On Tuesday, October 7, the Dow Jones Industrial Average dipped 274 points. The following day, it posted its largest jump of the year: 274 points. Next, the Dow retreated 334 points.
Talk about mixed messages.
All major U.S. stock indexes fell at least 2% last week, with the Nasdaq down 4%. The Dow is now even on the year. Despite Wednesday’s rally, it was the worst week for North American markets since 2012.
The volatility feels somewhat reminiscent to what we saw in 2011, when concern about the U.S. government shutdown, the “fiscal cliff”, and European debt issues dominated the headlines. This time around, however, the U.S. government is functioning (as best it can, at any rate) and U.S. employment data is strong.
The trouble, once gain, comes from abroad. Last week, an economic report showed that German industrial activity and exports had plummeted to 2009 levels. Meanwhile political unrest in Ukraine / Russia and the Middle East has people nervous.
So what can we expect moving forward?
After 2011’s bout of volatility, stocks went on what would essentially become a three-year winning streak (despite some struggles in 2012). Growth through 2013 was consistent, and in 2014, the S&P 500, Dow, and Nasdaq consistently improved on all-time highs.
In a recent column, Financial Post writer John Shmuel interviewed Jason Mann, co-founder and portfolio manager at EdgeHell Partners. Mann points out that the normal markets average a technical correction – a decline of 10% – at least once per year. The S&P has now gone over 1,000 days without a 10% decline.
After the run of success, we may be in the midst of the long-awaited correction. On the bright side, U.S. economic data has been consistently positive strong, which will set a strong foundation for growth after any hypothetical correction runs its course.
For more on market “corrections” read financial planner and Blakeslee & Blakeslee Vice President David Cryden’s take here.
Mortgage rates have dropped over the past week. Volatility in the stock market tends to benefit mortgage rates, as investors seek safe places – like the U.S. bond market – to put their money. Periods of high demand for bonds often result in lower mortgage rates.
But will lenders offer lower prices? Widely-followed mortgage market commentator Rob Chrisman pointed out that a bond market rally might not translate to better rates for mortgage holders.
“Rate improvements are muted by loan level price adjustments, buy ups and buy downs, historically high gfees and mortgage insurance costs, and compliance expenses – all of course passed on to new borrowers.”
The benefit of our business model at Central Coast Lending, is that as bankers AND brokers, we are able to shop around for the best rate pricing. As brokers we can shop between 40+ banks to find the best bargain. Give us a call at 805.543.LOAN for a free, honest assessment of our financial situation and your mortgage requirements, and we will help point you in the right direction.
Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email us here to set up a free pre qualification. We are The Mortgage Experts: ask us anything!