September 21, 2009
September 21, 2009 by admin
The stock market was off sharply in early action on Monday as equity investors pulled backed their positions, looking to lock in profits for the month of September. Investors appeared to have concerns over the recent rally in the markets amid fresh economic news that seems to be indicating economic recovery. The market was off by nearly 100 pts in early action, before rallying back in the afternoon. The drop in the equity market could have one silver lining, providing some breathing room for fixed mortgage rates that have rallied over the last two weeks. The yield on the ten year Treasury bond was trading under 3.5% on Monday, helping to keep the Treasury bonds from surpassing the two week high mark of 3.49%. The net effect is long term mortgage rates remain relatively unchanged on Monday. Most national mortgage lenders are offering thirty year fixed rate home loans at 5.375 percent with zero points. Loans at or under the five percent level are still available of fifteen year loan terms, or thirty year mortgage terms with upfront discount points.
The market had an opportunity to review a U.S. leading economic index report, which recorded positive market improvement for the fifth straight month. The report echoes a string of positive economic news predictions from Warrant Buffet to Ben Bernanke this month. Most economists now believe that the worst of the economic recession is officially over. This will be an interesting week for the market as the Federal Reserve will be holding policy meetings. All indications are that the Fed’s policy is likely to stay intact. The market however, will be anxious to review the text of the Fed’s decision to see, what if any changes they are anticipating in the upcoming future to their policy decisions. The recent rally in equities and improvement in home sales are good signals for the economy, but the lack of job growth is likely to be an area of lingering concern. The Fed will have the benefit of little to no inflationary pressure in the market to influence its policy. The market has been very soft for price growth, with energy the only area of potential concern. Oil prices have remained relatively stable over the summer months, showing little momentum to rally past $70 per barrel. This is a good signal that oil prices could remain at or below current levels until next summer. Removing the threat of surging energy prices from the Fed’s horizon should help them to keep current policy intact until the first or second quarters of next year.
The real winners with the Fed policy could be the major financial institutions that helped to steer the economy off the cliff. The historically low rates are allowing these companies to enjoy healthy profit margins on a variety of lending products, creating revenue that can be used to offset defaults. The stock market seems very acute to this potential, as financial stocks have enjoyed the largest percentage rally from March lows of any area within the equity marketplace. The Fed’s policy decision this week is one that could dramatically move the equity and bond market and is important to follow if you are in the process of applying for a loan and have yet to lock in your interest rate.