05_22_2020_blog

Market Commentary 5/22/20

The U.S. economy is slowly reopening, a welcome sign to our small business owners. Social distancing will keep customer-facing businesses operating well below capacity. However, it is important that businesses open before too much time passes and customer habits change for good, and employees move on. Policymakers will be looking to balance the threat of the disease against the risk of long-term structural economic destruction as our country tries to normalize. It will be interesting to see how consumers respond to the re-opening of malls, restaurants, and other communal businesses.  So much remains to be seen. We hope only for the best. 

The weekly unemployment numbers continue to increase, but at a slower pace and within the range of economists’ expectations. Lower-paying, customer-facing jobs have been most affected. The government response to this crisis, while far from perfect, has been effective at getting money to those who needed it most. The government is expected to take some hit on the PPP loans and other disaster relief programs but those programs are providing a lifeline to small businesses. The Federal Reserve back-stopped the entire bond market preventing a total collapse in both the equity and debt markets. If the Treasury and Fed had not worked as quickly as they did, things would be much worse at the moment. While there is still a tremendous risk to so many business owners, and there’s a long road to recovery ahead, never underestimate American entrepreneurship and innovation.  

How the housing market will be affected by the pandemic over a longer period of time remains to be seen, but there are signs that some consumer behavior will begin to normalize. There is certainly pent up demand for many products which is encouraging for the housing market, and our consumer-led economy. Low interest rates (which may even go lower assuming a successful re-opening of the economy) should act as a tonic to both the purchase and refinance market.  Home supply remains constrained and the warmer weather of late spring and summer should act as a tailwind for people looking to buy homes as studies suggest coronavirus appears to be less virulent in the warmer weather.

Insignia Mortgage remains committed to helping clients access attractive financing. Our lenders continue to make common-sense decisions and offer out of the box solutions with very attractive interest rates and terms.

05_15_2020_blog

Market Commentary 5/15/20

In another dismal week of economic data, equity volatility increased while bonds closed the week out the week essentially unchanged. Further adding to the horrible economic news, U.S. and China tensions increased as well as the U.S. is set to impose restrictions against Huawei Technologies.

Fed chairman Powell spooked markets this week with his comments calling for more federal financial support or risk long-term damage to the U.S. economy. Truthfully, no one knows how the economy will re-open and we need to support our citizens with both monetary and fiscal stimulus to avoid small business owners sinking to a point of no return. Federal support along with congressional bipartisanship is needed as businesses many businesses will need the lifeline of the government to be in order to hang on long enough to gradually reopen during the coming months.  

On the residential lending front, we are starting to see a little bit more optimism as some lenders begin to loosen up Covid-19 related guideline overlays. This is welcome news as we are also seeing a slight uptick in new purchase inquiries in what is normally the busiest home-buying season of the year. Some lenders have lowered interest rates and expanded loan-to-value guidelines in a bid to grab market share. Overall, the lending landscape remains tough to navigate, but transactions are closing, and that’s a win in this otherwise challenging moment.

Market Commentary 11/15/19

Market Commentary 11/15/19

The Goldilocks environment helping to fuel the rise in U.S. equities remains intact. Encouraged by an accommodative and responsive Fed, a healthy consumer, and tame inflation, the equities market grinds higher, even as some manufacturing data suggest the economy may worsen.  

In other positive news, there was an announcement from the White House that “Phase One” of the China trade deal is close to being signed. Taking all of these signals into account, the threat of a recession has been removed in the near-term horizon. In fact, should equities continue to shine, bond yields may very well rise as we head into the holiday season. The consumer feels good and is spending. 

Interest rates remain at near historic lows, supporting our thesis that mortgage rates should be locked at these levels. For anyone who has monitored the markets over the long-term, a 10-year Treasury yield under 2.000% is essentially free money in real terms, once inflation is factored in. Jumbo mortgage rates, which price off of the 10-year Treasury, continue to offer borrowers attractive rates even as the economy points to continued growth.

Market Commentary 10/25/19

Market Commentary 10/25/19

Stocks rose this week following good earnings news from America’s best companies, as well as some positive news on the China-U.S. trade issues. News can change on a dime on this issue so please take this into consideration when reading this post. While durable good orders were down slightly and the China trade conflict has created challenges for U.S. companies doing business in China, feedback from third-quarter earnings supports the slowing economy here in the U.S. and removes the recession narrative for now. Also, with over a 90% probability of a rate cut next week by the Fed, the yield curve has steepened. This is another good indicator that there is no near-term recession on the horizon and that the Fed has gotten out in front of the threat of recession.

New housing purchases slowed as interest rates rose from near-historic lows which put more pressure on borrowers to qualify. Rates are still very attractive and have definitely helped to spur purchase and refinance activity. With the 10-year now at ~1.80% from below 1.500% not too long ago, we continue to advise locking-in interest rates. 

In closing, the U.S economy continues to be in a “Goldilocks” trend as inflation is muted, unemployment rates are low, and businesses are doing fairly well. Keep an eye out for results of the Fed committee meeting along with numerous other economic reports which will be trickling in next week. 

9/13/19 blog featured image

Market Commentary 9/13/19

Equities have been on a tear this week and bond yields ripped higher as recession fears take a back seat to positive commentary out of the U.S. and China on trade talks. Further calming fears about the state of the U.S. economy was better than expected August retail sales report and the steepening yield curve. With the U.S. consumer comprising a majority of the economy, this report reinforces that there is no imminent recession in sight. Just last week the 10-year Treasury note was trading around 1.500% versus the current rate of 1.87%, a remarkable move in just a few days. With rates on the rise, the recent flood of applications by U.S. individual and corporate borrowers will subside, especially if rates move a bit higher from here. However, as we have opined previously, our feeling was that the U.S. economy is in pretty good shape and that a 10-year treasury under 1.500% was an alert to lock-in rates.

Across the pond, the ECB eased their monetary policy in response to their stalling economy and doubled down on negative interest rate policies. It is becoming unclear how much negative rates help economic viability, but with rates already so low and Europe teetering on recession, the ECB believes it is best to err on the side of more easing. These policies are creating havoc with respect to how to evaluate risk and are pushing investors into riskier asset classes in search of yield. The one positive for the U.S. borrower is negative rates abroad will limit how high interest rates will move back home.

The next big news event is the Federal Open Market Committee meeting next week. Odds heavily favor a rate decrease of one-quarter of one percent on the Fed Funds rate to keep pace with the easing going on in the rest of the developed world. It will be interesting to hear the commentary from the Fed Chair after the rate decision is made and how the markets respond to more easing. 

July-26-blog

Market Commentary 7/26/19

U.S. economic growth remains solid and better than many economists thought was possible just a few years ago, though it’s still below the White House’s goal of 4% growth.  However, our strong U.S. economy is halting the move to lower yields as all eyes are fixed on the action-packed economic calendar next week which includes the Core PCE reading, the Fed meeting, and the July jobs report.

The Bureau of Economic Analysis (BEA) reported that Gross Domestic Product (GDP) in the second quarter of 2019 rose 2.1%, down from 3.1% in Q1 though a surge in consumer and business spending. This pushed the personal consumption expenditures index higher by 4.5%, the best since Q4 2017. Recent tariffs and a global economic slowdown stunted growth somewhat in Q2 though a GDP with a 2% handle is still solid.

2nd quarter earnings proved better than expected as stocks continue to trade well on the good earnings coming out of some of the world’s biggest companies.  Interest rates remain low and consumer and business confidence remains high. With the Fed set to lower the short-term lending rates between .25% and .5%, fears of recession have been taken off the table for the time being.

With a resilient U.S. economy and the unemployment rate under 4%, we continue to appreciate long-term interest rates around 2%, but also watchful of a move higher in interest rates here in the U.S. if inflation ticks up.  However, one could argue that the U.S. economy does not need lower rates given the ongoing positive economic trends. Only time will tell if gloomier days are on the horizon given the slowdowns of the other major world economies.

It’s hard to time the bottom of the market, but with rates this good, we are biased towards locking.

July-19-blog 2019

Market Commentary 7/19/19

Bank earnings this week support the notion that the U.S. consumer is feeling pretty upbeat about the economy.  With consumer confidence high, the unemployment rate sitting at a 50-year low, and wages slowly rising, the consumer is doing just fine. Businesses and institutional analysts are not as upbeat citing slowing manufacturing data, slowing global growth rates, a flattened yield curve, and ongoing trade tensions with China as causes for concern.

The Fed is set to lower interest rates by .25% and possibly 5% at the end of July.  All signs point to this being a done deal. However, with a strong June jobs report, solid bank earnings, and some other positive manufacturing related data coming in better than expected, some economists are torn as to whether a rate reduction by the Fed is necessary. Other economists believe it is important to act fast and aggressively with monetary policy as the U.S. economy shows some signs of slowing, especially with interest rates already so low. 

With attractive interest rates for everything from car loans to home mortgages to corporate debt offerings, there has been increased demand for debt both in the corporate and consumer space.  Mortgage activity has been strong.  However, home prices in coastal areas are already very expensive so it’s still unknown whether lower interest rates will continue to drive on home buying trends.

Many did not see a return to 2% 10-year Treasury yields, so we remain cautious with respect to how much lower rates can go and we continue to advise locking in interest rates at these ultra-low levels

July-12-blog

Market Commentary 7/12/19

The prospect of lower rates has propelled the purchase of riskier asset classes such as equities. U.S. equities hit all times highs this week with the S&P index surpassing the 3,000 mark. 

Fed Chairman Powell spoke Wednesday and Thursday with Congress and all but assured the markets that there will be a .25% point decrease in the Fed Funds rate later in the month.  Market forecasters have already baked this rate increase into their investment strategies, but Chairman Powell used the visit to drive home the point.

Even with the prospect of lower short term rates, longer-dated Treasury bonds have moved higher with the all-important 10-year Treasury yield rising from below 2.00% to over 2.10% this past week.  This steeping of the yield curve is a good sign and has put to the side recession concerns for the moment. An increase in the CPI reading this week also put pressure on bond yields. So long as the inflation readings do not get too hot, a little inflation is another positive indicator of a good economy.

Economic readings remain a mixed bag of good and bad. Consumer confidence remains high, and unemployment remains at historic lows. Both are positives.  However, some key manufacturing and other producer related reading are starting to show signs of a slowdown.  Also weighing on the direction or long term growth are the ongoing trade negotiations with China and their uncertain outcome.

With respect to the mortgage market, rates continue to remain at very attractive levels and are spurring purchases and refinances in both the residential and commercial marketplace.  We continue to be biased toward locking-in loans at these levels as bank profitability remains under pressure due to the flattened yield curve. However, we do believe interest rates will remain low and do not foresee a big move up in rates in the near future.

Jun-21-blog

Market Commentary 6/21/19

Equities surged this week with the S&P 500 reaching a record high in response to an accelerated fall in global bond yields. The 10-year U.S. Treasury benchmark fell to 2.00% for the first time since 2016 while German government yields went further negative. All bonds issued by first world nations are trading well below where most economists predicted just a few months ago as the ongoing trade tensions and tariffs with China, as well as a sputtering European economy, and low inflation readings weigh on central bankers. 

With rates already low, Fed Chairman Powell commented on the need to be pro-active (dovish) with a potential rate cut should the data support further accommodation in order to stave off a recession. Earlier in the week, the ECB reiterated a willingness to push yields lower through QE measures in order to spur economic activity. With bloated government balance sheets that were amassed during the Great Recession, the drop in bond yields reflects the difficult position the Fed and other Central Banks are in as the path to more normalized monetary policy has stalled.  The real fear is that with rates already so low all over the world, there is not much more the monetary policy can do to boost economic growth. 

The big beneficiary of low yields are borrowers, as evidenced by the surge in home buying and refinance activity in the past few months. Rates are incentivizing new home purchase and reducing borrowers monthly expenses with new lower mortgage payments on refinances. Lenders remain hungry for business and the drop in rates has increased borrower affordability.

With rates near 2.00%, a level we admit caught us off-guard, we are strongly biased toward locking in rates because lending institutions are at capacity and will need to raise rates to meet turn times. While we can see rates go lower, the benchmark 10-year Treasury near 2.000% is pretty sweet.

June-7-blog

Market Commentary 6/7/19

Treasury yields dropped this week to a 21-month low. Multiple Fed officials spoke of the possibility of lowering short-term interest rates as ongoing trade tensions with China begin to wear on the U.S. economy. Further causes of concern include slowing manufacturing data both in the U.S. and abroad, negative interest rates in Europe and Japan, and the European Central Bank opining on the high probability of rate cuts in the Eurozone to combat its sluggish economy.

At the moment, there are several conflicting economic signals: consumer and business confidence is strong, but other key economic data are showing signs of a potential recession on the horizon. Of greatest concern is the 3-month to 10-year Treasury curve, which has inverted. A prolonged inversion supports the notion that the markets believe rates are too high, and more importantly, it is a key recession indicator. 

Further pushing bond yields lower Friday was the release of the May Jobs report which came in much cooler than expected (75,000 actual versus 185,000 estimated). Some of the weakness in hires last month could be blamed on worker shortages in certain sectors such as construction. It will be interesting to see how the June jobs report plays out. A tepid June jobs report will all but guarantee a Fed rate cut.  Due to the Fed Funds Rate already at a very low level relative to the length of the economic recovery which dates back almost 10 years now, the Fed has very little room to lower short-term rates and it will act sooner than later once it believes economic growth is stalling. 

Speaking of rate cuts, corporate and individuals are enjoying lower borrowing costs and lenders are aggressively pricing home and commercial loans in the search for new business. With so many experts expecting lower rates to come, we continue to advise clients to be cautious as any unexpected good news (think trade deal with China) could catch markets off guard.  For the moment, we are biased toward floating rates at these levels with the understanding the market is severely overbought.