MMRecap for Feb. 24th

Posted by Joel pate in Uncategorized. Tagged:

Due to President’s Day, last week was another four-day week, but this one started on a promising note. The yield on the 10-year Treasury note, which moves in the opposite direction of price, dropped four basis points Tuesday morning, thanks in part to Fed Chairwoman Janet Yellen’s comment that she would continue the Fed’s market-friendly policies.
Economic indicators disappointed on Tuesday, coming in below expectations. Of course you can’t ignore the miserable weather most of us have suffered over the past few weeks and the impact it has had across the country. Tuesday, the Empire State index on manufacturing conditions plunged to 4.5 from 12.5 in January. The National Association of Home Builders confidence poll also dropped sharply, falling 10 points to 46 in February.
Let’s blame the weather for Wednesday’s report that showed the major drop in housing starts/building permits in January. Starts plunged to an annual rate of 888,000 units from December’s 1.048 million units, while permits dropped to an annual rate of 937,000 from the previous 991,000 units. In addition, the National Association of Home Builders confidence poll slid 10 points to 46 in February.
January’s producer price index rose 0.2% from the previous 0.1%. The core rate, which excludes food and energy prices, held at 0.2%.
The minutes of the January meeting of the FOMC, released Wednesday afternoon, revealed that the Committee is discussing raising the fed funds rate, which has held at “0%” since December 2008. Initially, it would increase in 0.25% increments when unemployment reaches 6.5%. However, unemployment came within a hair of hitting that mark in January, when it fell to 6.6%.
Several Committee members believe that lowering the rate if unemployment hits 6.5% would be premature, but others think it could or should be raised by the “middle of this year.” Should these scenarios occur, investors will probably suffer another round of angst waiting for the decision. If nothing else changes, the Committee will likely pare another $10 billion from its monthly bond-buying program.
Thursday began with initial jobless claims for the week ended Feb. 15, and they remained close to the prior week’s total of 339,000, coming in at 336,000. Continuing claims, those seeking a second or more weeks of benefits, were little changed at 2.981 million. Later, the Philly Fed Index on manufacturing fell -6.3% from the previous 9.4 reading—bad news. And leading economic indicators dipped by -0.3% from the previous 0.0% reading.
When the markets closed, the 10-year yield remained at 2.71%. Only the Dow closed in negative territory, dropping 24 points, or -0.15%. The unstoppable Nasdaq added 28.75 points, or 0.68%, and the S&P 500 tacked on 2.71 points, or +0.12%.
Bonds were down Thursday morning, with the yield on the 10-year note dropping to 2.68%, but when the markets closed, it was back up to 2.73%.
Friday also offered a couple of disappointing reports. And leading economic indicators slid to -0.3% from the previous 0.0% reading.
Existing home sales in January took a horrendous fall. Total sales were 4.62 million units, down from 4.87 million in December. That news bumped the 10-year yield down to 7.73% from 2.76%.
When the markets closed, it was obvious that it was a downer of a day. All three indices closed in the red. The Dow fell close to 30 points, or -0.19%. The Nasdaq slid 4.14 points, or -0.10%, while the S&P 500 dipped by 3.53 points, or 1.92%.
According to the Mortgage Bankers Association, mortgage applications fell 4.1% during the week ended February 14. Refis were also down 3%. The seasonally adjusted purchase index plunged 6%, its lowest level since 9/11. The 30-year conforming loan interest rate rose to 4.50%.
Once again, today is a “no report” Monday, so traders are on their own as far as economic reports go. However, the rest of the week makes up for that.
Tuesday begins with the Case/Shiller home price index for December, which is expected to show a 12% increase year-over-year. The Federal Home Finance Agency’s home price index follows. It showed a 0.1% increase in November, but no further estimates are available.
The market-moving consumer confidence report for February probably won’t influence trading this time around. Analysts believe it could edge up to 81 from the previous 80.7, which if true, would be ignored.
New home sales are up first on Wednesday, but they’re facing the same problems as most of the reports. Annual sales in December were listed at 414,000 homes. The outlook for January is 400,000.
Thursday, as usual, begins with initial jobless claims, which could drop by 6,000 to 2.981 million.
Orders for durable goods, big-ticket items meant to last more than three years, fell by -4.2% in December, but things are looking up. A -0.2% decline is expected. Excluding orders for transportation, e.g., planes, trains and automobiles, orders could fall. They are expected to slide -0.6%, versus the revised -1.3% decline in December.
Friday begins with the most important report of the week—the second estimate of 4th quarter GDP. (The GDP is published three times each quarter: the initial report, the second estimate, and the final report.) It is expected to drop to 2.4% versus the previous 3.2%. That would send the 10-year yield down.
It will be followed by the Chicago PMI reading on manufacturing conditions in the Midwest. Economists believe it will fall to 55 from the previous 59.6. The University of Michigan’s consumer sentiment survey has possibilities. Analysts predict it will increase to 82 from 81.2.
The final report, pending home sales in January, hopefully will end on a positive note. They fell -8.7% in December, but should recover to -1.0% in January.

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