Economic update for the week ending January 13, 2018

Stocks continued to rally this week –  On Friday, The Dow gained 228 points after Wells Fargo announced that the new tax law would result in a $3.35 billion tax reduction. As companies estimate the tax savings, investors are seeing the magnitude in which profits will increase due to a reduction from 35% to 21% in corporate tax income, easing regulation, and other incentives. Oil prices also rose to the highest level in two years, which helped energy stocks. The Dow Jones Industrial Average closed the week at 25,804.19, up from last week’s close of 25,295.87. The S&P 500 closed the week at 2,786.24, up from 2,743.15 last week. The NASDAQ closed at 7,261.06, up from 7,136.56 last week.


Treasury Bond Yields – It was a wild week for treasuries. On Wednesday, a Chinese banking official made a comment that they were going to cut back on buying U.S. debt and rates rose. Later that afternoon, an unofficial source said that the bankers comments were not the policy of the central bank. By Friday, a Chinese official made an official statement that The Chinese Central bank was not going to cut back on U.S. debt and bonds settled, but ended the week higher than the previous week. The 10-year treasury bond closed the week at 2.55%, up from 2.47% last week. The 30-year treasury yield ended the week at 2.85%, up from 2.81% last week. We watch bond rates because mortgage rates follow bond rates. We expect mortgage rates to be slightly higher next week.
Mortgage Rates – The January 11, 2018 Freddie Mac Primary Mortgage Survey reported that the 30-year fixed mortgage rate average was 3.99%, about the same as last week’s 3.95%. The 15-year fixed was 3.44%, up from 3.38% last week. The 5-year ARM was 3.46%, also almost unchanged from 3.45% last week.
Stricter rent control bill defeated – A bill in the California Assembly, that would have eliminated restrictions on local cities, was defeated this week. Real estate groups were against the bill that would have eliminated the current California law, which limits how restrictive rent control ordinances could be. They argued that landlords would not be encouraged to keep apartment buildings, many have been torn down and converted to condominiums, if this bill passed. They also argued that there will be less incentive to build rental housing, which already has a shortage.
Author, 

Syd Leibovitch