Stocks rally on hope that lower rates overseas will stimulate economies abroad – While central banks around the world have dropped rates to stimulate their economies investors are becoming more optimistic that a global slowdown is likely to reverse. Japan actually lowered rates from 0% to negative rates! I guess the answer to: once you are at 0% how can you drop rates to stimulate the economy?, has been answered! Negative rates mean banks are charged to hold money on deposit with the central bank, and paid to borrow money from the central bank. The theory is that the cheaper money is for banks the more likely they will loan it out at low rates. With negative rates it actually costs banks money not to loan it out! By making money cheaper to borrow and loosening up requirements companies borrow more. They use this to expand and invest which stimulates the economy. Oil also rose this week which helped energy stocks. Oil dropped to near $30 per barrel on Tuesday and rose from there to end the week just below $35 a barrel. Oil ended the week up about $4 per barrel from last Friday. As quarterly earnings have begun to be reported, most U.S. Companies that have reported earnings were above expectations. The Dow Jones Industrial Average closed Friday at 16,466.30 up from 16,093.51 last week. TheS&P 500 closed the week at 1,940.24 up from 1,906.90 last week. The NASDAQ closed Friday at 4,613.95 up from 4,591.18 last week.
Bond yields drop – Japan’s central bank announcement that it was dropping its benchmark rate from 0% to negative rates not only boosted stocks it drove money into U.S. Bonds which drove yields down. Bond yields remained near the lowest levels which have been reached from time to time over the past few years. The 10 year U.S. Treasury bond yield closed Friday at 1.94% , significantly lower than 2.07% last week. The 30 year U.S. Treasury bond yield closed Friday at 2.75%, down from 2.83% last week.
Mortgage rates drop to lowest levels in 2 years – As central banks around the world have dropped rates our bond and mortgage security rates, while historically low, offer a decent return comparatively. This has pushed rates lower. The 30 year fixed rates below loan amounts of 419,000 are around 3.625%. 30 year rates for loans above 419,000 are just under 4%. The 15 year fixed was around 3.10%. The 5 year was around 3%.
I will be sending a month end summary that will detail the full month in the next couple of days. We get January jobs numbers next Friday. Stay tuned!
Have a great weekend!
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