October 16, 2009
October 16, 2009 by admin
A drop in the stock market could be seen as inevitable following a six hundred point surge over the past three weeks that can be credited with pushing the DOW above 10,000 for the first time this year. The further the market advances, the higher expectations will become for investors. Today, the market began to digest the continued spike with home foreclosures as well as the additional release of major conglomerate bank earnings.
The nations three largest banks reported earnings this week, all offering different views on the state of the economy and more importantly the psyche of the consumer. JP Morgan Chase was the lone bright spot of the top three lenders, posting profits that far exceeded expectations. The company was successful in limiting their loan portfolios with a small percentage of sub prime loans and did not participate in the derivatives marketplace. Citigroup and Bank of America, continued to show losses. Both companies are highly leveraged in underperforming mortgage assets and the continued decline in the housing markets and rise with unemployment have been very detrimental to both firms.
Consumers, who are at the heart of keeping the economy afloat, appear to be the group that remains most under financial stress. A report that measures consumer sentiment was released today which showed that month over month, sentiment for the economy declined in the month of September. This drop in sentiment, comes during a time when the stock market continues to improve, but job losses are showing no signs of declining. The market certainly has benefited by corporations downsizing and controlling costs, but the long term effect on the marketplace could set the stage for a prolonged economic recession.
Home foreclosures continue to increase, despite increased activity from banks and lenders for loan modifications and government sponsored home refinance programs. The addition of two to three hundred thousand job losses each month this year has been catastrophic to the real estate markets. The report from RealtyTrac this week showed home foreclosures rose by five percent from the second quarter of this year and over twenty percent from 2008. These numbers seem to contradict a recent report from the government on the success of their making home affordable loan modifications success over the past three months.
The spike in the stock market over the past three weeks has pushed long term mortgage rates to move higher. From the beginning of the month through today, interest rates on thirty year loan terms have moved higher by .375%. Most national mortgage lenders are offering thirty year loans with rates at 5.25% or higher. Interest rates for fifteen year mortgages are still at or below five percent. Bond yields have risen from 3.1% on the Ten Year Treasury to over 3.4% this week. Today’s drop in the stock market could help to bring rates lower, but the recent trend is that rates are moving higher.