Mel's Blog

The Fed: To Raise or To Not Raise, That is the Question?

September 18th, 2017 12:00 PM by Mel Samick

The amped up, much anticipated $1,000 iPhone X is finally here. The top of the line among the three new iPhones that Apple introduced last Tuesday, will be available November 3. The phone is seen as a showstopper, the first iPhone with a beautiful edge-to-edge 5.8 inch OLED display with either 64GB or 256GB of storage. Apple calls the high resolution screen a “super-retina” display. As expected, Apple removed the home button in favor of the ability to unlock the device through a biometric method known as Face ID. Apple claims this is so secure, the chance that any other person could unlock your device is 1 in 1 million, compared to 1 in 50,000 for the Touch ID fingerprint sensor. Apple CEO, Tim Cook, called this “the biggest leap forward since the original iPhone.”

You’re going to need a job to buy that new IPhone X, and so a good thing that U.S. job openings rose to a record high in July, suggesting the slowdown in job growth in August was an aberration and that the labor market was strong before the recent disruptive hurricanes. The Labor Department says openings edged up 0.9 percent from June to 6.2 million, the highest on records dating to 2000. Hiring also increased, but the record number of openings make clear that employers have plenty of jobs to fill but are still searching to find qualified workers at the pay levels being offered. The number of people who quit their jobs also rose, a trend that generally means workers are leaving for jobs that pay better. More job openings were posted in construction and manufacturing, along with health care, professional and business services and the information sector.

U.S. stocks opened sharply higher last Monday as the damage from Hurricane Irma didn't appear to be as bad as feared. Hurricane Irma, once a Category 5 hurricane, hit the coast of Florida the weekend before last. U.S. stocks rose to record levels last Friday and posted strong weekly gains. The S&P 500 finished at 2,500.23, marking the first time the index broke 2,500. The three major indices finished the week at least 1.4 percent higher.

Homebuyers are clamoring to capitalize on the lowest interest rates in almost a year, driving total mortgage application volume 9.9 percent higher the week before last. After declining for weeks, mortgage applications to purchase a home jumped 11 percent and were 7 percent higher than a year ago. There is plenty of pent-up demand from buyers over the summer who ran up against tight inventory. Mortgage applications to refinance a home loan, which are highly rate-sensitive, rose 9 percent. They are still 35 percent lower compared than the same week one year ago, when interest rates were slightly lower. Mortgage rates began moving higher last week, as concerns abated about North Korea, which had pushed investors to the relative safety of the bond markets. According to the latest data released by Freddie Mac, the 30-year fixed rate average held steady at 3.78 percent.

Consumer prices rose 0.4 percent in August and 1.9 percent from a year ago, lifted by a rise in energy prices, the Labor Department reported last Thursday. The monthly gain was the biggest since January. Food at home prices fell 0.2% on the month, which saw Amazon complete its Whole Foods Markets acquisition and immediately cut prices on items like kale and avocados by up to 43 percent. It's not clear if the Bureau of Labor Statistics picked up those price cuts that didn't hit until Aug. 28. Target followed last week by announcing its own plan to slash prices.

Speaking of Amazon, it is a terrible time to be a brick-and-mortar retailer. Investors are placing huge wagers that Amazon and fast fashion retailers will knock out more and more stores in the months and years to come. Unfortunately for retail employees and investors, anemic sales have forced hundreds of store closures and tens of thousands of layoffs. Examples of this include Macy’s, which has lost two-thirds its market value over the last two years, and JCPenny’s declining 90 percent since early 2012. On average, 15.6 percent of the shares among retailers are being shorted, which is considered a very high level. Shorting a stock typically means borrowing it from a broker and immediately selling it, in hopes it can be bough back at an even lower price. It can be a very risky strategy that can backfire if the stock price keeps rising. All of this doom-and-gloom is driven by dramatic shifts in consumer behavior. Americans are increasingly shunning the mall in favor of Amazon and other sites to get their shopping done. At the same time, the stores that have survived are having a very hard time competing with fast fashion brands like Zara and H&M.

All eyes will be on the Fed this Wednesday as questions around a rate hike looms. The chance of a quarter point increase in December has climbed to 50 percent from 31 percent in early September, according to CME Group’s FedWatch tool. Additionally, we will get data on Housing Starts on Tuesday.

Mel
Information provided by NYCB Secondary markets.

Posted in:General
Posted by Mel Samick on September 18th, 2017 12:00 PM

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