Your Weekly Update for Monday, April 28, 2019
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].
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Mike Elerath
National Social Security Advisor
Bill Roller
Chartered Financial Analyst
Certified Financial Planner
Chartered Market Technician
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Mortgage Rates
Sam Khater, Freddie Mac’s chief economist, says, “Despite the recent rise in mortgage rates, both existing and new home sales continue to show strength – indicating the lagged effect of lower rates on housing demand. This, along with improved affordability, should push housing activity higher in the coming months.”
The 30-year fixed-rate mortgage (FRM) averaged 4.20% with an average 0.5 point for the week ending April 25, 2019, up from last week when it averaged 4.17%. A year ago at this time, the 30-year FRM averaged 4.58%.
The 15-year FRM this week averaged 3.64% with an average 0.5 point, up from last week when it averaged 3.62%. A year ago at this time, the 15-year FRM averaged 4.02%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.77% with an average 0.4 point, down from last week when it averaged 3.78%. A year ago at this time, the 5-year ARM averaged 3.74%.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Summary
Markets were mixed last week. The Dow Jones Industrial Average fell a flat 0.06% to 29,554.33. The S&P500 ended up 1.2% to 2,939.88, and the Nasdaq Composite finished up 1.85% to 8,146.40. The annual yield on the 30-year Treasury fell 3 basis points to 2.93%.
Economic data for the week was highlighted by advance first quarter GDP that came in stronger than expected, solid durable goods orders and new home sales, while existing home sales and jobless claims came in a bit worse than expected.
U.S. equity markets gained due to decent corporate earnings results, while foreign stocks were held back a bit by a stronger dollar. Bonds gained as interest rates ticked down over most of the yield curve. Commodities lost ground on average, with early gains in crude oil retreating by week’s end.
Economic Notes
(+) The advance (first) release of first quarter 2019 GDP showed an increase of 3.2%, which was substantially above the 2.3% gain initially expected. The details of the report, however, were less impressive than on the surface, with the large increase being primarily due to lower imports and a build-up of inventories (contributing 0.7% to the total)—inventory excesses (up or down) are a facet which tends to self-correct in future periods, which limits the contribution to actual growth. Domestic sales grew at a rate of 1.4%, which appeared to be hampered by the government slowdown to some degree, which was the slowest rate in several years. Personal consumption rose 1.2% for Q1, which was largely as expected, while residential investment continued to come in weak, down -3%. Core PCE for the period came in at an average annualized rate of 1.3%, continuing to run below the recent trend rate of inflation. Early estimates for Q2 GDP overall are coming in around the 2.0-2.5% range, on par with the experience of recent quarters.
(+) Durable goods orders for March rose by 2.7%, far surpassing expectations calling for 0.8%, due to a substantial 27% increase in aircraft and parts orders; additionally, orders for the prior month were revised a bit higher. Core capital goods orders, removing the most volatile components, still rose 1.3%, which also surpassed expectations of a mere 0.2% increase. Core capital goods shipments fell, however, by -0.2%, as opposed to an increase of 0.1% expected. Inventories also rose by 0.3%. All of these figures were generally solid, and likely contributed positively to the Q1 GDP figure.
(-) The FHFA house price index for February rose by 0.3%, which fell short of the 0.5% gain expected. Prices rose in seven of the nine geographic regions, led by over-1% gains in the East South Central region (KY through AL) and New England, while the Middle Atlantic states fell by over a percent. The year-over-year rate of increase, as with the other house prices indexes, also decelerated, by -0.7% to 4.9%, which is still quite high by long-term historical standards compared to general inflation.
(-) Existing home sales for March fell by -4.9% to a seasonally-adjusted annualized rate of 5.21 mil. units, deeper than the decline of -3.8% to 5.30 mil. expected. Single-family and condos/co-ops each declined to a similar degree, although it’s been noted that very tight single-family home inventories in key areas have continued to put a damper on sales activity—average days on the market have fallen in recent months (to 36), but remains about a week longer than last year at this time. Geographically, all four regions experienced declines, with the Midwest and West faring worst with declines of over -6%, while the South and Northeast were less severely affected.
(+) New home sales rose by 4.5% in March to a seasonally-adjusted annualized level of 692k units, surpassing the 649k level expected; however, revisions for the prior month of February were negative. Regionally, sales were led by gains in the South and Midwest, while the Northeast lost ground during the month.
(+) The Univ. of Michigan index of consumer sentiment rose by 0.3 of a point to 97.2, beating expectations of 97.0 by a small degree. Consumer assessments of current conditions fell by nearly -2 points, while future expectations rose by just under 2 points. From a forward-looking inflation perspective, expectations for the coming year rose by a tenth to 2.5%, while those for the next 5-10 years were unchanged at 2.3%. These inflation expectations have fallen along with broader trailing CPI, which is often the case.
(0) Initial jobless claims for the Apr. 20 ending week rose by 37k to 230k, exceeding expectations for a 200k reading, and bucking the trend of recent declines. Continuing claims for the Apr. 13 week, however, ticked up by 1k to 1.655 mil., far below the 1.682 mil. level expected. While no anomalies were reported, the Good Friday/Easter weekend may have played a role in seasonal adjustment calculations.
Market Notes
| Period ending 4/26/2019 | 1 Week (%) | YTD (%) |
| DJIA | -0.06 | 14.57 |
| S&P 500 | 1.21 | 18.00 |
| Russell 2000 | 1.67 | 18.51 |
| MSCI-EAFE | -0.17 | 12.67 |
| MSCI-EM | -1.32 | 11.63 |
| BBgBarc U.S. Aggregate | 0.38 | 2.97 |
| 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 |
| 4/19/2019 | 2.42 | 2.38 | 2.38 | 2.57 | 2.96 |
| 4/26/2019 | 2.42 | 2.28 | 2.29 | 2.51 | 2.92 |
U.S. stocks ended up with gains for the week, with the S&P 500 reaching another record high, as earnings results tended to drive sector results while broader economic data was mixed. From a sector standpoint, communications services and health care gained well over 3% each to lead for the week, while energy and materials lost over a percent each.
First quarter earnings continue to roll in, with just under half of companies in the S&P 500 now having reported. While it’s no surprise that firms beat lowered expectations, three-quarters have done so, while 60% have beaten forecasts on the revenue front. The year-over-year rate of change for earnings is -2%, which is the first negative result in three years, but this was widely anticipated, and brings the forward P/E on the index to 16.8. Profit margins have been one culprit, falling to their lowest levels in a few years at just under 11%.
Along with a stronger dollar, foreign developed markets fell slightly, while emerging markets declined to a slightly greater degree. In contrast to U.S. equities, of the quarter of European stocks that have reported, under half have beaten estimates, which is worse than last quarter and below expectations thus far—but in keeping with broader weakness seen in that part of the world. Japanese stocks, on the other hand, experienced flat results in local terms, but a weaker yen turned that into a small positive. Emerging markets lost even more ground, led by China, as stronger-than-expected growth as of late heightened fears that policymakers may cut back on stimulus and stem the tide of growth.
U.S. bonds moved higher on the week, as interest rates declined across the mid- to longer-end of the treasury yield curve. Long-term treasuries and investment-grade corporates outperformed all other segments, including high yield. Foreign bonds performed similarly on a local basis, while the translation to dollars resulted in losses for both developed and emerging markets. Bonds have performed decently year-to-date, led by corporate credit as spreads have contracted, albeit to tighter (more expensive) levels akin to what we saw last fall. In more potentially problematic areas such as high yield, defaults remain contained at this point, although that is often the case until it isn’t—which can lead to investor complacency.
Real estate gained on the week in the U.S., outperforming broader equity markets, on the heels of lower interest rates. Asian REITs gained to a lesser degree, while European real estate lost ground, in keeping with weaker currency results versus the dollar.
Commodities lost ground overall, along with a stronger dollar, in all segments other than precious metals. Energy was mixed, with a 4% gain in natural gas offset by the price of crude oil falling by -1% to just above $63/barrel. Earlier in the week, prices had moved sharply higher on reports that prior U.S. government waivers of Iranian sanctions will be ending—essentially allowing Iran to produce more oil and contribute positively to global supply—which has the implication of tighter global oil markets. However, by week’s end, reports of U.S. crude inventories coming in at their highest levels in over a year reversed the initial increase.
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.