Stock Market On a Rapid Rise as Interest Rates Kept Artificially Low

The story this week has been stock market records and rising interest rates.  The stock market has been on a rapid rise, hitting new all-time highs almost daily.  Monday, the Federal Reserve officials suggested that the central bank will continue to support the economy even as it continues to improve.  This simply means that they plan on keeping interest rates artificially low allowing businesses and consumers to continue to borrow money at very low interest rates.

Tuesday, the market hit another record high during the day as investors continued to believe that the global economy will continue to improve because governments around the world are all doing what is necessary to support economic stability and growth. 

Wednesday, the market closed at yet another new record based upon the optimistic ADP employment report indicating that the economy added 198,000 jobs.  Additionally, the prior months report was revised upward by 23,000 up to 215,000.  Although payrolls did not increase as much as the prior month, the employment sector continues to show modest improvement.

Finally, on Thursday the market once again topped the previous close. Manufacturing was up and first time jobless claims were less than expected.  Friday we will hear from the Department of Labor on national unemployment, however that report will be released after the writing of this article.

Mortgage rates have been rising all week long in response to the strong gains in the markets.  The positive movement in the stock markets and expectations of the continued economic improvement has investors putting more money into the stock market while selling off their bond investments.  The selling of bonds and mortgage backed securities drives the yield on securities higher causing interest rates to rise.

The forecast from Case-Shiller predicts that home prices will increase by an average of 3.3% annually from now through September 2017.  This would be a completely different picture than what we have experienced since 1997 where house prices rose and fell sharply.  Between 1998 and 2006, price increases averaged at 5% or more per year; however, once the real estate bubble burst, home prices fell 30.5% from 2006 to September 2012.

Lastly, the government spending cuts that went into effect on March 1^st have not seemed to dampen the mood of consumers and business owners.  The public seems to have gotten used to the craziness coming from the government and since many of the cuts do not impact the bulk of the population, most people are just going about their daily business.

Next week’s market moving reports are few and far between:

 

• Wednesday March 13^th - MBA Applications and Retail Sales
• Thursday March 14^th - First Time Jobless Claims and Producer Price Index
• Friday March 8^th – Consumer Price Index and Industrial Production

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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