The Market Week

>> Market Update
Quote of the week... "I've been blamed for just about everything that's wrong with this country."--Elvis Presley

INFO THAT HITS US WHERE WE LIVE... We who work in the real estate and mortgage industries know exactly how Elvis felt. The same people who unfairly blamed us totally for the recession now look to us alone for signs the economic recovery has taken hold. They might want to remember the health of the housing market is directly dependent on the health of the jobs market, which is not under our control. In any case, everyone felt better last week when January Housing Starts were UP a surprising 14.6%. Even though starts are down 2.6% from a year ago, this still shows builders are more hopeful going forward. The boost came from multi-family units, though single-family starts were off a mere 1% for the month.

A lot of home buying activity is due to the affordability now out there. The National Association of Home Builders (NAHB) and a major bank reported their index shows home affordability in Q4 of 2010 at its highest level in 20 years. Their measure found that 73.9% of the new and existing homes sold in Q4 were affordable to families making the national median income of $64,400.

Business tip of the week... A big part of success is not giving up. Studies show that one trait shared by all very successful people is perseverance. They are persistent, determined, tenacious, pursuing a goal far beyond the point where the average person gets discouraged.
>> Review of Last Week
THE BULLS KEEP CHARGING... It's not like the running of the bulls at Pamplona just yet, but the bulls on Wall Street are definitely picking up steam. We had another weekly gain in the stock market as the three major indexes were up around 1% and the Dow and the S&P 500 hit new two-year highs. The Nasdaq reached a three-year high, just short of its 2007 peak. If the stock markets are a leading indicator of the overall economy, the recovery should pick up steam as the year goes on.

There were worries over rising Chinese interest rates and disruptions in the Middle East, but these were dispelled by the economic reports. The consumer is key to the recovery, so it was good to see retail sales are now UP seven months in a row. Inflation was a little hotter than expected, as year-over-year, the Core Consumer Price Index is now up 1.0%. Core CPI, the Fed's key inflation reading, is still within their target range and observers feel deflation concerns are now put to rest.

In other news, the Empire State Index showed manufacturing continuing to expand. This is great, though the jobs recovery depends on the services sector, where over 85% of the workforce is employed. Fortunately, that sector is expanding at its fastest pace in five years. Let's hope the jobs follow.

For the week, the Dow ended UP 1.0%, at 12,391; the S&P 500 was also UP 1.0%, to 1,329; and the Nasdaq went UP 0.9%, ending at 2,834.

Even with the stock surge, bond prices held on. Inflation was a little hotter than expected, but still tame. The FNMA 4.0% bond we watch ended up 18 basis points for the week, closing at $97.18. Mortgage rates, which had been inching up, fell back a bit. Freddie Mac's weekly survey of conforming mortgages showed national average fixed-rate mortgage rates remained near historic lows.
>> This Week’s Forecast
JANUARY HOME SALES, CONSUMER MINDSET, Q4 GDP... Happy Presidents Day! The markets will be closed Monday but then we'll have some important economic reports. January Existing Homes Sales on Wednesday are expected to be a tad off December's pace. The same goes for January New Home Sales on Thursday.

The week begins and ends with readings on the consumer mindset. Tuesday's Consumer Confidence is forecast up for February while Friday's Michigan Consumer Sentiment should hold steady. January Durable Goods Orders are predicted to be growing again, a sign business is investing in capital equipment and, perhaps next, in jobs. Friday, we get the second estimate of Q4 GDP, expected to be up a bit from the original estimate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of February 21 – February 25
Date Time (ET) Release For Consensus Prior Impact
Tu
Feb 22 10:00 Consumer Confidence Feb 67.0 65.6 Moderate
W
Feb 23 10:00 Existing Home Sales Jan 5.23M 5.28M Moderate
Th
Feb 24 08:30 Durable Goods Orders Jan 3.0% –2.3% Moderate
Th
Feb 24 08:30 Initial Unemployment Claims 2/19 410K 410K Moderate
Th
Feb 24 08:30 Continuing Unemployment Claims 2/12 3.900M 3.911M Moderate
Th
Feb 24 10:00 New Home Sales Jan 310K 329K Moderate
Th
Feb 24 11:00 Crude Inventories 2/19 NA 0.86M Moderate
F
Feb 25 08:30 GDP – Second Estimate Q4 3.3% 3.2% Moderate
F
Feb 25 08:30 GDP Deflator – Second Estimate Q4 0.3% 0.3% Moderate
F
Feb 25 09:55 U. of Michigan Consumer Sentiment – Final Feb 75.1 75.1 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months You hear a lot more experts now disagreeing with Fed policy, including some Fed members. But Fed Chairman Bernanke seems determined to keep the Funds Rate at its rock bottom level until we see stronger signs of economic growth and jobs recovery. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 2%