Market Update as of October 31, 2018

Stock Market Loses YTD Gains
Like last week, trade war jitters between China and the US continue to grip the markets as the DOW and S&P have now lost 10% of their values since printing record highs in September.  The DOW was down nearly 500 points yesterday while the S&P was off 35 points.  Unfortunately for the rate markets, the selloff in stocks has hardly caused an opposite reaction in the US bond market.  The 10yr note is down to 3.07%, after reaching 3.05% during the European trading session.  Mortgage rates are sharply unchanged.   While we would typically see investors flock to the safe havens of US Treasuries and mortgages with such an equity selloff, the Fed’s rate hike trajectory and surging government borrowing needs ($1.34 TRILLION in 2018) are proving to be too much of a hurdle to knock rates off course.  While the markets will be closely monitoring trade war headlines, we do have a few economic data points worth paying attention to this week, including:  Case/Shiller HPI, ISM, Weekly Claims, and the September Employment Report. 

Consumer Sentiment Unfazed By Stocks
U.S. consumer confidence rose again this month, hitting an 18-year high. The Conference Board said Tuesday that its consumer confidence index climbed to 137.9 in October from 135.3 in September. Both readings are the highest since September 2000. The index measures consumers’ assessment of current economic conditions and their outlook for the next six months. Both improved in October. “Consumers do not foresee the economy losing steam anytime soon,” said Conference Board economist Lynn Franco. “Rather, they expect the strong pace of growth to carry over into early 2019.” The share of respondents saying that jobs are “plentiful” rose this month to 45.9 percent, highest since January 2001. Consumers’ spirits have been lifted by a strong labor market. Unemployment has dropped to 3.7 percent, lowest since 1969. The government reported Friday that consumer spending from July through September was the strongest in nearly four years.

Case-Shiller Index Cools
Mortgage interest rates didn’t begin their recent surge until the start of September, but home prices were already feeling pressure, as fewer people could afford what was for sale. Nationally, prices rose 5.8 percent in August compared with August 2017, according to the S&P CoreLogic Case-Shiller home prices indices (The S&P’s Case-Shiller Indes measure repeat home sales in the US). That is less than the 6 percent annual gain in July. The index’s 10-City Composite rose 5.1 percent annually, down from 5.5 percent in the previous month. The 20-City Composite posted a 5.5 percent year-over-year gain, down from 5.9 percent in the previous month. “Following reports that home sales are flat to down, price gains are beginning to moderate,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices in a release. “Rising prices may be pricing some potential home buyers out of the market, especially when combined with mortgage rates approaching 5 percent for 30-year fixed rate loans.”

 Europe Continues To Struggle

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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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