Weekly Market Update
October 21, 2019

The major stock market indexes ended “mixed” for the week with Dow Jones Industrial Average posting a minor loss while the others recorded modest gains.  Bonds traded relatively flat for the week despite some weaker than expected economic news that may have been offset by several upside surprises in corporate earnings reports as the third quarter earnings season got underway.

 

For example, UnitedHealth Group reported better-than-expected revenues on Tuesday and raised profit guidance for the year.  Earnings from JPMorgan Chase and Goldman Sachs exceeded analyst expectations and Netflix reported a larger-than-expected gain in international subscriptions, leading to a spike in that stock’s share price.  However, analysts polled by FactSet project overall earnings for S&P 500 corporations to have declined slightly for the third consecutive quarter.

 

Economic data wasn't very positive during the week, but it did help strengthen the potential for another 25 basis point Fed rate cut at the October FOMC meeting.  Industrial Production fell more than anticipated (-0.4% vs. -0.3% forecast) in September and has now declined in five of the last nine months, although August’s strong increase was revised higher.  U.S. Retail Sales fell unexpectedly by 0.3% in September versus a consensus forecast of +0.3%, and China's 3rd Quarter GDP was reported at +6.0% – its slowest year-over-year GDP growth in 27+ years.  Also of note, last Tuesday, the International Monetary Fund (IMF) cut its 2019 growth forecast for the global economy from 3.2% to 3.0%, citing the negative effects of rising trade tensions.

In housing news, the National Association of Home Builders (NAHB) reported last Wednesday their Housing Market Index increased to 71 in October 2019 from 68 in the previous month and above market expectations of 68.


 It was the highest reading since February 2018.  The sub-index for current single-family rose to 78 from 75 in September; the sub-index for prospective buyers went up to 54 from 50 and the measure for home sales over the next six months surged to 76 from 70.

 

The NAHB Housing Market Index in the United States averaged 50.53 from 1985 until 2019, reaching an all- time high of 78 in December of 1998 and a record low of 8 in January of 2009.

Last Thursday, the Commerce Department reported Total Housing Starts unexpectedly fell by a disappointing 9.4% month-over-month in September to a seasonally adjusted annual rate of 1.256 million versus a consensus forecast of 1.306 million.  The weakness was due to a downturn in multi-unit dwellings as single-family Starts were up 0.3% to 918,000 while single-family housing permits were up 0.8% to 882,000.

 

Building Permits fell 2.7% to a seasonally adjusted annual rate of 1.387 million but this was above a consensus forecast of 1.350 million.

 

A breakdown by region shows single-family starts were down 1.6% in the Northeast; down 8.3% in the Midwest; up 7.1% in the South; and down 8.7% in the West.  Single-family permits were down 14.5% in the Northeast; up 13.6% in the Midwest; up 1.4% in the South; and down 3.3% in the West.  The number of units under construction at the end of September equaled 1.157 million leaving the third quarter average 1.6% above the second quarter average – a positive input for 3rd Quarter GDP forecasts.

 

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 0.5% for the week ended October 11, 2019.  The seasonally adjusted Purchase Index decreased 4% from a week prior while the Refinance Index increased 4%.  Overall, the refinance portion of mortgage activity increased to 62.2% from 60.4% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 5.5% from 5.3% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 3.92% from 3.90% with points decreasing to 0.35 from 0.37 for 80 percent loan-to-value ratio (LTV) loans.

 

For the week, the UMBS 3.0% coupon bond finished 6.02 basis points lower to close at $101.141 while the 10-year Treasury yield decreased 0.06 of one basis point to end at 1.754%.  The Dow Jones Industrial Average retreated 46.39 points to close at 26,770.20.  The NASDAQ Composite Index climbed 32.50 points to close at 8,089.54.  The S&P 500 Index added 15.93 points to close at 2,986.20.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 14.76%, the NASDAQ Composite Index has gained 21.92%, and the S&P 500 Index has advanced 19.12%.

 

This past week, the national average 30-year mortgage increased to 3.80% from 3.79%; the 15-year mortgage rate was unchanged at 3.38%; the 5/1 ARM mortgage rate decreased to 3.45% from 3.48%; and the FHA 30-year rate increased to 3.40% from 3.35%.  Jumbo 30-year rates increased to 3.82% from 3.80%.

 

Economic Calendar - for the Week of October 21, 2019

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

Date

Time

ET

Event /Report /Statistic

For

Market Expects

Prior

Oct 22

10:00

Existing Home Sales

Sept

5.52M

5.49M 

Oct 23

07:00

MBA Mortgage Applications Index

10/19

NA

0.5%

Oct 23

09:00

FHFA Housing Price Index

Aug

NA

0.4%

Oct 23

10:30

EIA Crude Oil Inventories

10/19

NA

+8.0M 

Oct 24

08:30

Initial Jobless Claims

10/19

217,000

214,000

Oct 24

08:30

Continuing Jobless Claims

10/12

NA

1,679K

Oct 24

08:30

Durable Goods Orders

Sept

-1.0%

NA

Oct 24

08:30

Durable Goods Orders excluding transportation

Sept

-0.3%

$84.3B

Oct 24

10:00

New Home Sales

Sept

703,000

713,000

Oct 24

10:30

EIA Natural Gas Inventories

10/19

NA

+104 bcf

Oct 25

10:00

Final Univ. of Mich. Consumer Sentiment Index

Oct

95.8

96.0

 

Mortgage Rate Forecast with Chart - UMBS 30-Year 3.0% Coupon Bond

 

The UMBS 30-year 3.0% coupon bond ($101.141; -0.06 bp) traded within a far narrower 35.9 basis point range between a weekly intraday high of $101.375 on Tuesday and a weekly intraday low of 101.016 on Friday before closing the week at $101.141 on Friday.

 

There wasn’t much movement in the UMBS 30-year 3.0% coupon bond price during a holiday- shortened (Columbus Day) trading week for bonds.  The bond hugged the 100-day moving average ($101.0833) support line during the week while continuing to trade on a sell signal from the prior week.  The bond is still not yet “oversold,” but is closely approaching “oversold” status so we may continue to see some small degree of price weakness before seeing a bounce higher in price toward resistance levels at the 25-day ($101.338) and 50-day ($101.506) moving averages.

 

If the bond can manage to hold above the 100-day moving average, mortgage rates should remain close to current levels.  However, a break below the 100-day moving average could very well result in a continuation move lower toward the next support level at the 38.2% Fibonacci retracement level (100.376) resulting in a slight worsening in mortgage rates.  However, a bounce higher off the 100-day moving average toward the aforementioned resistance levels could slightly improve rates.