October 10th, 2012 9:25 AM by Mel Samick
The S&P 500 eased from 5-year highs after a strong U.S. jobs report and traded slightly lower at the end of the day last Friday, as investors booked profits before the start of third-quarter earnings season this week. The focus on fundamentals is about to begin. For the last three months, investors have been ignoring the weak economic backdrop and plowing money into stocks because of the cheap money swirling from central banks around the world. Investors are searching for yield in an environment of rock bottom rates. Big institutions and other deep pools of capital, such as pension funds, have been playing catch up, chasing stocks even in the face of anemic economic growth, stubbornly high unemployment and the mess in Europe that has yet to be resolved. The Dow Industrials is up more than 10 percent year to date, 4.3 percent in the third quarter alone. The S&P 500 is up more than 15 percent year to date, and 5.8 percent in the past quarter, while the NASDAQ, the big winner of all, is up nearly 20 percent year-to-date and 6.2 percent in the third quarter.
Average rates on Fixed rate mortgages fell to fresh record lows for the second straight week, Freddie Mac, the mortgage company, said Thursday. Freddie Mac said the rate on the 30-year loan dropped to 3.36 percent, which was the lowest since long-term mortgages began in the 1950s. The average on the 15-year Fixed mortgage, a popular refinancing option, dipped to 2.69 percent. Lower rates are driving more people to refinance. Mortgage applications surged 16.6 percent last week, the Mortgage Bankers Association reported last Wednesday. Of those applications, 83 percent were to refinance existing loans. The hope with lower rates is that as people refinance their mortgages at lower interest rates, their monthly payments decline and that that then leaves them with more money to spend and put to work in terms of stimulating economic growth. Consumer spending drives nearly 70 percent of all economic activity. The key driver has been the fact that the Fed is spending $40 billion a month to buy mortgage-backed securities. The goal is to lower mortgage rates and help the housing recovery. The Fed plans to continue the program until there is substantial improvement in the job market.
With less than five weeks to go before the presidential election, Friday's September jobs report has become much more than a key barometer on the overall economy. Job growth remained tame in September; with the economy creating just 114,000 net new positions though the unemployment rate fell to 7.8 percent. The report presented a slew of contradictory data points, with the total employment level climbing somewhat but seemingly not enough to move the needle to the extreme of the favorable change in the unemployment rate number. The falling jobless rate has been a function as much of the continued shrinking in the labor force as it is an increase in new positions. Just minutes after the Labor Department reported the lowest unemployment rate since January 2009, former GE CEO, Jack Welch, weighed in on Twitter. "Unbelievable jobs numbers... these Chicago guys will do anything.. can't debate so change numbers." And the political debate over the jobs report begins with just one more to go before the presidential election. The decline could help President Obama, who is coming off the disappointing debate against Mitt Romney.
Information provided by NYCB Capital Markets