Dow, NASDAQ Post Record Close on Tax Reform Hopes – Market Update


This weekend, Justin Timberlake was named the halftime performer for Super Bowl LII. Perhaps appropriately, economic data spent most of the week saying “bye, bye, bye” to the subpar numbers of the past few weeks.
We got some industrial production data and lots of housing numbers to pour over. Let’s jump right in for those of you who “can’t stop the feeling” that you want more economic analysis.
Headline News
Industrial Production
Industrial production rose 0.3% overall in September, beating a 0.2% consensus growth estimate. That said, manufacturing is only up 0.1%, compared to the 0.4% increase analysts estimated. In addition, manufacturing numbers for were down 0.4% in July revisions while falling 0.2% in August.
Digging deeper into the numbers, capacity utilization is down 0.2% to 76.0%. Manufacturing production is only up 1.0% on the year. Part of the reason for this is a 3.2% yearly decline in vehicle production. There was a 1.7% gain in high-tech manufacturing.
The strength of the report was in other areas, including mining, which was up 0.4% in September and up 9.8% from a year ago. Utility output was up 1.5%. It’s still down 4.1% for the year.
MBA Mortgage Applications
Overall applications were up 3.6% as the average rate on a 30-year-fixed conforming mortgage fell two basis points to 4.14%. Purchase applications were up 4.0%, and refinancing applications increased 3.0%.
It’s worth noting that this week’s numbers were adjusted because of the Columbus Day holiday. On an unadjusted basis, applications actually fell, but there was one fewer day for many lenders to do business.
Housing Starts
Housing starts fell 4.7% in September to an annualized rate of 1.127 million starts on a seasonally adjusted basis. Starts for single-family units were down 4.6% to 829,000. Single-family completions were up 4.6% to 781,000. Multi-family starts were down 5.1% to 298,000.
On the permit side, permits for single-family homes were up 2.4% to come in at 819,000. On the downside, multi-family permits were down 16.1% to 396,000. This meant permits were down 4.5% overall to 1.215 million.
Starts were down 9.3% in the South, in what can probably be blamed on hurricane effects. However, they were also down 20.2% in the Midwest and 9.2% in the Northeast. Hurricanes Harvey and Irma are at best partially to blame.
Jobless Claims
Hurricane effects appear to have stopped in terms of the weekly jobless claims report. Initial claims fell 22,000 to 222,000 last week. The four-week average was down 9,500 to 248,250.
On the continuing claims side, these were down 16,000 to 1.888 million. This is the lowest level since December 1973. The four-week moving average fell 22,750 to come in at 1.906 million.
Existing Home Sales
Existing home sales were up 0.7% in September to 5.390 million. They’re still down 1.5% on the year. It’s hard to get an accurate idea of hurricane effects, but the National Association of REALTORS ® said that sales in Florida are down quite a bit while those in Houston are already recovering to normal levels.
Part of the increase in sales probably had something to do with pricing discounts as the median sales price for an existing home fell 3.2% to $245,100. This is still up 4.2% on the year. Supply in the market is still limited, with 4.2 months’ worth of inventory on the market if sales continue at the current rate.
Sales in the South were down 0.9%, but this was better than the 5.7% drop in August. While this might be a result of the recent weather events, it’s not too much different from other regions, which are slightly lower or unchanged on an annual basis.
Mortgage Rates
Fixed mortgage rates fell slightly last week. Because they’re as low as they are, it remains a great time to lock your rate , whether you’re in the market to purchase or refinance.
The average rate on a 30-year fixed mortgage was 3.88% with 0.5 points in fees, down three basis points from the prior week. Last year at this time, the average rate was 3.52%.
Turning to shorter terms, the average rate on a 15-year fixed mortgage with 0.5 points fell two basis points to 3.19%. At the same time last year, the average rate was 2.79%.
Finally, the average rate on a 5-year treasury-indexed adjustable rate mortgage (ARM) was 3.17% with 0.4 points, up one basis point on the week. A year ago, the average rate was 2.85%.
Stock Market
President Trump’s plan for tax reform cleared a procedural hurdle in the Senate. Because part of the plan includes lower corporate taxes, stocks reacted very positively Friday. Both the Dow Jones industrial average and Nasdaq indexes had record closes .
The Dow was up 165.59 points Friday to close 2.00% higher for the week at 23,328.63. The S&P 500 was up 0.86% for the week after closing at 2,575.21, up 13.11 points on the day. Finally, the Nasdaq finished Friday at 6,629.05, up 23.99 points on the day and 0.35% for the week.
The Week Ahead
Wednesday, October 25
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory hard goods.
FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
New Home Sales (10:00 a.m. ET) – This measures the number of newly constructed homes with a committed sale during the month.
Thursday, October 26
International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.
Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales, not new home sales.
Friday, October 27
Gross Domestic Product (GDP) (8:30 a.m. ET) – This measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.
Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.
We get some housing data as well as a ton of data on the performance of the broader economy next week. We’ll have it all covered in Market Update next week.
If economic performance and mortgage rates tend to just make your head spin, we’ve got plenty of home, money and life content to share with you if you subscribe to the Zing Blog below. It’s just a little over a week to Halloween. If you like the idea of jack-o-lanterns but the idea of removing pumpkin guts just sounds nasty, here are five ways to decorate your pumpkin without having to carve into it. Have a great week!

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