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Thoughts to Ponder and The Market Update December 19

Thoughts to Ponder and The Market Update December 19
December 19, 2016 abryant



Thoughts to Ponder . . .

  • My grandpa’s car is so old; when he parked in front of a museum, they towed his car inside the museum.
  • I called tech support and told them my computer is frozen. They said to hold the power button, and I was like “Ummm.. it’s covered with ice man.”
  • Waiting until the movie starts to eat your popcorn, hardest thing in the world.
  • Age only matters if you are a cheese.
  • Dreaming permits each and every one of us to be quietly and safely insane every night of our lives.


And Now on to The Market Update . . .

As expected, the Fed raised interest rates by .25% at their FOMC meeting this week.

  • What was not expected was the projection of three rates increases in 2017.
  • Investors were expecting to hear that only two increases would be forthcoming.
  • On this news, the bond market took a beating and yields rose rapidly.
  • The threat of inflation works against bond values, which simply put, means mortgage rates rose higher on the Fed announcement.


To keep things in perspective, it is important to understand that the Fed is only projecting the increases.

  • As we have experienced for many years, the Fed will change their forecasts based upon economic data, so the increases are not guaranteed.


The stock market has been hovering very close to the 20,000 mark for the entire week.

  • The “Trump” factor, as it is now being called, is keeping consumer optimism at the highest level since the recession.
  • The belief that Trump’s plans for reduction in regulation, which is blamed for stifling economic growth, will bolster the economy and labor markets significantly in the next couple of years.
  • There is no guarantee on the results of his economic policies, but the perception for strong economic growth remains high.


The increase in mortgage rates is taking its toll on loan applications according to the Mortgage Bankers Association of America.

  • The latest report for the week ending December 9th is that purchase applications declined 3.0 percent and refinances dropped 4.0 percent.
  • Although some of the decline can be attributed to rising rates, we also must take note that we are heading into the final stretch of the holiday season.
  • It is common for housing activity to slow at this time of year.


On a positive note, many experts are predicting that the housing market will increase significantly in 2017.

  • With the projected improvement in economic conditions, the labor market should continue to expand, and personal incomes are expected to rise more than they have in years.
  • Inflation, which is likely to increase in the coming year, lead to increased wage growth.
  • This will likely lead to more consumers jumping into the housing market.
  • Even though interest rates may continue to increase, when there is positive consumer sentiment, more money tends to go into housing.


Further bolstering the sentiment that people are feeling better about the direction of the economy, producer prices rose by 0.4 percent for November.

  • Despite that energy prices declined slightly, other areas of the economy are showing improvement, which is a clear sign of positive sentiment by consumers.
  • The Fed has been wanting inflation to increase and it seems that it is beginning to occur, actually faster than anticipated.
  • Unemployment continues to remain at very low levels.


Leading into the holiday weekend, the Bond Market will close at 2:00PM next Friday.


This week’s potential market moving reports are:

  • Wednesday December 21st – MBA Applications & Existing Home Sales
  • Thursday December 22nd – First Time Jobless Claims & FHFA House Price Index
  • Friday December 23rd – New Home Sales