Market Snapshot January 11, 2019

beachhouse1

Good Morning on this fantastic Friday.

 

The Knights had a heartbreaking loss to the Sharks last night.  Enough said.

 

The government shutdown continues and as of tomorrow, will be the longest in history. Notch another record down under Trump.

 

Bonds are up this morning (the 10-yr at 2.70 and mortgage bonds +17bps) and the DOW is down around 100 points. CPI came in as expected (-.1%) and along with stocks hitting a pause, is helping push bond prices higher. At present, it still seems that stocks are having the biggest say.  The magnitude of the correlation between stocks and bonds has varied, but in general, when stocks hold or bounce under a technical ceiling, bonds have tended to mimic the move.  The current trading levels suggest the two sides of the market line up around 2600 in the S&P and 2.75% in 10-yr Treasury yields. The graph below courtesy of (Matt Graham) does a great job giving a visual on how stocks and bonds are cooperating currently.

aaa chart

With today’s CPI data, it reminds us where the Fed is coming from (or actually targeting). Keep in mind that the Fed has a 2.0% inflation target, with 1.9% projection in 2019, as tracked by the core personal consumption expenditures (PCE) price index. The core PCE increased 1.9% over the past year in November after increasing 1.8% in October. The last time core PE reached 2% was in March and that was the first time since April 2012. The Fed has forecasted two rate hikes this year however, moderate inflation pressures may support a slower path (I would currently expect zero to one hike).

 

Two quick notes and I’m out…

 

From the MBA: Despite recent concerns surrounding the partial government shutdown, as well as financial market volatility, signs of a weaker global economy, and the Fed’s anticipated policy actions for 2019, the job market remains remarkably strong and the U.S. economy has stayed on a course of solid growth. With unemployment still extremely low in most parts of the country, this upward trend in wage growth will continue to support consumer spending, which drives a significant share of economic growth. Additionally, as mortgage rates have stopped their upward move for now and home-price growth has moderated, increasing wage growth will likely help to drive purchase activity in early 2019.

 

And here is some good news for all of my close friends who are calling for the sky to fall.  A recent study from Arch MI pegs the probability of home prices being lower in 2 years at just 6 (6% is nothing more than one standard deviation over a 24 month period). The report calls for rising prices across every state.

 

Enjoy the weekend and first, make today great!