Market Update For the week of August 3, 2015 –

>> Market Update 

QUOTE OF THE WEEK... "I have had a perfectly wonderful evening, but this wasn't it." --Groucho Marx, American comedian

INFO THAT HITS US WHERE WE LIVE... We have had a perfectly wonderful Pending Home Sales report, but the latest one wasn't it, revealing that the National Association of Realtors (NAR) pending sales index slipped in June. Thankfully, this was only by a mere 1.8% off May's reading, which, let's remember, was the highest in almost a decade. The June read was also 8.2% above June 2014, which made it ten months in a row that year-over-year Pending Home Sales have increased. The NAR's chief economist feels sales should continue at a solid pace for the rest of the summer, while the chief economist for a listing site noted that first-time buyers have made a marked comeback.

Some thought the May S&P/Case-Shiller Home Price Index wasn't perfectly wonderful either. It came in pretty much level with April, home prices rising 4.4% overall on a year-to-year basis. However, the chief economist of a real estate site observed, "This lack of monthly growth indicates a more sustainable housing recovery and a balance between buyers and sellers."  Finally, the homeownership rate dropped in the second quarter, although the chief property economist at a major economic research consultancy noted that "employment and incomes are growing at a healthy pace" and "there is no evidence of a fundamental shift in homeownership aspirations."

BUSINESS TIP OF THE WEEK... Focus on relationships, not transactions. Stay in touch with clients and always put their needs first. That way, they'll keep you in mind for referrals long after the deal is done.

>> Review of Last Week

GOOD BUY, JULY... Friday closed out trading on Wall Street for July and it was indeed a good month to buy. Stocks ended July with price gains for the month large enough to wipe out all of June's losses, leaving the market indexes roughly where they were at the end of May. Does this indicate investors now foresee an economic boom? Not quite. We've yet to observe sustained strength in the economic data, only the ups and downs of the slow recovery we've had the last six plus years. Quarterly corporate earnings have topped estimates for 75% of the S&P 500 companies reporting, yet for the first half of the year, earnings are expected to contract for the first time since 2009. 

True to form, last week's economic data moved in both directions. The GDP-Advanced reading for Q2 had the economy growing at a 2.4% annual rate after its contraction in Q1. Good news, although this growth rate is still a bit on the anemic side. Durable Goods Orders went up 3.4% in June, yet they're still down from a year ago, indicating a slowdown in business investment. Friday we found out wages and benefits paid to employees rose a record-low 0.2% in Q2, according to the Employment Cost Index. But this keeps inflation down, which may hold back the Fed from hiking rates. Finally, the Chicago PMI measure of Midwest manufacturing in July hit its highest level since January.

The week ended with the Dow UP 0.7%, to 17690; the S&P 500 UP 1.2%, to 2104; and the Nasdaq UP 0.8%, to 5128.

The tiny gain in the Employment Cost Index calmed inflation fears for bond investors and bolstered prices Friday. The 30YR FNMA 4.0% bond we watch finished the week UP .11, to $106.13. National average fixed mortgage rates slipped lower again for the week ending July 30 in Freddie Mac's Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. 

DID YOU KNOW?... An NAR study of millennials reports that 31% make more than $100,000 annually, and that in the last year, millennials bought 43% of the homes from $100,000 to $250,000 and 32% of the homes from $250,000 to $500,000.

>> This Week’s Forecast

JOBS GROW SLOWLY, BUT SO DOES INFLATION... Everyone will focus on Friday's July Employment Report, which is expected to show a continued slow growth in jobs. Nonfarm Payrolls should come in just over 200,000, but this won't lower the Unemployment Rate, as a few more discouraged job-seekers leave the labor force. At least inflation stays benign, with Core PCE Prices forecast up just a tick. This may bode well for rates staying low a while longer, since the deflation-fearing Fed wants to see a bit more inflation before it starts hiking.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Aug 3 – Aug 7

>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months... Now that we've gotten past the Fed's July meeting, more economists are crawling out of the woodwork in support of a rate hike in December. But they expect it to be very small. Note: In the lower chart, a 17% probability of change is an 83% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy: