Market Digest – Week Ending 12/23/2016
It was another quiet week in capital markets leading into the holidays. U.S. stocks and bonds were flattish while international stocks were down, modestly due to gains in the dollar. Economic news was mixed as the U.S. Q3 GDP was revised up to 3.5%, but personal spending rose 0.2%, which was less than expected. Many physical retailers were down for the week, based on the perception that more spending is shifting to online and the growing preference for experiences above goods. Meanwhile, the housing market momentum remains strong.
S&P 500: 2,264 (+0.3%)
FTSE All-World ex-US: (-1.0%)
US 10 Year Treasury Yield: 2.54% (+0.04%)
Gold: $1,132 (-0.2%)
USD/EUR: $1.045 (-1.0%)
• Monday – The Mosaic Company said it will buy Vale’s fertilizer business for $2.5 billion
• Tuesday – Industrial gas giants Praxair and Linde agreed to merge in a deal worth $66 billion
• Tuesday – A French court found Christine Lagarde, head of the IMF, guilty of negligence; however, she retains the confidence of the IMF board and will not be penalized
• Wednesday – U.S. existing home sales rose 0.7% to a new post-crisis high
• Wednesday – GM, Chrysler and Ford said they scheduled down time for factories due to a cooling in demand
• Thursday – Q3 U.S. GDP growth increased to 3.5% in its final revision
• Thursday – U.S. inflation rose 0.2% in November, a fourth consecutive month of gains
• Friday – The U.S. abstained from voting in a U.N. resolution that criticizes Israel’s expansion of settlements, allowing the measure to pass (Trump tweeted that he was against the measure)
The housing market has been an unsung hero of this eight-year bull market. And while a recent spike in mortgage rates and higher prices may create headwinds for 2017, for now, momentum remains strong. U.S. existing home sales hit a post-crisis high in November at a seasonally adjusted rate of 5.61 million for the month. More important to most existing homeowners, the median price rose nearly 7% to $234,900.
A major reason for rising prices is that supply remains tight. At the current rate, there is only four months worth of supply on the market, and permit requests for new building remain modest. Predicting home price movement is almost as difficult as predicting the stock market, in part because they tend to be related. Our best guess is that home price appreciation moderates to its historical trend of gaining at about the rate of inflation. That still makes owning a home a great investment for most who plan to stay in it for at least seven years and enjoy the home they can afford (or at least as much as the rental equivalent).
Like stocks, the housing market depends greatly on specifics and location. Markets that have seen the highest appreciation and have the lowest affordability are more prone to declines. Many homeowners were able to benefit from refinancing when rates were at historic lows this summer. That opportunity has passed, but if even if you missed it, it is still worth looking into refinancing if you are paying higher-than-current rates. For those with good credit, the 30-year fixed rate is around 4.5%, and if you don’t think you will stay in your current house more than 10 years, you can consider a seven-year adjustable for around 4%.
From all of us at Personal Capital, we wish you a peaceful and enjoyable holiday season.
Craig Birk, CFP®
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