June 1, 2009
June 1, 2009 by admin
The end of an era for General Motors is being taken in stride by investors. The stock market has moved up aggressively following the news of there corporate bankruptcy filing this morning. The market believes that eliminating lingering issues and uncertainty will help to restore confidence and is the driving force behind the early gains in equity positions. The filing for a bankruptcy by GM will result in their removal from the Dow 30 components and all but ensures that their stock holders will be left with nothing.
The overall economy appears to be slowly regaining traction and direction. This will be a closely watched week by investors and economist who will be anxious to review the jobs report due out later in the week. Inflationary concerns are going to become a larger focus for both equity and bond investors. Inflation is likely to continue to become a concern for future monetary policy, and will face significant pressure from the increase in oil prices. The price of oil has surged in the month of May and is fast approaching seventy dollars per barrel. Oil prices climbed over 30% last month and gas prices have moved well above $2.5 a gallon. The low oil/gas prices that the economy has benefitted from during the toughest of economic times helped to mitigate the financial pain of the recession. The long term prospects of low oil prices seem quite unrealistic and expect more emphasis on fuel efficient vehicles and renewable energy sources to regain exposure as the economy moves forward. The major economic report for the day was on consumer spending which declined .1% for the month of April, which beat most economists forecasts, who anticipated a larger drop. The savings rate has climbed to its highest level in the last ten years as more and more consumers try to prepare for a long period of economic challenge.
Mortgage rates jumped sharply in midweek action last week as an unprecedented increase to bond prices occurred. Last week the ten year bond traded from 3.45% to 3.75% and finished the week at 3.48% on Friday. Early on Monday, the ten year bond was trading at 3.65%, an early indication that fixed rate mortgage bonds will be under pressure to move higher, resulting in higher mortgage rates. Mortgage rates have benefitted from the FOMC’s actions and the economic uncertainty, providing a safe harbor for conservative investors. The improvements in the equity markets and presence of new inflationary pressure will likely push rates up in the near term, but it is hard to imagine a significant jump with rates under the Fed’s oversight of this critical component to the housing markets. Thirty year fixed rate loans were available with most national lenders in the low five percent range on Monday (5.25%) and fifteen year loans were available at or below five percent, both representing near historic low rates.