June 22, 2009
June 22, 2009 by admin
The World Bank sunk the stock market on Monday. The equity market sold off sharply following a report released prior to the market opening from the World Bank, which indicated the economic recession would likely last a minimum of the next twenty four months, with a retraction in growth for 2009 and minimal growth in 2010. The grim economic news was a key catalyst in driving down the stock market by over 200pts and sending international stock markets on a path downward. The banks report was based on their projections of further challenges in the U.S. where the rate of unemployment is expected to top ten percent in 2009 and the slowdown of growth from emerging market economies.
The stock market has dropped over five hundred points in the last as more investors believe that the economic challenges are going to linger well into 2010. This week, the FOMC meets to discuss interest rates and could be a catalyst for additional market movements, based on their discussions on monetary policy. Energy prices, are one of the lingering areas in the market that could pose a problem by adding and element of inflation this year. Oil prices have almost doubled since bottoming in early March and this could weigh on the minds of policy makers. One of the key areas the Fed will likely spend time on is the state of the U.S. housing market. The Fed took an active role late in 2008 by announcing their decision to begin purchasing mortgage backed loan securities, a move that immediately led to a significant drop with mortgage interest rates and one that has set off a refinance boom for the banking industry. The Fed is more likely to focus on the data on home buying trends, to see how significant their impact has been as they have attempted to help stabilize the downward spiral of home prices. Early reports from the housing industry still show significant challenges as now one in every eight homes across the country is delinquent on their mortgage payment, thanks largely to the surging unemployment. The governments loan modification program, has done little to slow down foreclosures and the Fed may look at new opportunities to further impact the housing market in a positive way.
The broad sell off in the equity markets has been good for long term fixed mortgage rates. The yield on the ten year bond has dropped below 3.7%, sending fixed rate loans to the mid five range on thirty year loan terms. Investors have looked past the growing U.S. debt to take advantage of the stability bonds are offering, helping to send yields lower and benefit homeowners with lower mortgage rates.