy can do to boost economic growth.

The big beneficiary of low yields are borrowers, as evidenced by the surge in home buying and refinance activity in the past few months. Rates are incentivizing new home purchase and reducing borrowers monthly expenses with new lower mortgage payments on refinances. Lenders remain hungry for business and the drop in rates has increased borrower affordability.

With rates near 2.00%, a level we admit caught us off-guard, we are strongly biased toward locking in rates because lending institutions are at capacity and will need to raise rates to meet turn times. While we can see rates go lower, the benchmark 10-year Treasury near 2.000% is pretty sweet.

Market Commentary 6/7/19

Posted on June 7, 2019 by Damon Germanides

Treasury yields dropped this week to a 21-month low. Multiple Fed officials spoke of the possibility of lowering short-term interest rates as ongoing trade tensions with China begin to wear on the U.S. economy. Further causes of concern include slowing manufacturing data both in the U.S. and abroad, negative interest rates in Europe and Japan, and the European Central Bank opining on the high probability of rate cuts in the Eurozone to combat its sluggish economy.

At the moment, there are several conflicting economic signals: consumer and business confidence is strong, but other key economic data are showing signs of a potential recession on the horizon. Of greatest concern is the 3-month to 10-year Treasury curve, which has inverted. A prolonged inversion supports the notion that the markets believe rates are too high, and more importantly, it is a key recession indicator.

Further pushing bond yields lower Friday was the release of the May Jobs report which came in much cooler than expected (75,000 actual versus 185,000 estimated). Some of the weakness in hires last month could be blamed on worker shortages in certain sectors such as construction. It will be interesting to see how the June jobs report plays out. A tepid June jobs report will all but guarantee a Fed rate cut. Due to the Fed Funds Rate already at a very low level relative to the length of the economic recovery which dates back almost 10 years now, the Fed has very little room to lower short-term rates and it will act sooner than later once it believes economic growth is stalling.

Speaking of rate cuts, corporate and individuals are enjoying lower borrowing costs and lenders are aggressively pricing home and commercial loans in the search for new business. With so many experts expecting lower rates to come, we continue to advise clients to be cautious as any unexpected good news (think trade deal with China) could catch markets off guard. For the moment, we are biased toward floating rates at these levels with the understanding the market is severely overbought.

Market Commentary 5/17/19

Posted on May 17, 2019 by Damon Germanides

In a volatile week on Wall Street, bonds have traded well with the 10-year Treasury note touching 2.350% for the week. Market strategists have had to react to both tough trade talk on China by the Trump administration, as well as elevated tensions with Iran in the Middle East in directing trades this week. Traders flight to quality investments benefited high-quality bond yields such as government-guaranteed and A-paper mortgage debt with yields moving slightly lower but within a tight band.

Back home, the U.S. economy is humming, job growth is robust, and inflation is tame as evidenced by GDP expanding at a 3.2% annual pace in the first quarter. Unemployment touched a 50-year low and year-over-year CPI is running at 1.9%. This begs the question “why are rates so low?” The answer probably lies in long-term economic growth forecasts as well as fears of a looming recession given the potential for an elongated trade negotiation with China and anemic economic growth out of Europe and Japan. Continue to keep an eye on the 2-10 Treasury spread as signs of looming trouble ahead. For the moment, the spread is around 19 basis points and rebounding from the 9 basis point spread just a short while ago. Treasury inversions are one of the most reliable indicators of a recession and need to be taken seriously when they occur.

Home sales have rebounded due to both the time of year as spring is an important home buying season enhanced by the low-interest rate environment. Our feeling remains that the economy is strong and rates should be higher. However, we have no magic ball and so for the moment, we continue to advise clients to lock-in interest rates at these highly attractive levels.

Market Commentary 5/10/19

Posted on May 10, 2019 by Damon Germanides

U.S. consumer prices rose moderately in April but less than expected. Low inflation readings will keep a lid on bond yields, as well as reinforce the Fed’s position keeping short-term lending rates unchanged for the rest of the year. With inflation in check, some are opining for the Fed to lower interest rates. We tend to disagree and believe a wait-and-see position by the Fed is wiser, as there are some indicators that inflation may pick up and that ultimately these low inflation readings may be transitory.

In other important news, trade talks fell apart this week with China. This resulted in higher tariffs being placed today on Chinese goods imported into the U.S., which will likely lead to retaliation from China sometime in the near future. How these negotiations go is anyone’s guess, but the consensus is that a deal will be struck eventually. However, there is always a chance that negotiations could fall apart and a full-blown trade war will occur, or that these negotiations will drag on much longer than expected. Those fears, while remote, have helped push long-dated treasury bonds lower in what is known as a “flight to quality.” The trade tensions also dented equities this week as analysts reassess the effects of ongoing trade tensions on future economic growth and corporate earnings.

Low rates do benefit our borrowers and have spurred both a good home buying season, as well as our clients who have refinanced into lower rates. With the 10-year Treasury note trading under 2.500%, we remain biased toward locking in interest rates. Should the U.S. strike a trade deal with China, we could easily see rates move up from here.

Market Commentary 5/3/19

Posted on May 3, 2019 by Damon Germanides

A better than expected April jobs report is further evidence of the “Goldilocks scenario” that our economy continues to flourish in – albeit one that complexes many financial experts. With no near-term threat of inflation as well as improving data on productivity and manufacturing, the U.S. is experiencing the greatest recovery in many of our lifetimes. Today’s job report supported the current administration’s belief that the combination of lowered taxes and less restrictive regulation would stimulate the entrepreneurial spirit of American business owners. It is hard to argue against this position at the moment.

There were 263,000 jobs created in April, well above estimates of 180,000 to 200,000. The unemployment rate fell to an almost 50-year low at 3.60% (WOW!). With wage inflation coming in lower than expected, bonds reacted favorably to this report and stocks surged.

Setting aside the myriad of potential issues impacting the market, which include Brexit, the 2020 election, and China-US trade tension, the talk for the moment is the near-perfect market conditions of the U.S. is economy right now. As a rising stock market is a strong vote of confidence for U.S. consumption, we are seeing an increase in home buying activity as well as other financing activity. With rates still not too far off historical lows, it should be a good home buying season.

With the 10-year Treasury range-bound, we are biased toward locking in rates given the positive economic reporting and comments from the Fed this week about their concerns that inflation may be transitory.

Market Commentary 4/26/19

Posted on April 26, 2019 by Damon Germanides

A strong GDP reading of 3.2% for the first quarter of 2019 has allayed concerns about a slowing U.S. economy. This result was well above the expected reading of 2.8%. Report highlights include a decline in inflation, which pushed bond yields lower, as well as strong economic data and retail sales. One point of caution within the report regarded built-up inventories. This first quarter build-up may be followed by a decrease later in the year, possibly creating a drag on later GDP readings.

In further good news this week, housing has picked up. This was expected given the time of year and the nice drop in interest rates.

With continued good news on the U.S. economy, important inflations readings next week, and the 10-year Treasury note trading at around 2.500%, we remain biased toward locking-in rates at these levels. However, we do acknowledge that there are many geopolitical and economic issues around the world that could push yields lower in the coming months.

Market Commentary 4/19/19

Posted on April 19, 2019 by Damon Germanides

The U.S. economy continues to chug along, at least that’s the consensus for the moment. With consumer and business sentiment still going strong, along with a recent surge in retail sales, low inflation and near full employment, the overall picture of the economy is good.

The Fed hitting the pause button earlier this year on raising rates and running off the balance sheet has certainly helped investor confidence as evidenced by the rise in equities. In addition, mortgage applications amongst other finance activities have improved due to the pause in short term rate increases by the Fed. Finally, the steeping of the yield curve has put to rest rumors of recession talk as several top bank economists see no signs of a recession, near-term.

For the moment, we are in a “Goldilocks Environment” with an economy that is neither running too hot nor too cold. As a result, the spring home buying season should be a good one.

Even as other parts of the world are experiencing a slow-down, it is hard to bet against the U.S. and all of the opportunity that this country has to offer its citizens. However, risks remain in Europe, and in our negotiations with China and North Korea, as well as the massive government debt burdens. These economic and geopolitical risks are capping our rates back home as the German 10-year Bund is trading in negative territory juxtaposed to US Treasuries which are trading above 2.50%.

Given the drift up in the 10-year U.S. Treasury from around 2.39% to 2.54%, we believe rates are range-bound. We can see rates continue to drift higher if the U.S. economy continues to stay strong and stocks continue to rise.

Market Commentary 2/15/19

Posted on February 15, 2019 by Damon Germanides

U.S. equities traded well again this week in response to positive headlines that China and the U.S. will continue to negotiate tariffs, as well as the anticipation of an agreement on a new spending bill which will be signed today, and tame inflation readings. Even with some concerns about slowing global earnings growth, the threat of a global slowdown and or recession, and a poor reading of domestic retail sales for the fourth quarter, for the moment equities continue to push these worries aside. We think a lot of the excitement about equities has to do with the Fed’s pause in both rate hikes and balance sheet reduction. Risk on trading is now in full effect as market participation works under the assumption short-term interest rates will remain low both domestically and abroad. Home buyers are returning to the marketplace enticed by low interest rates and price declines. By all accounts, the U.S. economy is robust as mortgage applications rebound and consumers continue to feel good about their future prospects. With bonds, too much good news is bad, and we continue to feel compelled to advise clients that with the 10-year Treasury under 2.700%, we believe locking-in is advisable.

Market Commentary 2/8/19

Posted on February 8, 2019 by Damon Germanides

Global yields continue to move lower benefitting borrowers in a significant way. Domestically, the so-called “Powell Put” has helped equities rise as traders have greater confidence in bidding on riskier investments.

The 10-year Treasury is trading under 2.65% which is making mortgage rates ultra attractive again and from what we can see, increased loan volume greatly. While our domestic rates are low, rates are even lower across the pond. In fact, there are hints that the European Central Bank might soon lower short rates in the face of a slowing European economy, Brexit confusion, and looming Italian debt concerns. Add a deflationary Japan and a slowing China economy to the mix, and therein lies the reason our domestic rates while low are actually quite high in relation to the rest of the developed world.

No big economic news this week, but next week will be important with multiple inflation reports coming out. If inflation remains tame, we could see rates move lower. Should we get a surprise higher on inflation, rates will adjust quickly. The Fed calmed markets late last month as they confirmed rates increases and the Fed balance sheet reduction was not on auto-pilot. A hot inflation reading could challenge those statements, especially with a booming U.S. economy, and historically low unemployment.

Home buyers are taking advantage of these low rates, and with a drop in home prices, we are seeing greater activity from buyers. We remain biased toward locking-in rates at these low levels (to be fair, levels we thought we would not revisit again for quite some time).

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