Our economy continues to exist in a “Best of both worlds” scenario where the stock market is performing well at the same time interest rates are low. Throw in low prices at the gas pump, strong employment growth and minimal inflation and you have a recipe for economic success – at least in the short term. For now, consumers are riding high, with January’s Consumer Confidence reported at 102.9. This number came in significantly higher than the 96 expected, and represents the highest report since August of 2007. With only a 5.7% Unemployment Rate, strong investments and job security, consumers are poised to continue driving the markets higher.
The Case Shiller 20-City Home Price Index for November was reported at -0.2%. However, after seasonal adjustments it was +0.7%, which was in-line with estimates. On a year over year basis, the index was +4.3%. We anticipate 2015 to be a bit low than 2014, with estimates somewhere in the 3.5% range. Any number between 3-5% seems to be a Goldie Lox scenario where the market isn’t too hot or too cold. This range represents a respectable and yet sustainable growth rate, where homeowners are rewarded for owning real estate but not risking a bubble that often precludes an exuberant rate of growth.
Mortgage bonds continue to remain near the top of the sideways channel. However, there is still a longer-term upward channel in play as well. Based on the looks of the charts it seems likely we will trade in the sideways channel a bit longer. Unless we are able to make a break above overhead resistance, we will continue a locking bias while at the top of the channel.