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Your Weekly Update for Monday, December 17, 2018
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 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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Have a great week!
Mike Elerath, NSSA
Bill Roller, CFA, CFPÂŽ
NMLS #107972
Mortgage Rates
Sam Khater, Freddie Macâs chief economist, says, âThe 30-year fixed fell to 4.63% this week â the lowest it has been since mid-September. Mortgage rates have either fallen or remained flat for five consecutive weeks and purchase applicants are responding with an uptick in demand given these lower rates. While the housing market softened in response to higher rates through most of this year, the combination of a low unemployment and recent downdraft in rates should support home sales heading into the early winter months.â
The 30-year fixed-rate mortgage (FRM) averaged 4.63% with an average 0.5 point for the week ending December 13, 2018, down from last week when it averaged 4.75. A year ago at this time, the 30-year FRM averaged 3.93%.
The 15-year FRM this week averaged 4.07% with an average 0.5 point, down from last week when it averaged 4.21%. A year ago at this time, the 15-year FRM averaged 3.36%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.04% with an average 0.3 point, down from last week when it averaged 4.07. A year ago at this time, the 5-year ARM averaged 3.36%.
Average commitmentrates should be reported along with average fees and points to reflect thetotal upfront cost of obtaining the mortgage. Visit the following link forthe Definitions. Borrowers may still pay closing costs which are not included in the survey.Â
Summary
Economic data for the weekcame in mixed to decent, with retail sales a bit stronger than expected,continued strength in job openings and jobless claims, as well as tempered producer and consumer inflation results.
U.S. equity markets declinedover fears of possible slowing growth, as did foreign stocks, with small gainsturned to losses after being adjusted for a stronger dollar. Bonds weremixed, with impacts dependent on duration, credit quality and currency lastweek. Commodities lost ground due to the stronger dollar and continued falling energy prices.
Economic Notes
(+) Retail sales in November increased by 0.2%, surpassing forecasts by a tenth of a percent, and included positive revisions for the two prior months. Declines in energy prices accounted for the bulk of the lackluster showing, while core/control retail salesâremoving the impact of the more volatile components, such as food,energy and building materialsâexperienced a more substantial increase of 0.9%. Online retail, furniture/home furnishings and health/personal care showed the strongest group gains. December will obviously be a closely-watched month in retail sales due to the typical spike in holiday sales, which represents the bulk of annual activity for many retailers and maybe perceived as a proxy for current overall U.S. economic health.
(0) The producer price index for November rose 0.1%, just surpassing expectations for no change. Headline prices were primarily affected by a 1% bump in food prices, but also a -5% decline in energy. The core PPI measure, removing food and energy, came in stronger for the month by 0.3%, which bea expectations by a few tenths and was influenced by higher prices for airline travel and medical care. Year-over-year PPI decelerated to 2.5%, as a strong November the prior year was replaced by more tempered recent results.
(0) Novemberâs consumer price index was unchanged on a headline level, but rose 0.2 on a core basis, with food and energy prices removed. Within the report, energy commodity prices (led by oil) falling back by -4% contributed to the softness,while gains were seen in utility costs (due to higher natural gas prices, most likely), used cars, shelter (in both ownersâ equivalent rent and actual rent)and medical care. On the other hand, telecom prices fell, which appeared to be due to a quality adjustment in the wireless space. Year-over-year,headline and core CPI are each up 2.2%, ending at a level almost spot on with the Federal Reserveâs target policy target.
(+) Industrial production for November increased by 0.6%, which was twice the growth level expected. The manufacturing production component was flat on the month, contrary to consensus estimates of several tenths of a percent, and based on a decline in business equipment production. For the overall figure, the manufacturing weakness was offset by a 3% increase in utilities. Capacity utilization ended the month at 78.5%, 0.4% higher than last month, but a tenth below th emedian forecast.
(-) Import prices fell-1.6% in November on a headline level, which disappointed relative to the forecasted gain of -1.0%. Removing oil from the equation (which was down-12%) resulted in a lessened -0.3% decline, as industrial supplies and foods/feeds/beverages also saw drops in price, while consumer goods prices were flat.
(-) The government JOLTs job openings measure rose a bit to 7.079 mil. in October, which was just below the 7.100 mil. level expected. Nevertheless, JOLTs remains at a high level for this cycle, with strength on the side of manufacturing. The overall hiring rate rose a tenth to 3.9%, as did the job openings rate to 4.5%,while the quits rate fell by a tenth to 2.3%.
(+) Initial jobless claims for the Dec. 8 ending week fell by a significant -27k to 206k, below the consensus 226k expected. Continuing claims for the Dec. 1 week moved higher by 25k to 1.661 mil., higher than the 1.649 mil. median forecast,and reversing nearly half of the large decline reported the prior week. No anomalies were noted, as claims ticked higher in generally the largest states. Year-end and seasonal adjustments may be increasing the volatility of recent results, but overall claims levels remain quite low.
Market Notes
| Period ending 12/14/2018 | 1 Week (%) | YTD (%) |
| DJIA | -1.17 | -0.28 |
| S&P 500 | -1.22 | -0.90 |
| Russell 2000 | -2.52 | -7.01 |
| MSCI-EAFE | -0.89 | -12.22 |
| MSCI-EM | -0.96 | -16.10 |
| BlmbgBarcl U.S. Aggregate | 0.06 | -0.90 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2017 | 1.39 | 1.89 | 2.20 | 2.40 | 2.74 |
| 12/7/2018 | 2.40 | 2.72 | 2.70 | 2.85 | 3.14 |
| 12/14/2018 | 2.42 | 2.73 | 2.73 | 2.89 | 3.14 |
U.S. stocks lost ground last week, with several indexes again reaching the -10% correction threshold from their peak points earlier in the year, and small- and mid-cap stocks reaching their lowest levels in a year. Fears of a broader economic slowdown, as well as slower Chinese export activity and lackluster results in Europe seemed be the catalysts pushing sentiment lower last week. Hopes continued to vacillate around the possibility of a U.S.-China trade deal again, with remarks from the U.S. administration pointing to a possible resolution of the recent Huawei CFO arrest in Canada being tied to a potential trade deal. From a sector standpoint in the U.S., more defensive utilities and communication services saw small gains for the week, while energy and financials suffered with losses over -3%.
Foreign stocks were mixed,with positivity in the U.K. after Prime Minister May survived her partyâs no-confidence vote, and Europe rose along with the ECB ending its âŹ2.6 tril. monetary stimulus program last week (with the implication being the economy is strong enough to stand on its own two feet without it, although this out come wasnât a surprise). However, both gains turned to declines following the currency translation, with the U.S. dollar rising nearly a percent on the week. The strength of the dollar was indeed a direct result of weakness in the euro and pound, on the eve of continued uncertainty about the outcome of a final Brexit vote with a mere three months to go before the deadline of the deal needing to be made. However, on the positive side, Italy has made progress in getting their budget for next year down to around a 2% deficit,compared to the 2.5-3.0% originally put forth in draft form. Conditions in Japan have continued to demonstrate short-term weakness, with Q3 GDP falling at a -2.5% annualized rateâtwice the level estimated in the initial reportâalthough weather is being blamed as the primary culprit. Little news emanated from emerging markets, although equities in Russia fell sharply, and Indian stocks gained groundâanother reminder of continued stark contrast in dynamics between oil exporting and oil importing nations in the EM space.
U.S. bonds were mixed, with government flat to slightly down as treasury rates ticked higher across the middle of the yield curve, while corporate credit recovered with spreads again tightening. Long bonds overall continue to have the worst returns year-to-date, down several percent due to a substantial duration effect, while intermediate-term bonds have suffered far lessâand floating rate bank loans coming in as the only major U.S. bond group with positive returns for the year. Foreign bonds in both developed and emerging markets fared decently in local terms, but, when translated for a stronger dollar, ended up with losses.
Commodities generally declined due to strength in the dollar and a pullback in energy prices,although all other groups lost ground as well, albeit to a lesser degree. In a fairly range-bound week, crude oil fell -2% on net to end the week at just over $51/barrel, while natural gas prices fell back by -15%, while remaining about 30% higher year-to-date.
Sources: Ryan M. Long,CFA, FocusPoint Solutions, American Association for Individual Investors(AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, DeutscheBank, FactSet, Financial Times, FRED Economic Research, Freddie Mac, GoldmanSachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley,MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard &Poorâs, 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-EMindexes 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.