Stocks have best week in almost a year – In a surprise change stocks rose this week mostly on strength attributed to a perceived certainly that The Federal Reserve will raise in December. Minutes released this week from the last Fed policy meeting stated that delaying the first rate hike since 2006 “could be interpreted as signaling lack of confidence in the strength of the U.S. economy.” Stocks which dropped in August partly on anticipation of a rate increase in September, because higher interest rates increase corporate debt payments, fell even more sharply when it was announced that The Fed would not raise rates. This was because investors felt that The Fed was worried that economic growth was stalling. Historically low Fed rates which dropped to near near 0% in 2008 was to help get the country out of recession. Many experts have wondered why rates have been near 0% for such an extended period of time as the economy has improved significantly since he depths of the recession. At this point every meeting without a rate hike signals to investors that The Fed knows something that analysts don’t foresee as a risk to the economy. The Dow Jones Industrial Average closed the week at 17,823.81, up 579 points from last week’s close of 17,245.24. The S&P 500 closed the week at 2,089.17, up 66 points from last Friday’s close of 2,023.04. The NASDAQ closed the week at 5,104.92, up 177 points from last week’s close of 4,927.98.
Treasury bonds yields stable for second straight week – Treasury bond rates rose about .25% after the strong October jobs report on anticipation that The Fed will raise rates in December. Bond rates remained stable this week after minutes released by the Fed this week and comments by Fed members suggested that a rate hike would come in December. It appears that a rate hike by the Fed is already “built into” bond prices, but it will be interesting to see what a first rate increase in almost a decade does to treasury bond rates. Mortgage rates usually follow treasury bond rates so treasury rates are something we watch closely. The 10 year treasury bond yield closed the week at 2.25%, almost unchanged from 2.28%, last Friday. The 30 year treasury bond yield closed Friday at 3.02%, about the same as last week’s close of 3.06%.
Mortgage rates stable – The 30 year fixed rates are around 4.00% for loans up to $417,000, and around 4.25% for loans over $417,000. The 15 year fixed rate loans are about 3.375% for loans up to $417,000, higher loan amounts have rates that are around 3.5%. 5-Year ARM and 3–Year ARM rates are both around 3.125%.
California adds 41,200 jobs in October – Unemployment rate lowest since 2007 – California’s unemployment rate fell to 5.8% in October, down from 5.9% in September. It marked the lowest rate since October 2007. At the depth of the recession in 2010, California’s unemployment rate rose above 12%, higher than every state except Michigan and Nevada. Over the last 3 years the state has added jobs at a rate faster than all but 5 states. Over the past year California has added jobs at a rate of 2.9%, outpacing the national job growth rate of 2%.October’s unemployment rate of 5.8% is even more impressive considering that just one year ago the state’s unemployment rate was 7.2% last October.
California home sales and prices slide in October- The California Association of Realtors announced that sales of existing homes in California declined 5.1% in October from September levels. The number of sales were 1.3% higher than October 2014, the smallest year over year increase in 2015, fueling speculation that the housing market is stalling. Prices also moderated as the statewide median price dropped 1.3% from September, yet it was up a healthy 5.7% from October 2014. The unsold inventory index remained unchanged for a third month at a 3.7 month supply, a low inventory level. I would consider this a seasonal slowing that is to be expected, yet it’s possible that it has slowed a little more than seasonal due to some nervousness in the housing market. It should be noted that October closings are some sold in August and September when the DOW lost 2,000 points. That made everyone nervous. Since October the DOW has made back that entire loss. I would think that sales numbers on a year over year basis to be stronger in November and December. I also fully expect sales to rebound and prices to begin to increase again soon after the new year.
Have a great weekend!
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