Last week - I was reminded of that Bob Seger song..."BREAKDOWN, TAKEDOWN...YOU'RE BUSTED!" That song describes the market last week, as the Stock market suffered a breakdown, analysts got a takedown, and many investors felt (including me) they were busted as Stocks sold off hard on Friday. What happened? Simply the result of a super lousy Jobs Report number on Friday morning. US job growth in August was actually negative for the first time in four years, with a loss of 4,000 jobs. And the shocker was that analysts had expected somewhere close to 110,000 new jobs to be created!
But while Stocks suffered on the news, Bonds benefited, meaning that Cary, NC home loan rates on conforming loans improved in by .125% to .25%. Additionally, the gloomy Report also means the Fed is almost guaranteed to make a cut to the Fed Funds Rate at their upcoming meeting on September 18th to help stimulate a sagging economy. And in fact, their cut now may be a .50% cut, rather than the .25% that has been speculated.
This action would help stimulate business at large, with less expensive costs to borrow - and also help consumers as well. The Fed Funds Rate impacts many other borrowing rates, such as Home Equity Lines, credit cards, car loans and the like.
This week - I wonder if all the back to school buying that happened last month will help boost this week's read on August Retail Sales? It's the biggest economic report coming this week, due to be delivered on Friday morning. It will be interesting to see if the turmoil in the financial markets during August had an impact on consumer spending. A strong Retail Sales Report would be good news for Stocks, but could pull money away from Bonds, causing home loan rates to worsen. A weak report would have the opposite effect, dragging Stocks lower, but helping Bonds and home loan rates improve.
But before we even see the biggest report next week, Retail Sales Report, Bonds will be fighting a very tough technical battle. Previous ceilings of overhead resistance can prevent the Bond from moving higher and helping home loan rates improve - and there is a tough ceiling lying in wait right now for Bonds.
In the absence of any scheduled economic releases until Friday's Retail Sales Report, Bonds may find it tough to power through the ceiling and bring improvement to home loan rates...unless Stocks continue to falter. If the Stock market continues the plunge it saw last Friday, money being pulled away from Stocks could flow over into Bonds, which would help home loan rates improve.