Stock markets dropped drastically in September – September marked the worst month for the Dow since March of 2020, when the COVID shutdowns were announced. The S&P had its worst September since the 2002 dot.com bust and is on track for its worst yearly loss since The Great Recession in 2008. The Nasdaq is already down more than 30% for the year. With inflation not showing signs of retreating, a robust jobs market with historically low unemployment, and a Fed that has indicated that they will continue to raise interest rates to cool the economy to curb inflation, investors have begun to panic. Interest rates shot up further in September. The pace of rate hikes, while not as large in number as in the 1980s, has been the highest in percentage increase in history. At the same time, the jobs market is robust. Unemployment is near historic low levels. There are more than two jobs for every applicant. With little fear of becoming unemployed, people are out spending which is adding to inflation.
The Dow Jones Industrial Average closed the month at 28,725.51, down 8.2% from 31,510.43 on June 30. It’s down 21% year-to-date.
The S&P 500 closed the month at 3,585.62, down 9.4% from 3,955.29 last month. The S&P is down 23.6% year-to-date.
The NASDAQ closed the month at 10,575.62, down 10.5% from 11,816.20 last month. It is down 32.4 year-to-date.
U.S. Treasury bond yields - The 10-year treasury bond closed the month yielding 3.83%, up from 3.15% last month. The 30-year treasury bond yield ended the month at 3.75%, up from 3.27% last month. We watch bond yields because mortgage rates often follow treasury bond yields.
Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of September 29, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 6.70%, up from 5.66% at the end of July. The 15-year fixed was 5.96%, up from 4.98% last month. The 5-year ARM was 5.30%, up from 4.51% last month.
The September jobs report will be released next Friday. That will be a good indicator of whether the fed rate hikes are causing employers to slow the pace of hiring. So far that has not happened. With unemployment near a 50-year low, wages are increasing due to a labor shortage. There are over two job openings for every person looking for a job. The tight labor market is one of the conditions that is fueling inflation.
Initial Jobless Claims
Initial Jobless Claims were down by -16k to 193k for the week ended September 24th vs. the prior week's revised print at 209k (orig. 213k). The 4-week moving average on headline claims is at 207k, which is a significant decline from last week's revised 215.8k. Continuing claims, which lag by a week, fell -29k to 1.347mln from a downwardly revised 1.376mln (orig. 1.379mln). This is the lowest count on continuing claims since the week of July 2nd.
The third release of Q2 GDP saw overall growth unrevised at annualized -.6%, which now confirms a second consecutive quarter of contraction. While the headline print looked unchanged, the details showed a bit different picture. The contribution from personal consumption expenditures improved from +0.99 percentage points to +1.38, balanced by weaker contributions from fixed investment (-0.92 from -0.84), the change in inventories (-1.91 from -1.83), and net exports (+1.16 from +1.42). Government consumption and investment was little changed, to -0.29 from -0.32. It was nice to see the increase in consumption, but the negative to fixed investment (the lowest reading since Q2 2020, and second lowest since Q2 2009) suggests weaker potential for growth in the future.
U.S. existing-home sales - The National Association of Realtors reported that existing-home sales totaled 4.80 million units on a seasonally adjusted annualized rate in August, down 0.4% month-over-month from the annualized sales in July. Year-over-year sales were down 19.9% from an annualized rate of 5.99 million in August 2021. The median price for a home in the U.S. in August was $389,950, up 7.7% from $361,500 one year ago. Month-over-month the median price dropped in July and August from the all-time high of $413,800 in June. August marked a record 126 consecutive months of year-over-year increases in the median price. There was a 3.2-month supply of homes for sale in August, up from a 2.6-month supply last August. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 24% of all sales. Foreclosure and short sales accounted for less than 1% of all sales, remaining at a historic low.
Pending Home Sales
The National Association of Realtors' Pending Home Sales Index fell another -2.0% in August vs. expectations of a -1.4% decline. July's figures were revised upwardly, however, from -1.0% to -.6%. Looking YoY in August, sales fell by -24.2%. By region, the Northeast fell -3.4% MoM and -19.0% YoY; the Midwest fell -5.2% MoM and -21.1% YoY; the South slid -.9% MoM and -24.2% YoY; the West rose +1.4% MoM and down -31.3% YoY. "The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings," said NAR Chief Economist Lawrence Yun. "If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize." Yun notes that limited housing inventory and almost non-existent distressed property sales have supported home prices. Overall, he forecasts prices will rise by +9.6% in 2022.
The MBA weekly mortgage applications index declined by -3.7% for the week ending September 23rd. Purchase applications decreased by -.4% and were -29.0% lower than the same week one year ago. Refinance applications fell by -11.0% and were -84.0% lower the same week last year. "Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multi-year highs following more aggressive policy measures from the Federal Reserve to bring down inflation. Additionally, ongoing uncertainty about the impact of the Fed's reduction of its MBS and Treasury holdings is adding to the volatility in mortgage rates. The 30-year fixed rate was 6.52 percent, its highest level since mid-2008. After a brief pause in July, mortgage rates have increased more than a percentage point over the past six weeks," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "With rates now more than double what they were a year ago, the pace of refinancing is running at a 22-year low and last week was more than 80 percent below last year's level. Similarly, purchase activity was 29 percent lower than a year ago, with higher rates and economic uncertainty weighing on buyers' decisions." Added Kan, "With the recent jump in rates, the ARM share reached 10 percent of applications and almost 20 percent of dollar volume. ARM loans remain a viable option for qualified borrowers in this rising rate environment."