July 17, 2009
July 17, 2009 by admin
The stock market is mixed in trading on Friday, following a strong week of gains, highlighted by key economic reports and major earnings reports from three of the nations largest lenders (Bank of America, Citigroup and JP Morgan Chase). Stocks have jumped almost 2% for the week and there is growing sentiment speculating that a bull market rally could return as investors regain confidence in the health of the economy.
The major economic report released today focused on the health of the housing market. The month of June was surprisingly strong for housing starts, up almost three percent for the month. The market benefitted from a pullback with mortgage rates and increasing confidence in the real estate market. Large government tax rebates, have been a catalyst with bringing new buyers into the market. Any improvement in the housing numbers is great news for the real estate market. Despite and uptick in home sales, there remains larger concerns with stabilizing home prices. Home foreclosures are continuing to increase at record rates and a recent report from RealtyTrac showed a twenty percent increase in home foreclosures in the first half of the year compared to the same point in 2008.
Investors have been eagerly anticipating corporate earnings from the countries largest banks and lenders. This week the trifecta of JP Morgan, Bank of America and Citigroup all posted revenues that were above expectations. The banks beating on revenues and earnings are all a great sign for the health of the credit markets. The big downside to the company reports arose in the credit reserve areas. All three companies have been forced to increase their credit reserve pools(setting aside capital), anticipating future loan losses, primarily from an uptick with commercial loans and credit card lending. Both areas are expected to see much higher write offs in future months, following the downturn with the economy. In the midst of the current recession, all companies will have a challenge predicting future growth as long as the employment markets remain in such as state of turmoil. The good news for the economy is that the three banks are continuing to lend and generate revenues and profits, this should be a catalyst towards restoring the credit markets and corporate growth.
Mortgage rates have edged up this week, following a lead from the stock market. The yield on the ten year treasury bond, has moved off of a low of 3.3% up above 3.6% on Friday. This move has helped to pressure fixed rate loans to move up about .25% for the week. As of Friday afternoon, most national mortgage lenders were offering thirty year loans in the mid 5.5% range and fifteen year loan terms just above five percent. If the stock market continues to move higher, this is likely to bring mortgage rates up in the near term, with the next area of concern arising if the ten year approaches 4%, pushing long term mortgage rates beyond six percent. Rates touched this level in early June, but have dropped sharply over the past 45 days, prior to the upward move during the last two weeks. Oil has also pulled back, but is also following the recent upward move from the stock market and has move back above $60 per barrel.