Your Weekly Update for Monday, September 28, 2020.
Beacon Rock Wealth Advisors is a financial planning and registered investment advisory firm in Camas, Washington. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to[email protected].
With this volatility in the markets you may have questions about your portfolio.Ā We are both available by Zoom or Skype to answer your questions. Call or email and we will get it set up.
Please support your local small businesses. Go get some take-out from your favorite restaurant!
If you or someone you know is worried about retirement, send us and email or give us a call for a no-obligation Retirement and Social Security Analysis.
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
CERTIFIED FINANCIAL PLANNERTM
CERTIFIED IN LONG-TERM CARE
NATIONAL SOCIAL SECURITY ADVISOR
Bill Roller
NMLS #107972
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNERTM
CHARTERED MARKET TECHNICIAN
For more information about Beacon Rock Wealth Advisors, check out our brochure here:Ā https://beaconrwa.com/wp-content/uploads/2020/04/BeaconRockBrochure.pdf
Summary
Markets were mixed last week. The Dow Jones Industrial Average fell 1.75% to 27,173.96, while the S&P500 fell 0.63% to 3,298.46. The Nasdaq Composite rose 1.11% to 10,913.56. The annual yield on the 30-year Treasury fell 4.8 basis points to 1.405%.
Economic data for the week included a rise in durable goods orders and strong housing results, while jobless claims remained elevated.
Global equity markets lost ground globally by several percent, as economic concerns continued to fester in the wake of the pandemic. Bonds were mixed, with treasuries gaining a bit, while credit pulled back. Commodities lost ground across the board along with a stronger dollar and a less clear demand/supply picture.
Economic Notes
(-) Durable goods orders for August rose by 0.4%, falling short of the 1.5% median forecast, and ending a multi-month bounceback. The headline figure was largely driven by higher aircraft orders, but weaker numbers for autos. However, durable goods and shipments data for the prior month were revised higher. In contrast to the headline number, core orders rose by 1.8%, beating the 1.0% forecast, with strength in machinery and computer products. Core shipments also beat expectations, rising by 1.5%, surpassing expectations of 0.8%. Amazingly, the durable goods index lies at only 5% below its high from February, before the pandemic shutdowns started, and demonstrating a sharp recovery in manufacturingāwhich has not carried over to several other service segments.
(+) The FHFA house price index for July rose by 1.0%, beating expectations calling for 0.5%. Every region of the country experienced gains for the month, led by a rise of 2% in New England and over 1% in East South Central (KY/TN/MS/AL). Year-over-year, the index re-accelerated by 0.7% to a rate of 6.4%. This continues to run at a very strong pace, considering the low level of inflation otherwise, led by a relatively tempered pace of building activity and low inventories, and not to mention record-low mortgage rates, all of which have sustained pricing despite the recession.
(+) Existing home sales for August rose by 2.4% to a seasonally-adjusted annualized rate of 6.000 mil. units, which largely matched consensus expectations and reaching the highest level since 2006ājust prior to the Great Recession. Sales are up 11% from the prior August, and amazingly up 4% from Feb. 2020 peak levels. Single-family unit sales rose by just under 2%, while condos/co-ops gained 9%. All four national regions experienced increased sales activity, led by the Northeast in the double-digits, while the other areas were up around a percent each, give or take a few tenths. As noted prior, inventories are extremely low, with little seasonal surge in 2020 as seen in most years, and currently at 2.8 months sales. Therefore, growth in home sales is constrained by these low levels of available homes. The average sales price rose 11% from the prior year as well, to $310,600, which represents 102 straight months of yearly gains, as the National Association of Realtors noted.
(+) New home sales in August rose by 4.8% to a seasonally-adjusted annualized level of 1.011 mil. units, beating expectations for a decline of -1.2% for the month, and including upward revisions for several recent months. This also represented the strongest monthly report since the fall of 2006, pointing to a strong continued trajectory. Regionally, the South saw the strongest gains in sales of 75k, little change was seen in the Northeast and West, while the Midwest experienced a decline. As noted, this points to continued improvement in housing market metrics, although production is still falling below needed demand from a long-term standpoint. Nevertheless, the recovery has been impressive over the past year (up 43% year-over-year), with some signs that buyers have rediscovered the suburbs, leaving more densely-populated urban areas during the pandemic. However, with summer ending, the seasonal tailwind for new homes is on the wane most likely.
(-) Initial jobless claims for the Sep. 19 ending week rose by 4k to 870k (29k on a non-seasonally-adjusted basis), falling above the 840k expected. Continuing claims for the Sep. 12 week fell by -167k to 12.580 mil., but above the median forecast of 12.275 mil. Large increases/decreases were split between a variety of large states, including NY, FL, and IL, showing no clear pattern. Claims continue to be running higher than hoped, which has also appeared to weigh on stock market sentiment, as these numbers point to the underlying health of employers. Then again, a large portion of the continued claims fall under the Pandemic Unemployment Assistance (PUA) program, which has fairly loose requirements (not necessarily being unemployed, for example).
Market Notes
| Period ending 9/25/2020 | 1 Week (%) | YTD (%) |
| DJIA | -1.75 | -3.07 |
| S&P 500 | -0.61 | 3.53 |
| Russell 2000 | -4.01 | -10.71 |
| MSCI-EAFE | -4.21 | -8.48 |
| MSCI-EM | -4.46 | -4.98 |
| BBgBarc U.S. Aggregate | -0.09 | 6.83 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2019 | 1.55 | 1.58 | 1.69 | 1.92 | 2.39 |
| 9/18/2020 | 0.10 | 0.14 | 0.29 | 0.70 | 1.45 |
| 9/25/2020 | 0.10 | 0.12 | 0.26 | 0.66 | 1.40 |
U.S. stocks ended down last week following a poor -3% start Monday, with rising Covid cases, political intensity growing, and election polls tightening. In addition, Congressional testimony from Dr. Anthony Fauci was pessimistic, based a lack of preventive medical actions taken in the U.S., as was that of Fed Chair Powell, who expressed a need for additional fiscal stimulus to stem economic damage, including on housing through weakened mortgage and rental payments. On an intraday basis, anyway, the S&P reached -10% correction territory, which continued during the week despite a false start or two.
By sector, technology and utilities were the sole gainers last week; energy and materials were the laggards, with the former down over -8%. Financials also suffered upon reports of a variety of major global banks being been involved in money laundering, or at least facilitating the activity. Real estate also lost ground slightly, in keeping with the smaller cap market.
Some corrections can be more stealthy than dramatic, as they can occur quickly over the course of a few days, before many even notice. Market sentiment was seen as being focused more on the future (including a vaccine and higher hopes for additional fiscal stimulus from Congress) than the present, but the growing fears of a fiscal aid deal not materializing in 2020 has raised near-term concerns. Partisanship around a Supreme Court nominee, and possible implications over vote counts havenāt helped. The continued growth bounceback that was expected to carry over from Q3 to Q4 may be now pushed in to the first quarter of 2021. Of course, the outlying possibility has likely increased of certain segments of the economy (especially the service sector) being be in deeper long-term trouble.
Foreign stocks fell in keeping with movements away from risk globally. Japan fared slightly better, with less negative returns, and Europe a bit worse, along with a rise in new Covid infections there. In fact, several nations were considering another wave of lockdowns to contain the spread, which weighed on consumer and economic sentiment. The proposed restrictions in the previously-resistant U.K. were more extensive than expected, with leaders mentioning a new round potentially lasting months. In Japan, on the other hand, there seems to be some reassurance that new Prime Minister Suga will be continuing the accommodative policies of the Abe era, intended to stimulative the economy via a long-term multi-pronged approach.
U.S. bonds were mixed last week, with treasuries gaining slightly and corporates losing ground as spreads moved wider along with a negative week for risky assets. Foreign bonds similarly declined in both developed and emerging markets, largely the result of flows away from risk and a stronger U.S. dollar.
Commodities lost ground for the most part last week, with all key sectors down several percent each, in line with many risk assets globally, and a stronger dollar. The price of crude oil was down by -3% to remain just over $40/barrel, as demand expectations rise and a pickup in Libyan production provided a dual negative. The sole exception last week was a spike in the price of natural gas, which experienced both a pickup in demand as the colder season approaches, along with tighter-than-expected storage. Despite fairly regular demand patterns, natural gas is one of the more volatile commodity contracts, due to wide variations in storage and short-term expectations.
Mortgage Rates
āMortgage rates set several record lows over the last few months and have remained low into September,ā said Sam Khater, Freddie Macās Chief Economist. āWhile there is room for rates to decrease even more, higher home prices and low inventory could potentially stifle the high demand that weāve been seeing.ā
The 30-year fixed-rate mortgageĀ averaged 2.90% with an average 0.8 point for the week ending September 24, 2020, up from last week when it averaged 2.87%. A year ago at this time, the 30-year FRM averaged 3.64%.
The 15-yearĀ fixed-rate mortgageĀ averaged 2.40% with an average 0.7 point, up from last week when it averaged 2.35%. A year ago at this time, the 15-year FRM averaged 3.16%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgageĀ (ARM) averaged 2.90% with an average 0.2 point, down from last week when it averaged 2.96%.Ā Ā A year ago at this time, the 5-year ARM averaged 3.38%.
Freddie Macās Primary Mortgage Market Survey is focused on conventional, conforming, fully-amortizing home purchase loans for borrowers who put 20% down and have excellent credit. 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 theĀ Definitions. Borrowers may still pay closing costs which are not included in the survey.
Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check us out at https://beaconrwa.com and our affiliated websites atĀ https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com.
Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poorās, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, 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. FocusPoint Solutions, Inc. is a registered investment advisor.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.