Beacon Rock Wealth Advisors is a financial planning and registered investment advisory firm in Camas, Washington. Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check us out at https://beaconrrwa.com and our affiliated websites at https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to [email protected].
If you find this information useful, please forward this newsletter to a friend and ask them to subscribe at https://newsletters.beaconrwa.com/subscribe.
Have a great week!
Mike Elerath, NSSA
Bill Roller, CFA, CFP®
NMLS #107972
Mortgage Rates
Sam Khater, Freddie Mac’s chief economist, says, “The combination of cooling inflation and slower global economic growth led mortgage rates to drift down to the lowest levels in a year. While housing activity has clearly softened over the last nine months and the lingering effects of higher rates from last year are still being felt, lower mortgage rates and a strong job market should rekindle demand for the spring homebuying season.”
The 30-year fixed-rate mortgage (FRM) averaged 4.37 % with an average 0.4 point for the week ending February 14, 2019, down from last week when it averaged 4.41%. A year ago at this time, the 30-year FRM averaged 4.38 percent.
The 15-year FRM this week averaged 3.81 percent with an average 0.4 point, down from last week when it averaged 3.84 percent. A year ago at this time, the 15-year FRM averaged 3.84 percent.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.88 percent with an average 0.3 point, down from last week when it averaged 3.91 percent. A year ago at this time, the 5-year ARM averaged 3.63 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.
Summary
Markets were closed on Monday, February 18 in honor of Presidents Day. Last week was a good week. The Down Jones Industrial Average ended up 3.1% to 25883.25. The S&P500 ended up 2.5% to 2775.6, and the Nasdaq Composite finished up 2.4% to 7472.41. The yield on the 30-year Treasury was up 2 basis points to 3%.
Economic data for the week included poor showings from retail sales and industrial production, in addition to higher jobless claims; inflation came in relatively muted on a producer and consumer basis; on the positive side, manufacturing and consumer sentiment survey data were better than expected.
U.S. equity and developed foreign markets experienced sharp gains on the week, outperforming weaker results in emerging markets. Bonds were little changed, other than riskier debt outperforming treasuries. Commodities pushed higher on the back of a strong week in crude oil.
Economic Notes
(-) The late retail sales report showed a decline of -1.2% for December, which underwhelmed expectations for a slight increase of 0.1% and represented the largest monthly drop in nearly a decade. While gas station sales fell by -5%, due to a close relationship with lower petroleum prices, other less volatile segments also weakened. The exception was auto sales, which gained a percent on the month. Core/control retail sales, removing the most volatile segments, fell -1.7%, versus expectations for a gain of nearly a half-percent for the period, and representing the sharpest drop in almost a decade for a single month. Non-store/online retail fell by -4%, in addition to declines in furniture/home furnishings, health/personal care, food services and general merchandise. It appears the weakness was loosely rated to financial market volatility and perhaps exacerbated by the negative sentiment created by the government shutdown, but future months will have to be looked at to gauge the magnitude of the trend.
(+/0) The February New York Empire State manufacturing index rose 4.9 points to 8.8, beating the forecast calling for a 7.0 reading. Under the hood, new orders rose by several points, while shipments and employment declined, while still remaining in expansionary territory. Expected business conditions for the coming six months, however, gained nearly 15 points, to land at a highly expansionary level, which is positive news.
(+) Import prices for January declined by -0.5%, which was a bit further than the -0.2% forecast by consensus—and representing the largest single-month decline since last summer. Aside from a large drop in energy, notably natural gas prices, which fell an extreme -45% on the month, industrial supply prices also declined -0.7%.
(0) The January producer price index report showed a decline in headline prices of -0.1%—bucking expectations calling for a slight increase of 0.1%—while core prices, excluding food and energy, rose by 0.3%. Overall, declines of -4% in energy and -2% in food sharply affected the headline figure, while other segments were mixed, as retail margins increased but trade services fell.
(0) The consumer price index for January came in unchanged on a headline level, while the core measure, without food and energy, rose by 0.2%. As with other measures for the month, energy prices falling by -3% were a key contributor, while food prices rose a few tenths of a percent. Otherwise, annual tweaks in seasonal adjustments appeared to play a role in the outcome, as apparel, furniture/furnishings, shelter/rent and medical care services each rose by a few tenths of a percent as well; on the other hand, airfares and auto insurance prices fell. The first quarter of the year has been notoriously difficult as of late to adjust for on a seasonal basis (which has continued to baffle economists and government officials), while other adjustments, such as those for the continuously improving quality of goods and services (like internet, apparently) has also made an inflation measurement impact. Year-over-year, headline and core CPI rose by 1.6% and 2.2%, respectively, which remains closely anchored to the Federal Reserve’s target mandate.
(-) Industrial production for January fell by -0.6%, in contrast to expectations calling for a 0.1% increase. The manufacturing production component fell nearly a percent, representing a majority of the broader decline, led mainly by capex equipment slowing down by over a percent and auto production dropping by -9%. Capacity utilization fell by -0.6% to 78.2%, which was a surprise compared to expectations of little change from a revised December level of 78.7%. This measure can show some swings month-to-month, but remains in an uptrend from mid-cycle lows in 2016.
(+) The preliminary Univ. of Michigan index of consumer sentiment for February rose by 4.3 points to 95.5, beating expectations calling for a lesser increase to 93.7. While assessments of current conditions rose by a point, expectations for the future gained over six, with an apparent affect from the end of the government shutdown. Inflation expectations for the coming year fell by -0.2% to 2.5%, as they did for the coming 5-10 years to 2.3%—which is the lowest level in a few years.
(+) The government JOLTS report showed that December job openings rose by 2.4% to a cycle-high level of 7.335 mil., which surpassed the 6.846 mil. level expected. Within the headline data, after prior month revisions, job openings increased a tenth to 4.7%; the hires and quits rates were unchanged at 3.9% and 2.3%, respectively; while the rate of layoffs fell a tenth to 1.1%. This indicator continues to point to a strong underlying labor market.
(-) Initial jobless claims for the Feb. 9 ending week rose by 4k to 239k, surpassing expectations calling for 225k. Continuing claims for the Feb. 2 week also saw an increase, of 37k, to a level of 1.773 mil., which far surpassed consensus forecasts of 1.740 mil. While the larger figures have been attributed a bit to some residual winter seasonality issues, as discussed earlier, large claims reports from Calif. and Wash. have likely been the result of extreme weather in both areas in recent weeks. Elsewhere in the nation, claims levels continue to remain low, indicative of low layoff levels.
Market Notes
| Period ending 2/15/2019 | 1 Week (%) | YTD (%) |
| DJIA | 3.21 | 11.37 |
| S&P 500 | 2.56 | 11.02 |
| Russell 2000 | 4.22 | 16.52 |
| MSCI-EAFE | 2.04 | 7.18 |
| MSCI-EM | -0.52 | 6.72 |
| BBgBarc U.S. Aggregate | -0.09 | 1.10 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2018 | 2.45 | 2.48 | 2.51 | 2.69 | 3.02 |
| 2/8/2019 | 2.43 | 2.45 | 2.44 | 2.63 | 2.97 |
| 2/15/2019 | 2.43 | 2.52 | 2.49 | 2.66 | 3.00 |
U.S. stocks gained on the week, led by small caps, which outperformed large caps. Markets reacted favorably to both a Congressional agreement being made to avert another federal government shutdown, as well as apparent progress, or at least willingness to make progress, on U.S.-China trade negotiations in advance of the March 1 deadline for tariffs to increase from 10% to 25% on $200 bil. of imports. At this point, it appears likely that this deadline could be pushed back, with the President mentioning he could ‘let it slide’, and a last minute effort at doing so would not be overly surprising.
All sectors generally gained for week, led by energy and materials, which performed well on higher prices for oil and other commodities, while defensives consumer staples and utilities came in behind the others.
Foreign stocks gained, in similar sentiment to U.S. equities, with again hopes of the U.S.-China trade conflict reaching resolution. This continued to outweigh weak economic data out of Europe (with German growth for Q4 falling to 0.2%) and unchanged uncertainty over the Brexit implementation timeline. Japanese GDP, however, came in at 1.4%, as it continues to recover some several natural disasters. In emerging markets, Chinese stocks gained on optimism following the Lunar New Year and hopes for trade progress, while Indian stocks declined sharply following a terrorist attack in disputed Kashmir soured sentiment upon worries over stability in the region.
U.S. bonds were flat on net, with little change in interest rates across the treasury yield curve. High yield and bank loans outperformed, in keeping with greater appetitive for risk along with equities. A stronger U.S. dollar hampered returns for foreign developed market bonds, which ended negative, while risk-taking in emerging markets was rewarded due to tighter yield spreads.
Commodities gained sharply on the week, led by energy, as all other segments were little changed, other than industrial metals, which lost a few percent. The price of crude oil spiked by over 6% on the week to a few cents under $56/barrel. The catalysts appeared to be tighter global inventories, caused by Saudi Arabia pulling back on production of nearly a million barrels/day, coupled with progress in the U.S.-China trade talks, which at first wouldn’t seem related, but lower the probabilities of substantially weaker global growth, serving to potentially sustain global demand.
Sources: Ryan M. Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, FRED Economic Research, Freddie Mac, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poor’s, StockCharts.com, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Residential and reverse mortgages are offered through Prestige Home Mortgage in Vancouver, WA.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.