Stocks having record January – Stocks rallied to new highs again this week, as a number of companies reported higher than expected earnings. As well as posting solid fourth quarter earnings, they provided optimistic guidance regarding their outlook for 2018. Companies included the tax savings under the recently passed tax reform, a stronger domestic and world economy, and increased consumer spending as factors for their higher outlooks. The Dow Jones Industrial Average closed the week at 26,616.71, up from last week’s close of 26.071.72. It’s up 7.7% year-to-date. The S&P 500 closed the week at 2,872.77, up from 2,810.30 last week. It is up 7.5% year-to-date. The NASDAQ closed at 7,507.77, up from 7,336.38 last week. It is up 8.7% year-to-date.
Treasury Bond Yields – The 10-year treasury bond closed the week yielding 2.66%, up just slightly from 2.64% last week. The 30-year treasury bond yield ended the week at 2.91%, unchanged from 2.91% last week. We watch bond rates because mortgage rates follow bond rates.
Mortgage rates higher this week – Although inflation has remained tame, rates have risen in recent weeks. Fixed rates follow corresponding bonds. For example, the 30-year fixed follows 30-year bond yields. Usually, long term bonds follow inflation, but bonds also attract investors looking for lower risk. With stocks soaring, many investors have moved money from low risk, low return bonds to stocks. Lower demand for bonds have driven yields up. If stocks begin to drop and inflation remains tame, I’d expect rates to settle in a little lower. Rates are still near historic lows. The January 25, 2018 Freddie Mac Primary Mortgage Survey reported that the 30-year fixed mortgage rate average was 4.15%, up from last week’s 4.04%. The 15-year fixed was 3.62%, up from 3.49% last week. The 5-year ARM was 3.52%, up from 3.46% last week.
2017 Gross Domestic Product – The Commerce Department reported it’s first estimate of the nation’s fourth quarter GDP growth at 2.6%. Experts had forcasted growth at 3%, so this initial estimate was disappointing. The initial estimate is often revised. For the year, the nation’s $17 trillion economy recovered from a slow start in the first quarter where GDP growth was just 1.4%, it grew to 3.1% in the second quarter, 3.2% in the third quarter, and ended the year at 2.6% in an initial estimate. Those quarterly rates are annualized, so if the initial estimate is not revised much the growth rate would be about 2.6% for the entire year.
Consumer spending higher in fourth quarter – Consumer spending, which is the biggest contributor to the economy, grew at a 3.8% pace, its fastest pace in more than a year. Growth was partly driven by the strongest holiday shopping season in several years, according to data from Mastercard SpendingPulse. Business spending on large equipment also added to growth.
California existing home sales and prices increase in 2017 – The California Association of Realtors reported that existing single-family home sales totaled 423,760 in 2017, up 1.4% from 2016 when 417,720 closed escrows were reported. The median price paid for a home in California was $549,560, up 7.6% for 2017. Housing inventory, which had been at historically low levels, dropped even further. The unsold inventory index revealed that there was just a 2.5-month supply of homes in the market in December, the lowest monthly reading in 13 years. The number of homes for sale in 2017 was 12% below that of 2016. Los Angeles County saw a higher increase in prices than the state as a whole due to tighter inventory levels. The median price in Los Angeles County increased 10.6% in 2017, while the number of sales dropped 7.3%.
U.S. existing home sales highest in 11 years – The National Association of Realtors reported that the number of existing homes sold in 2017 increased 1.1% from 2016 to the highest level in 11 years. The median price was $246,800, a 5.8% increase from last December. Total housing inventory was 11.4% lower in December, compared to December 2016. There was a 3.2-month supply in December, down from a 3.6-month supply last December. It marked the lowest inventory level since NAR began tracking monthly inventory supply. Existing home sales include all sales of residential homes, condominiums, town-homes and co-ops reported to member associations throughout the country.
2017 new home sales highest in 10 years – The Commerce Department reported that although the number of new homes sold in the U.S. dropped in December, new home sales increased 8.3% in 2017. The number of new homes sold hit a 10-year high in 2017.
Have a great weekend,
Syd Leibovitch