August 24, 2009
August 24, 2009 by admin
The stock market surge has helped the Dow surpass the 9500 point level, quickly approaching 10,000 point level as investors appear to be aggressively moving back into equity positions. The stock market is now at the highest level of the year, and up almost 3000 points since bottoming out on March the 9th. The market is light with economic news today.
Investors who have been piling into equity positions in the stock market have been focusing on the positive economic news of the last month, as well as corporate earning reports that continue to reassure investors that the worst of the economic recession is officially over. The news has not been all positive as over the weekend, the FDIC announced the collapse of Guaranty Bankcorp, one of the largest bank failures of the year (top 10 of all time) and a move that will likely drain another three billion dollars from the FDIC insurance funds. Expert analysts are estimating that well over 100 more banks are likely to collapse in the next twelve months. Guaranty Bankcorp was one of the largest banks in Texas, likely collapsed as their financial investments within the banking industry collapsed, hurting their core capital ratios at a time when raising capital as a bank is extremely challenging.
The two largest agency lenders Fannie Mae and Freddie Mac appear to be back in good graces with investors. Shares of both companies, which specialize in conventional loan financing, have been shooting higher. Both companies saw their share prices drop below $1 as they were forced to accept billions of dollars in capital from the government as the housing market collapsed. The recent upswing in the housing markets and news out of Freddie Mac that their capital base should be sufficient to handle future foreclosure losses is helping to bring new investors into the companies, who believe their long term prospects for becoming profitable are increasing.
The level of the U.S. deficit is projected to top nine billion dollars, according to a report today featured in CBSmarketwatch. The deficit, which is growing at a historic pace thanks to the government bailout of the banking industry, stimulus programs and new spending programs, is going to have a significant impact on the future economy if it is not addressed in the near future. Concerns over the U.S. debt led the bond market to shoot up in early June, driving fixed mortgage rates to their highest point of the year.
Long term fixed mortgage rates are beginning to move higher. Rates dropped sharply during the last sixty days, despite the improvement in the equity (stock markets). The yield on the ten year bond has gained almost ten basis points in the past week, helping to raise fixed rates on thirty year loans from 5.25% to 5.375%. Long term rates will begin to feel pricing pressure as the market moves closer to 10,000 points for the Dow. The recent reduction with mortgage rates, should help to boost home sales through the balance of the summer, a move that should help keep the stock market and economy on an upward plane.