September 24, 2009
September 24, 2009 by admin
Stocks posted their second straight day of declines on Thursday as investors lost confidence in the markets following a weaker than expected report on existing home sales for the month of August. Investors have moved to the side of growth fears in the near term and have led a correction of nearly two percent in the market in the past forty eight hours. The commodity markets are showing renewed signs of weakness and the price for a barrel of oil dropped by $3, sending oil to its lowest levels in the last thirty days.
The headline story of the day was a disappointing report for existing home sales from last month. The housing market has been a catalyst in helping to fuel the surge in the stock market. Housing has benefitted from historically low mortgage rates and government tax incentives to help create a bottom in the marketplace. For the month of August, existing home sales fell by 2.7%, the first month of decline since March of this. Particularly concerning to investors who are following the market is the potential for further weakness if the government fails to renew the first time home buyer tax credit that many believe critical to the market recovery. The silver lining in today’s report is that the drop in equities helped to bring bond yields significantly lower. The ten year treasury has dropped by over ten basis points this week, finishing today at 3.36%. The drop correlates to a drop of approximately .125% in long term mortgage rates with most national lenders. Fixed rate mortgage loans for thirty year loan terms are now at or below 5.25% with most national lenders, with rates on fifteen year loans still under five percent.
A sliver lining to the days disappointing news was the weekly job and employment report. This report was better than expected, with a decline in benefit applications being processed. One of the lingering concerns that is hanging over the economy is the lack of job creation and the high rates of unemployment. Good news in the job sector normally would have fueled a market rally, but investors appear to be growing more pessimistic. The challenge facing the stock market for the balance of the month is balancing confidence and fear. There is a steady confidence that the worst of the recession is over, but a growing fear that a recovery is going to take longer than expected. Many economists are referring to this as the difference between a V shaped or U shaped recovery. The drop in the U.S. stock market has carried over to the Asia stock market which was down by nearly three percent in early trading on Friday. There is speculation that the market correction could equate to a sell off of nearly ten percent, if this scenario unfolds it is not unlikely for mortgage rates to retest the lows of March when fixed rate loans for both thirty and fifteen year loan terms were available below five percent.