Mortgage rates remain at all-time low levels.
Economic data came in below expectations yet stocks are trading slightly higher demonstrating a new paradigm for the markets. Earlier today sales of previously owned homes was reported to have dropped to the lowest level since November according to the National Association of Realtors. The housing market had been on a convincing track for the first half of the year but this morning’s numbers show that there still may be some vulnerability.
In a separate report, the number of workers filing for unemployment benefits rose sharply last week raising concerns that economy is backtracking into another slowdown. So why are stocks trading higher on poor economic news?
Partially because the corporate earnings season has been fairly good but also because weak economic data increases the likelihood that the Fed will initiate another round of quantitative easing which is designed to keep interest rates low and boost asset prices (such as stocks). Although it’s difficult to quantify I would argue that another round is already largely priced into the current low level of interest rates so that if the Fed indicates that they will not enact or will delay quantitative easing we’re likely to see rates rise.
What’s new in Europe? You guessed it…NOTHING. Spain was able to successfully sell about €3 billion in government securities but at elevated yields. The Spanish government is still trying to secure a bailout for their banks making it the 4th EU country to request bailout money. Until Germany gives in to “co-signing” for peripheral countries debts I don;t expect much to change there.
Current Outlook: neutral