August 17, 2009
August 17, 2009 by admin
The global equity markets sold off sharply overnight and brought the U.S. stock market sharply lower on Monday. Stocks were off over two percent in early trading and investors appear to being growing more concerned that the stock market rally over the last five months is over. The markets six month winning streak was fueled by confidence that the worst was over and the recession would not turn into a global depression. Investors appear to be growing a bit more concerned that the corporate earnings will fall below expectations as consumers are reluctant to begin spending and confidence remains lower than anticipated.
The sell off that began late last week has been suggested by numerous investment strategists for some time. The economic news has been much better that expected on a number of fronts and has helped to drive the market up almost forty five percent since early March. The challenge is that pace was simply unsustainable. The strategists that predicted the market was due for a correction were simply aligning themselves with the philosophy that the market has risen to far to fast and investors would look to lock in profits along the way.
The timing of the selloff is interesting as it arrives prior to another key week of housing news. Many experts are looking for a solid set of new housing reports this week, showing further evidence that the real estate market has bottomed out. Home sales appear to have turned at an opportune time, after months of tax incentives and historic low mortgage rates. The resale home sale report for July will be one of the biggest economic reports of the week and could set the tone for the balance of August. Home foreclosures still appear to be the real estate markets largest Achilles heals, and there is no early sign of relief on this front.
The dramatic global equity sell off is predictably driving yields on bonds lower. The ten year bond is again under 3.5% and appears to be moving lower as investors look to protect themselves from a potential equity market correction. The stock market sell off is helping to drive oil prices lower. Oil has dropped by over $5 per barrel in less than one week. Slowing the movement of higher energy prices helps to keep a key element of inflation out of the market, which is good for bond yields. The mortgage market is benefitting from the current correction as long term mortgage rates are again moving lower. Fixed rate home loans on fifteen year loan terms are now under five percent and thirty year loan terms are near 5.25% with most national mortgage lenders. If the equity market sell off gains momentum, interest rates could again approach 2009 lows, but there is little reason to believe the market will sell off in excess of ten percent in the near future.