Preparing For A Slow Down
Stocks around the world and commodities declined again Wednesday, as worries about slowing economic growth spurred a fresh retreat from riskier investments. The Dow Jones Industrial Average fell 208 points, or 0.8%, to 25139. The S&P 500 dropped 0.7%, with every sector dropping. The broad equity gauge fell in five of the seven sessions through Tuesday, dipping 4.9% below its April 30 record and hitting a two-month low. The tech-laden Nasdaq Composite declined 0.6%. The yield on the benchmark 10-year U.S. Treasury note, which is tied to everything from mortgage rates to student debt, also extended a recent slide, dropping to 2.227%, according to Tradeweb, from 2.268% a day earlier. Tuesday’s close was its lowest settle since September 2017. Bond yields fall as prices rise and have dropped with investors seeking safety in Treasuries lately. Fears that a drawn-out U.S.-China tariff dispute will add pressure on an already slowing world economy have rocked markets lately. President Trump indicated Monday that a near-term deal between the two sides is unlikely, and economic data pointing to weakness around the globe has added to growth concerns in recent days.
Pending Home Sales Face Big Decline
Pending home sales fell sharply for the month of April. Sales were 2% lower than in March, marking the 16th straight month of declines. There are probably a few reasons for the slide. Initially, rising interest rates at the end of last year hiked costs for borrowers, which obviously makes it harder for people to afford houses and sales slowed. Over that same time period, prices had been pushing way higher, especially in dense inner metro areas that saw their populations soar. Starting a few months ago we saw weakness on the very high end of housing. It would seem that home buyers are more weary than they were in ‘08 and they walked away from the table. While I would like to think that’s the case, it’s more likely that they couldn’t get the necessary leverage from banks to spend unreasonably. One thing I believe people are underestimating, is the changes to the mortgage tax deduction. In states were citizens already carry a large tax burden, this change made the math of buying expensive property a little worse and that puts downward pressure on prices. I would expect prices and sales to be a mixed bag going forward, there are distinct regional stories going on here, young people moving to the south, Midwest losing its suburbs, northeast high end flailing and the west coast… well the west coast is more tied to tech stock prices than it is buyer/seller dynamics so your guess is as good as mine.
Cut Those Rates
Federal Reserve officials are beginning preparations for a June policy meeting with difficult choices to deliberate. One month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer. Now officials face a darker economic outlook, making a rate cut possible—if not at their meeting on June 18-19, then possibly in July or later. Officials need to decide what would trigger such action, how much more information they want before making a decision and how to signal their intentions and plans. The Fed is set to begin their customary pre-meeting quiet period at the end of this week. Traders in futures markets have placed about a 25% chance of a rate cut at the June 18-19 meeting, and 75% chance of at least one cut by the meeting after that, on July 30-31, according to CME Group . Unlike in May, officials haven’t expressly pushed back against market pricing on rate cuts in recent days. Instead, Fed officials, who gathered at the Federal Reserve Bank of Chicago this week for a research conference, signaled in broadcast interviews and speeches that they are attentive to the risks of a sharper-than-expected slowdown in growth, a sign that an interest-rate cut could be on the table at coming meetings.
Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.
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