Note: We are writing this on Friday, September 2 in anticipation of a closed office on Labor Day. As such, the information here does not include weekend developments.
Well, that was an eventful Friday. After a better than expected manufacturing report and stock gains throughout the week, the market tanked after an absolutely disastrous jobs report. Economists had already expected the August jobs report to be weak, forecasting around 75,000 jobs added, down from July numbers. The real numbers were worse.
The United States had a net of zero non-farm jobs added in August, and unemployment remained at 9.1%.
The major US stock indexes dropped to erase gains from earlier sessions, and turn negative for the week. The Dow fell 253.31 points to settle at 11,240.26 and the Nasdaq (-65.71) and S&P 500 (-30.45) also saw 2 percent dips. Poor news out of Europe certainly did not help the session, but the jobs report took center stage.
As a result of this movement, we have seen two developments that should keep interests rates low for the foreseeable future. As money left stocks, investors flooded to US Treasury bonds. The 10-Year rose to 101.28 (+1.32) and the 30-Year jumped to 108.46 after a hefty 3.73 rise in price. As price increases, yields have dropped. The 10-Year yield, which tracks for mortgage interest rates, is below 2 percent (1.98). We have already seen interest rates drop recently, even hitting 40-year lows last week, and this flight to the bond market could bring rates even lower. At Central Coast Lending, we were able to hold our 30-Year at 3.875% (4.028% APR) for the week and our 15-Year at 3.250% (3.430% APR).
The Fed is expected to respond to recession fears with a move that has been called an “Operation Twist.” In this plan, the Fed would purchase longer-dated Treasury Bills and sell short-dated Treasury Bills in an attempt to keep interest rates low long term to give investors and corporations confidence. The move does not affect the money supply and does not amount to QE3.
In a final piece of big news before the weekend, the US has sued 17 major banks over selling bonds backed by subprime mortgages that should not have been put into securities. The move was unexpected on the market and caused an immediate drop in financials.