April 10th, 2013 9:19 AM by Mel Samick
The stock market has been more volatile than an episode of 'Real Housewives'. Please don't ask me why I know this. The stock market's robust rally was slowing even before last Friday's jobs report, but the red flag set up by the weak payrolls data makes the path to more gains a little less secure. The equity market will look to earnings for a way to keep the rally going. Equities initially nosedived after the weak jobs report last Friday... but by the end of the day, the Dow finished down only 40 points at 14,565. The S&P 500 fell 1 percent for the week to 1553. At the same time, investors rushed to bonds, sending the 10-year yield to as low as 1.67 percent, its lowest level since December. Let the refinance activity begin!
The housing industry continues to be one of the strongest areas of the U.S. economy. Low interest rates are helping maintain housing affordability and thus boosting demand for housing. The 30-year fixed rate averaged 3.54 percent. The 15-year fixed rate averaged 2.74 percent. Some of the recent increased demand has come from investors. Sales to first-time homebuyers remain below healthy levels. The inventory of homes for sale rose in February after dropping to a 12-year low in the previous month. The shortage is driving up prices as buyers seek to take advantage of low lending rates. Home prices rose 10.2 percent in February compared with a year earlier, according to CoreLogic. The annual gain was the biggest since March 2006. Prices have now increased on an annual basis for 12 straight months. This steady housing recovery has meant good things for mortgage guarantors Fannie Mae and Freddie Mac.
Fannie Mae just posted a record profit of $17.2 billion for 2012 while Freddie Mac earned $11 billion last year. That is quite a turnaround in just over 4 years, since they had essentially failed. Fannie and Freddie package lenders' mortgages into popular securities whose payments they backstop. They did this so much and for too many 'bad' loans, that they were seized by their regulators in 2008. Since then, they have drawn $188 billion from the Treasury Department. Fannie and Freddie have remitted back in excess of $50 billion to the Treasury. Lawmakers have yet to establish a firm timetable for private-sectorizing the two firms. The dilemma now may be whether the Government really does want out of the housing finance business while Fannie and Freddie rake in giant profits.
As the housing markets looks strong, many Investors are worried about the jobs market. In the wake of last Friday's weak jobs data, analysts are warning that investors should brace for further trouble ahead. Just 88,000 jobs were added to the economy last month, although the unemployment rate fell to 7.6 percent from 7.7 percent in February. Weakening labor demand -- not rising layoffs -- is the key problem with the U.S. economy, according to experts. If nothing else, I'm sure people can find work starring on the countless number of reality television shows out there.
Earnings season starts in earnest this week with the highlight coming from Alcoa on Monday and JPMorgan Chase and Wells Fargo on Friday. Wells Fargo's earnings will help the market learn the health of the housing market. The Federal Reserve could be this week's wild card. Indications of renewed support for loose monetary policy have triggered wild moves in the market. The minutes from the March FOMC meeting are due Wednesday. The economics reports calendar is light except for consumer data. On Thursday, Retailers are expected to post a 1.9 percent rise in sales last month, compared with a gain of 2.9 percent in March last year. The Thomson Reuters/University of Michigan Consumer Sentiment Survey will be released on Friday.
Information provided by NYCB Capital Markets