Mel's Blog

November 9, 2011 Market News

November 9th, 2011 9:24 AM by Mel Samick

Last Wednesday, Fed Chairman Ben Bernanke acknowledged that the pace of economic growth is likely to be "frustratingly slow," after the Fed downgraded its forecast for the next two years. Bernanke said the Central Bank is open to purchasing more mortgage-backed securities to boost the struggling housing market, if conditions worsen. But he declined to offer details about what would trigger such a decision. Bernanke said the bank is looking for growth and the job market to improve gradually over the next two years, but at a sluggish pace. The debt crisis in Europe is of particular concern, Bernanke said. It could have adverse effects on confidence and growth. The unemployment rate has been stuck near 9 percent for more than two years. The Fed doesn't see that changing much this year and it predicts it won't fall below 8.5 percent next year. In June, the Fed had predicted that unemployment would drop to as low as 7.8 percent in 2011.

For the U.S. economy, it all comes back to the housing market. A fresh emphasis on healing the housing sector by officials at the Federal Reserve, in the Obama Administration and in state capitals reflects the view that a healthier real estate market would go a long way in strengthening the economy. Around 7.5 million U.S. households are either in foreclosure or delinquent on their mortgage, and 11 million homeowners owe more than their homes are worth. The Obama administration and a leading housing regulator announced plans last week to widen a program aimed at helping so-called "underwater borrowers" refinance. But why housing, and why now? At just more than 2 percent of U.S. gross domestic product -- down from 6 percent during the housing boom -- residential investment isn't that big a component of the $15 trillion U.S. economy. However, housing has led the economy out of past recessions. It creates jobs and is a catalyst for spending on goods and services. Coaxing mortgage rates a bit lower could lead potential borrowers into the market. However, rates are already very low. The average rate on the 30-year fixed mortgage fell to 4 percent last week, nearly matching the all-time low hit just one month ago. The average rate on the 15-year fixed mortgage fell to 3.31 percent from 3.38 percent. The yield fell this week after investors shifted money out of stocks and into the relative safety of Treasuries on fears that Europe's debt crisis could worsen. The low rates have caused a modest boom in refinancing, but that benefit might be wearing off.

Stocks fell last Friday, ending four weeks of back-to-back gains, as political instability resurfaced in Europe and investors braced for a confidence vote in Greece after U.S. markets closed. Investors worry that the country might not go through with an austerity program needed to prevent a default on its debt. The Dow Jones industrial average fell 61 points to close at 11,983 on Friday. It was down 2 percent for the week, its first weekly loss since September. The Standard & Poor's 500 index fell 8 points to 1,253. The NASDAQ composite shed 12 points to 2,686. Greek Prime Minister, George Papandreou, won a confidence vote in Parliament early Saturday by a narrow margin, giving his country's stricken economy some breathing room, but by no means the cure-all. The Greek prime minister pledged that he was willing to step aside and form a cross-party caretaker government. It remains unclear whether the main opposition conservatives and other parties will take part in the talks and drop a demand for an immediate general election. This move is vital to Greece in terms of securing a mammoth new debt deal and demonstrating commitment to remaining in the Eurozone.

In this shortened week, let's hope the markets stay calm. The big news will come towards the end of the week with Jobless Claims on Thursday and Consumer Sentiment on Friday. Friday is Veteran's Day, the stock markets will be open but banks will be closed. Veteran's Day is a holiday honoring military veterans. It is also celebrated as Armistice Day or Remembrance Day in other parts of the world and falls on November 11, the anniversary of the signing of the Armistice that ended World War I. Major hostilities of World War I were formally ended at the 11th hour of the 11th day of the 11th month in 1918 with the German signing of the Armistice. So, please take a few moments this November 11th in remembrance of those who have fallen serving our country.

Mel Samick

Information Provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on November 9th, 2011 9:24 AM

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