28 Nov Waiting on the Fed
Stocks recovered in late day trading yesterday and are following through and advancing once again this morning. Yesterday’s advancement was enough for stocks to break out of the downward trading channel that took a painful toll on the market. With the 200-day moving average not too far above current levels, we could see stocks challenge that critical ceiling at some point before the end of this week. The near-term direction of the markets could be influenced based on statements Fed Chairman Jerome Powell will be making a bit later today. Markets will be looking for any sign of how the Fed will react to recent stock market drops, a slowing housing market and overall lower pace of growth in the US economy. Based on the last Fed statement, the path of gradual rate hikes is anticipated to continue. I believe future rate hikes will be harmful to the economy and should be re-considered. However, the Fed seems determined to continue its path.
The Median Home Price was reported to be $309,700, which is down 3.1% on a year over year basis. Further, inventory levels grew to a 7.4-month supply, which is adding to the downward pressure on home values. The Commerce Department report showed New Home Sales dropped 8.9%, which represents a decrease of 12% over past year. With 336,000 unsold homes on the market right now, inventories are at the highest levels since January 2009. New home sales have decreased four of the past five months, which shows the trending path isn’t supportive of continued rapid appreciation gains. I continue to believe that we will see lower home prices and / or lower interest rates in the future. The current path of increasing rates and home values isn’t sustainable. Especially in the recessionary period we are on the verge of entering.
Mortgage bonds are currently battling their 50-day moving average. If they can break above this level, we could see a nice rally. For those who can closely monitor the markets, I suggest a floating bias to wait and see what happens.