May 22, 2009
May 22, 2009 by admin
Memorial Day weekend signals a shortened trading day for the stock market. There is a good chance the market will finish the day in positive territory following a week of sell offs. The stock market has been light on volume this week and has not been influenced by major economic reports. Most investors are left with following stories on corporate earnings, further regulation of the financial sector as it relates to pay and government legislation such as the passage of the credit card reform bill this week.
The market has received a dose of good news from one of the nations largest retail stores. Sears holding today reported better than expected earnings, an early signal that consumers remain in the market, despite tough economic times. The market has been following the saga of General Motors as the company approaches a critical June 1 deadline to restructure. The company reached a new agreement with their union and the stock jumped in trading on Thursday. The company is likely to have a more difficult time negotiating new deals with its bond holders, similar to the challenges Daimler Chrysler ran into. Bond investors believe they will receive a better return in a bankruptcy than what GM has offered to date, and generally have a preferred position as they are considered to be secured lien holders, compared to unions and common stock holders. The companies plan to have a quick exit through bankruptcy or restructuring will face legal challenges from this group as well as angry dealers who have lost their franchises over the past few weeks.
The mortgage market, which has been red hot over the last few months, thanks in large part to historically low interest rates, could begin to see some pullback. The yield on the ten year bond continues to move upward (3.44% on Friday) an early signal that more money is shifting out of bonds and into equity positions. As the yields move higher on bonds, offering a better rate of return in hopes of enticing borrowers, rates tend to follow. The average rate on a thirty year fixed rate mortgage loan is again above five percent and has moved up about .125% over the past week. Consumers shopping for a mortgage loan may want to explore rate lock options with their lender and pursue the opportunity of float down options (if available) should the market improve in the near future.