Citigroup news lifts stock market despite drop in home sales
Citigroup, the worlds largest bank by asset totals has received additional Federal assistance to shore up the companies balance sheet as investors have been selling the stock down to record low levels over the past two weeks. The company lost over 120 billion in stock holders equity over the past year and has been devastated by the fallout from the U.S. housing markets, credit crunch and lack of transparency within the companies balance sheet.
The stock market jumped over 300 pts in intraday trading on Monday, following a 500 pt rally on Friday of last week. Investors may cautiously be returning to the market, but there is little reason for near term optimism to continue as evidenced by today’s economic report showing that existing home sales continue to decline in the U.S.
Mortgage rates have moved up over the past two days as the stock market has recovered from a dramatic sell off that saw stocks drop to their lowest levels in the past six years. Fixed rate mortgage loans are still hovering in the high five percent range, and provide a great window for homeowners looking to refinance to lock in lower rates.
Producer price index falls at record rate
Producer prices fell at a record pace in the month of October as spending declined sharply. Consumers and whole sale spenders have been reducing their spending sharply as the country braces for a recession. The stock market took the news in stride as there is little doubt that spending will continue to drop over the upcoming months as the market looks for signals of a turnaround. Mortgage rates continue to move lower with the news as the ten year bond has dropped below 3.7%, pushing fixed rate mortgage loans down closer to six percent.
The stock market is hovering slightly above 8,000 and has dropped over 6% in the month of November. The rapid drop of almost 3% in producer prices should help to set the stage for future rate cuts in the upcoming months as the Fed will agressively look to try to stimulate new growth. The FOMC will meet one more time in 2008 and likely could drop the Fed Funds rate to its lowest level in the past 20 years.
Retail sales continue moving lower
Retail sales for the month of October showed consumers are continuing the trend of pulling back on their spending. For the month retail sales were off almost three percent the largest decrease in the past five years. The report follows a number of large retail stores that have lowered guidance for earnings over the past few weeks. Consumer spending is being driven down by job loss, declining home values and a rapid drop in the stock market. Earlier in the week Best Buy indicated they have seen a rapid decline of store sales as consumers are looking to cut back on spending money as fears over the economic future play out.
The market should get a boost from the rapid decline of energy prices as the average cost for a gallon of gasoline is heading under $2 a gallon, almost a 50% decline in the past six months. Fixed rate mortgage loans are also benefitting from the news as they are again heading closer to six percent. The housing market could benefit from reduced rates as the foreclosure inventory could begin to drop in 2009 as major lenders pledge to do more to reduce home foreclosures.
Stocks get slammed as Best Buy warns
The stock market took another blow on Wednesday as Best Buy warned that they have seen a sharp decline in sales in their retail stores. The stock market dropped another 2% on the negative news as investors are concerned that holiday sales could be way off target.
The market is also digesting news out of the TARP progam as Secretary Paulson reviewed progress and future plans for the program. The program will now provide some relief for student loan lenders, credit card companies, auto loan companies and other key financial players who provide capital for the general public. There are hundreds of companies lining up trying to gain access to the TARP’s funds as companies view this as a necessary lifeline to stay in business. American Express has received authorization to become a bank holding company and is rumored to be looking for as much as 3.5 billion dollars worth of loans. There does not appear to be funding earmarked for auto companies, yet there is likely to be seperate legislation to address this in the near future.
The ten year bond is hovering around 3.67%, fixed mortgage rates have moved slightly lower with all of the economic news. Auto loan financing is large challenge in todays market and could get a boost if funds are earmarked for the auto industry.
Mortgage rates move lower following the elections
Mortgage rates have dropped following the elections in the U.S. as the stock market has moved lower following a rapid rise in many equity positions over the last two weeks. The average rate on a thirty year fixed rate loan was at 6.2% according to a recent report from Freddie Mac, the nations second largest agency lender.
The stock market has dropped sharply as investors are again focussing on corporate earnings and economic reports that clearly indicate the economy is struggling with numerous issues. The Bank of England dropped their funding rates by 1.5% in an effort to try and prop up the economy and improve liquidity in Great Britain. World markets in Europe and Asia have dropped sharply as more large corporations are reporting dismal outlook for earnings growth in the near future. Stocks have been beaten down in many sectors as the market is off over 30% year to date, despite rallying off of the lows from October.
Consumers who are shopping for a mortgage could benefit from the recent drop in the stock market and improving credit markets to secure a new mortgage in the lower six percent range. The U.S. housing market is beginning to show signs of a bottom as lenders have agressively moved to slow down home foreclosures.