Market Update 6/4/2018


Weekly Review

The major stock market indexes were “mixed” for the week with the Dow Jones Industrial Average modestly lower while the Nasdaq Composite and S&P 500 Indexes posted moderate gains.  Early in the holiday-shortened week, investors had to navigate political unrest in Italy and Spain as well as news of U.S. imposed tariffs on steel and aluminum from Canada, the European Union, and Mexico that sent stock prices lower and bond prices higher.  On Tuesday, the turmoil in Italy triggered such a demand for safe-haven securities that a rally in U.S. Treasuries sent the 10-year Treasury note’s yield to its largest one-day decline since June 2016 when Great Britain voted to leave the European Union.

However, the stock market bounced back on Friday following news that the summit with North Korea is back on as originally scheduled for June 12, and on a strong Employment Situation report for May.  The Employment Report showed a better than forecast increase in nonfarm payrolls (+223,000) and a lower than expected unemployment rate of 3.8%, an 18-year low.  Average hourly earnings matched expectations showing only moderate wage inflation with a month-over-month increase of 0.3%.

There were a couple of housing-related reports released this past week.  Thursday, the National Association of Realtors released their Pending Home Sales Index data for April.  This forward-looking indicator based on contract signings showed an unexpected 1.3% decline to 106.4 in April from an upwardly revised 107.8 in March.  The Index was lower on an annualized basis (by 2.1%) for the fourth straight month.

Lawrence Yun, NAR chief economist, had this to say about the report: “Pending sales slipped in April and continued to stay within the same narrow range with little signs of breaking out... the underlying sales data, reveals that the demand for buying a home is very robust.  Listings are typically going under contract in under a month, and instances of multiple offers are increasingly common and pushing prices higher…For now, the economy is very healthy, job growth is holding steady and wages are slowly rising.  However, it all comes down to overall supply.  If more new and existing homes are listed for sale, it would allow home prices to moderate enough to stave off inflationary pressures and higher rates.”


From the mortgage industry, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey continued to show a drop in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) decreased 2.9% during the week ended May 25, 2018.  The seasonally adjusted Purchase Index fell 2.0% from the week prior while the Refinance Index decreased by 5.0% to its lowest level since December 2000.

Overall, the refinance portion of mortgage activity fell to 35.3% from 35.7% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% from 6.8% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.84% from 4.86% with points decreasing to 0.47 from 0.52.

For the week, the FNMA 4.0% coupon bond gained 7.9 basis points to close at $101.938 while the 10-year Treasury yield decreased 2.9 basis points to end at 2.902%.  The Dow Jones Industrial Average lost 117.88 points to close at 24,635.21.  The NASDAQ Composite Index added 120.48 points to close at 7,554.33.  The S&P 500 Index gained 13.29 points to close at 2,734.62.  Year to date on a total return basis, the Dow Jones Industrial Average has lost 0.34%, the NASDAQ Composite Index has added 9.43%, and the S&P 500 Index has advanced 2.28%.

This past week, the national average 30-year mortgage rate decreased to 4.60% from 4.61%; the 15-year mortgage rate was unchanged at 4.04%; the 5/1 ARM mortgage rate decreased to 3.93% from 3.95% while the FHA 30-year rate fell to 4.38% from 4.40%.  Jumbo 30-year rates increased to 4.66% from 4.65%.


Economic Calendar - for the Week of June 4, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.


Mortgage Rate Forecast with Chart - FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.938, +7.9 bp) traded within a narrower 75.0 basis point range between a weekly intraday high of 102.578 on Tuesday and a weekly intraday low of $101.828 on Friday before closing the week at $101.938 on Friday.  After moving above resistance at the 50-day moving average (MA) and running into the 100-day MA on Tuesday, the bond traded back to the 50-day MA by Friday’s close.  This action resulted in a new sell signal from a negative stochastic crossover from an “overbought” position.  As a result, we could see a move down toward the 25-day MA resulting in lower bond prices and slightly higher mortgage rates.

Rob TennysonComment