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Market and Rate Update: June 11, 2012

Last week, we discussed the beating stocks took to begin June. During the remainder of the week (ending June 9), the Dow rose between 400 and 500 points, on the back of a better than expected employment report (12,000 drop in weekly unemployment claims) and speculation that the Fed could intervene in the economy.  After four straight positive days, we were back to where we started after the ugly 2 percent decline of major stock indexes (Dow, Nasdaq, S&P 500) on Friday, June 1.

Today, the Dow snapped this winning streak and fell nearly 150 points. The drop came after good news out of Europe: the Euro zone will loan Spanish banks up to $125 billion to add stability to the country, hurting from a popped real estate bubble, recession, and mass unemployment. Rather than give investors confidence, the move seems to have reminded investors that the bailout will not actually end the vicious circle of slow growth and debt burdens. Like a band-aid, the bailout will hide the wound from visibility awhile longer, but until Spain’s economy picks up, there isn’t much reason for optimism.

Regarding the Fed’s possible intervention: last Wednesday, Bernanke reiterated that the Fed would act if there was significant evidence of a dangerous economic slowdown.  The previous day few days, investors speculated that such evidence may be approaching after a few below average U.S. economic reports (jobs, manufacturing) and concern about Europe, through markets into a tailspin. HERE is our coverage of the event. We will know more after the next scheduled Federal Open Market Committee meetings on June 19 and June 20.

Interest rates fell again as investors continued to move to the bond market. Unfortunately, we have to reiterate – rates are not as low as we might have expected. Still, the 30-year fixed fell to 3.375 percent (3.456 percent APR) and the 15-year fixed finally improved: 2.750 percent (2.899 percent APR). U.S. Treasuries will continue to be a safe haven as the market bounces along stuck in its concern about Europe and the recovering U.S. economy.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile