A great deal has happened since we checked in last week. Chief among economic news has been the Standard & Poor’s downgrade of the US credit rating from AAA to AA+, the first time this has happened. With major European economies like Italy and France also struggling and in danger of a credit downgrade, the global market is in a period of great uncertainty.
With the poor news, the Dow dropped 634.76 points, a 5.5% drop, which is the largest fall since December 1, 2008. This, coupled with last Thursday’s over 500 point retreat, has brought the Dow below 11,000. Today, S&P also downgraded a number of companies with direct government backing such as Fannie Mae and Freddie Mac.
Despite the S&P downgrade, the other two major ratings agencies have kept the AAA rating, and the stock market seems to back this confidence. With stocks down, demand continues to rise for government bonds, suggesting that they are still seen as a safe haven in this period of uncertainty (despite S&P’s downgrade). With the rise of bond prices, interest rates continue to drop heavily. As of this morning, the 30 Year Fixed is 4.000% and the 15 Year Fixed is 3.250%.
As the week unfolds we will have a better idea of where the market is headed and where interest rates will go. Despite the negative news, there are some small positives. Last week job creation numbers were better than expected and unemployment dropped from 9.2% to 9.1%. Central Coast lending will have daily updates on our Facebook and Blog to give you more information on the economy and the housing market. Please feel free to keep checking in.