The stock market posted modest losses during the holiday-shortened trading week while bond yields moved slightly lower. The 10-year treasury yield moved lower to 2.4054% after touching 2.50% in the prior week and ended 2017 nearly unchanged from the 2.45% mark where it ended in 2016.
There was a smattering of mostly positive economic news released during week. Initial Jobless Claims were unchanged from the previous week at 245,000 and remained near historically low levels. Although the Consumer Confidence Index for December was lower than expected at 122.1, it followed November’s 17-year high reading of 128.6. Meanwhile, the Chicago Purchasing Managers Index for December had its best reading (67.6) since March 2011 while its New Orders Index reached a three-and-a-half year high and the Production Index hit a 34-year high.
Pending Home Sales for November were better than forecast, rising 0.2% to push the
Pending Home Sales Index to 109.5, the highest level since June. The National Association of Realtors is now forecasting existing home sales and home price appreciation will slow heading into 2018, primarily due to pending changes in the tax code that will negatively impact people living in high-cost states like California, Hawaii, New Jersey and New York.
For the week, the FNMA 3.5% coupon bond gained 43.7 basis points to close at $102.734. The 10-year Treasury yield decreased 7.92 basis points to end at 2.4054%. The major stock indexes pulled back during the week.
The Dow Jones Industrial Average declined 34.84 points to close at 24,719.22. The NASDAQ Composite Index fell 56.57 points to close at 6,903.39 and the S&P 500 Index lost 9.73 points to close at 2,673.61. For the year 2017 on a total return basis, the Dow Jones Industrial Average gained 25.08%, the NASDAQ Composite Index advanced 28.24%, and the S&P 500 Index added 19.42%.
This past week, the national average 30-year mortgage rate fell from 4.09% to 4.04%; the 15-year mortgage rate decreased to 3.37% from 3.41%; the 5/1 ARM mortgage rate decreased to 3.20% from 3.24% and the FHA 30-year rate held steady at 3.75%. Jumbo 30-year rates decreased to 4.19% from 4.24%.
The FNMA 30-year 3.5% coupon bond ($102.734, +43.7 bp) traded within a 50.0 basis point range between a weekly intraday high of $102.75 on Friday and a weekly intraday low of $102.25 on Tuesday before closing the week at $102.734 on Friday.
Bond prices jumped higher on Wednesday and Friday while stock indexes ran out of upward momentum and were pressured modestly lower. The week’s action powered mortgage bonds back above multiple resistance levels that now revert to support levels. Support levels are now found at $102.42 and $102.64 (25-day moving average) while resistance levels are located at the 38.2% Fibonacci retracement level ($102.806) and the 200-day moving average ($102.86).
Momentum indicators show the major stock indexes are not yet oversold and could continue lower while bonds are not overbought and could continue higher. Therefore, we could see the stock market continue to consolidate while bonds trade higher toward resistance levels resulting in a slight improvement in mortgage rates during the first week of the New Year.
Thanks Josh for the update