Highlights of this Week’s Update:
- Stocks move higher last week breaking a three week losing streak.
- Interest rates push lower, with mortgage rates dropping as well.
- Oil was flat on the week and gold rose.
- Fed stands pat on interest rates, indicate possible rate hike in June or later.
- Global rates hit extreme lows in both the Eurozone and Japan.
- Inflation remains tame due to lower commodity price and a strong dollar.
READ ON FOR FURTHER DETAILS……………………………………..
Last week saw the major U.S. stock indices recover after treading in negative territory over the past few weeks. The Dow Jones Industrial Average gained 2.13%, bringing the year-to-date return to a positive 1.71%. The S&P 500 rose 2.66% and now is up 2.39% so far in 2015 through last Friday’s close. (MarketWatch)
Interest rates dropped again, bringing the yield on the 10 year U.S. Treasury below the 2% mark, ending at 1.93%. (U.S. Treasury) This helped push mortgage rates lower for the week as well. The average rate for a 30 year fixed mortgage now ranges from 3.625-4%. The average rate for a 15 year fixed mortgage is now between 2.875-3.25%. (Bank SNB, Bankrate.com) It pays to shop around if you plan to refinance or secure a new mortgage. We are here to assist you with looking at various scenarios and how they may affect your long term planning if you are looking to refinance or secure a new mortgage.
Oil prices ended little changed for the week, with the price of West Texas Intermediate Crude oil ending .87 per barrel higher, at $45.87. Gold rose $31.00 per ounce to finish the week at $1,183.00. (CNBC)
The FED and Interest Rates
The Federal Reserve is in charge of monetary policy. In the simplest of terms, that means it controls short-term interest rates and influences longer-term rates. Last Wednesday, it took a slightly more hawkish turn, hinting it could boost the benchmark fed funds rate as early as June (its current target sits at 0 – 0.25%), but the Fed added plenty of caveats that suggest an increase later in the year is more likely.
It’s important because expectations of changes in Fed policy, even if those changes are gradual, are partly responsible for the swings we’ve been seeing in stocks as well as the recent strength in the dollar.
The Fed removed the language in its press release that it can be “patient” as cautiously eyes a rate increase. In FedSpeak, that means the door to a June rate hike is open. But Fed Chief Janet Yellen was quick to point out in the opening statement of her press conference, “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.”
Furthermore, the quarterly release of the Economic Projections of Fed Board Members and Fed Bank Presidents reflected a more cautious stance. Notably, the Fed downgraded its forecasts for economic growth in 2015 and 2016. Finally, end-of-year projections for the fed funds rate from each Fed official were lowered significantly, suggesting a more gradual pace of rate increases once the Fed begins to tighten. Still, it all depends on the data.
Global Interest Rates Continue Lower:
Interest rates in the Euro-Zone have dropped near zero, matching rates in Japan. The U.S. yields still remain at higher levels even though the 10 Year U.S. Treasury is now less than 2%. In comparison, see chart below for yields as of 3/13/15.
Behind the Disinflationary Trend:
The direction of commodity prices has had a strong influence on the direction of U.S. inflation over the last 20 years. The CRB Index, which is a broad-based measure of commodity prices, is at its lowest level since early 2009 (CoreCommodities, LLC) when the global economy was in a downward spiral. Pull energy out of the basket and the index is at its lowest in almost five years.
Primary reasons for weakness in commodities: the moderation in economic activity in China, which had been a voracious buyer of raw materials during the last decade, and the strength in the dollar. Commodities are priced in dollars around the globe.
Figure 1 highlights the inverse relationship between the dollar and the CRB Index.
While continued economic growth in the U.S. will probably limit any downside to U.S. inflation (especially if oil is removed from the equation), the Fed is keeping close tabs on pricing measures, which is factoring into the calculus of the Fed’s first rate hike.
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Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2 The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4 The FTSE Developed ex North America Index is an unmanaged index of large and mid-cap stocks providing coverage of developed markets, excluding the US and Canada. It cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.