Stock markets closed lower this week – Stock markets dropped this week mainly on interest rate fears. Minutes from the last Fed meeting were released on Wednesday. They showed that some Fed members supported a ½% rate hike, rather than the ¼% hike the Fed settled on. Other comments suggested that the Fed expected continued strength in the economy and intended to do more rate hikes and raise rates quicker than previously expected in order to keep the economy from overheating and curb inflation. First-quarter corporate profit reporting season starts next week. Analysts expect them to exceed expectations. New unemployment claims continue to hit 60-year lows. Treasury yields and mortgage rates are continuing to climb as well. While higher rates seem concerning, and they are, rates rise when the economy is strong and fall when it is not, so increasing rates point to strength in the economy.
The Dow Jones Industrial Average closed the week at 34,721.12, down 0.3% from 34,818.25 last week. It's down 4.5% year-to-date.
The S&P 500 closed the week at 4,488.28, down 1.3% from 4,545.86 last week. The S&P is down 5.8% year-to-date.
The NASDAQ closed the week at 13,711.00, down 3.9% from 14,261.50 last week. It is down 12.4%, year-to-date.
U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 2.72%, up from 2.38% last week. The 30-year treasury bond yield ended the week at 2.76%, up from 2.44% last week. We watch bond yields because mortgage rates often follow treasury bond yields.
Mortgage rates – Home mortgage rates continued to increase this week. Freddie Mac Primary Mortgage Survey reported that mortgage rates as of April 7, 2022, for the most popular loan products were as follows:
The 30-year fixed mortgage rate was 4.72%, up from 4.67% last week.
The 15-year fixed was 3.91% up from 3.83% last week.
The 5-year ARM was 3.56%, up from 3.50% last week.
Initial Jobless Claims
Initial Jobless Claims for the week ending April 2nd fell -5k to 166k, hitting the lowest level since 1968. Initial filings continue to grind lower, down in six of the past seven weeks, as the labor market continues to tighten. Continuing claims, which lag by a week, rose 17k to 1.52mln for the week ending March 25th. They are now up 191k over the past two weekly reports after hitting their lowest level since 1970. In a note accompanying the release, the BLS noted that they are now reverting to their pre-pandemic seasonal adjustment methodology. The seasonal adjustment factor has historically been multiplicative but was reasonably changed during the pandemic to be additive.
The MBA weekly mortgage applications index declined by -6.3% for the week ending April 1st. Purchase applications decreased by -3.0% and were -9.0% lower than the same week last year. Refinance applications declined by -10.0% and were -62.0% lower vs. the same week a year ago. "Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months. The 30-year fixed mortgage rate increased for the fourth consecutive week to 4.90 percent and is now more than 1.5 percentage points higher than a year ago. As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019. The refinance share of all applications dipped to 38.8 percent, down from 51 percent a year ago," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "The hot job market and rapid wage growth continue to support housing demand, despite the surge in rates and swift home-price appreciation. However, insufficient for-sale inventory is restraining purchase activity. Additionally, the elevated average purchase loan size, and steeper 8 percent drop in FHA purchase applications, are both indicative of first-time buyers being disproportionately impacted by supply and affordability challenges."
ISM Services PMI
The ISM Services PMI rose 1.8 points to 58.3 from a prior 56.5. Among the headline's components, the business activity index rose only from 55.1 to 55.5 (second lowest since May 2020); new orders rose 4.0 to 60.1 (second lowest since February 2021); and employment bounced back 5.5 to 54.0 (three-month high). The only one to decline was the supplier delivery time index, down -2.8 to 63.4 and the lowest in a year. Unfortunately, that doesn't seem to have been reflected in input price pressures, as the prices index rose .7 to 83.8, only a tenth point under December's record high.
Imports and exports both rose a similar amount in February keeping the monthly trade deficit unchanged at $89.2bln. The trailing 12-month trade deficit climbed to $907bln, which is now the largest on record. In February, the exports were $228.6bln, a $4.1bln increase from January's exports (1.8% MoM, 19.9% YoY). Imports also increased by the same amount as exports ($4.1bln from January) to $317.8bln, bringing an overall 1.3% MoM and 23.1% YoY change. The decrease in goods by -1.0% to a deficit of $107.5bln, while services decreased by -5.6% with a remaining surplus of $18.3bln.