Stocks sell off this week as oil prices hit multi year lows – Stocks sold off this week as investors feared that a sharp drop in commodities and oil prices was a sign of weakness in the global economy. This occurred after The International Energy Agency reported that the oversupply of oil would persist until late next year. They further reported that demand for oil has continued to soften, even at the reduced prices. Benchmark U.S. Crude oil dropped to $35.62 a barrel. Oil prices have fallen for 18 months and are now about 1/3 of the price they were just a year and a half ago. Stocks sold off Friday led mostly by energy sector stocks, and mining. Commodities dropped in price as well. The Dow Jones Industrial Average closed the week at 17,265.21, down from last week’s close of 17,847.63. The S&P 500 closed the week at 2,012.27, down from last Friday’s close of 2,091.69. The NASDAQ closed the week at 4,933.37, down from last week’s close of 5,142.27.
Treasury bonds yields drop – Bond yields posted their largest one day drop on Friday since July as commodities prices tumbled following a slump in oil prices. The 10 year treasury bond yield closed the week at 2.13%, down from 2.27%, last Friday. The 30 year treasury bond yield closed Friday at 2.88%, down from last week’s close of 3.01%. Much of the gain in bond prices, which drive yields down, was caused Friday as investors sold off commodities and energy stocks and bought U.S. treasury bonds in a rush to safety.
Mortgage rates lower this week – The 30 year fixed rates are around 3.875% for loans up to $417,000, and around 4.125% for loans over $417,000. The 15 year fixed rate loans are about 3.25% for loans up to $417,000, higher loan amounts have rates that are around 3.375%. 3-Year ARM and 5 -Year ARM rates are both around 2.875%.
Retail Sales better in November – The Commerce Department reported that retail sales rose 0.2% in November. This followed a 0.1% increase in October and a 0.1% drop in September. The news was positive, yet not met with any excitement either way by investors.
Federal Reserve meeting this week – Speculation is that the Federal Reserve will announce its first rate hike in nearly a decade – The Federal Open Market Committee meeting will be held this Tuesday and Wednesday, December 15-16. The FOMC sets interest rate policy. It is widely believed that the Fed will announce a 1/4% rise in the Federal Funds and Discount rates on Wednesday at the conclusion of the meeting. Interest rates are used by the Fed to control inflation, and to stimulate or slow the economy. The last interest rate hike was in 2006. In 2007 The Fed began reducing rates, first due to the credit market collapse and later in 2008 to help lift the country out of recession. By 2009 the Fed had dropped its benchmark rates to 0%, an unprecedented step. Over the next few years they used other policies which they called “quantitative easing” to pump money into the economy. Those included purchasing treasury bonds and mortgage securities. At one point they were purchasing $85 billion a month worth of these investments to help lower long term rates. This was done to encourage borrowing which encourages investing. These quantitative easing programs ended in 2014, as the economy and job market strengthened, yet the benchmark rates set by the Fed have remained at 0%. At the depths of the recession in October of 2009 the U.S. unemployment rate peaked at 10%. It has dropped dropped steadily and was 5% in November 2015. Many experts have wondered why the Fed rates have been at this unprecedented low rate for so long. It is widely expected that the Fed will announce that they will begin to rise rates slowly with the first increase on Wednesday. These rates are overnight rates that The Fed charges banks for money owed. If the Fed does announce a rate hike expect banks to increase their “prime” lending rate the same percentage. As for home loans: Equity lines that are tied to prime will increase. Long term loans like 15 and 30 year fixed terms will probably not be affected. Short term adjustable rates will increase. Savers will see higher savings rates paid to them on bank accounts. Next week’s update will include what the Fed did and what followed as a result!
Have a great weekend!
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