2023 | August 21

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Stocks Drop Again

The major U.S. stock indexes fell more than 2% as the S&P 500 and the NASDAQ recorded their third consecutive weekly declines. The downward trend follows a three-week string of gains that ended in late July midway through quarterly earnings season.

The latest U.S. Federal Reserve meeting minutes and fresh economic data bolstered expectations that interest rates are likely to remain high for longer than previously expected, and the yield of the 10-year U.S. Treasury bond on Thursday briefly eclipsed 4.32%, the highest since November 2007. Yields retreated somewhat on Friday, and the 10-year bond ended the week at around 4.25%.

Deepening economic problems and concerns about debt levels in China’s real estate sector weighed on Asian markets, and a Hong Kong stock index entered a bear market on Friday after sinking more than 20% from a recent high. Earlier in the week, China’s central bank cut key interest rates for the second time in three months. 

Minutes released on Wednesday from the U.S. Federal Reserve’s late July meeting showed that policymakers were divided over the need for further rate increases beyond the one approved at that meeting, with some citing the risk to the economy of pushing hikes too far. Others noted that inflation remains a primary focus, suggesting the potential for more rate hikes.

The price of the most widely traded cryptocurrency, Bitcoin, briefly dropped below $26,000 on Friday and finished down roughly 11% for the week. While Bitcoin remains positive on a year-to-date basis, it’s down from a recent high of more than $31,000 in mid-July.

The latest monthly U.S. retail sales report exceeded most economists’ expectations. The government reported that sales rose 0.7% in July relative to the previous month, topping consensus estimates of around 0.4%. Sales were up in 9 of 13 retail categories. 

The price of U.S. crude oil fell 2% to around $81 per barrel, snapping a seven-week string of gains. Before the start of oil’s recent positive streak, the commodity was trading below $70 per barrel.

Investors and economists will turn their attention to the Rocky Mountain town of Jackson Hole, Wyoming, where the U.S. Federal Reserve will hold its annual three-day economic policy symposium beginning Thursday, August 24. Fed Chair Jerome Powell is among the featured speakers.

Source: John Hancock Investment Management

30 Year Average Returns

Just Out of Reach

If you’ve ever stretched on tippy-toe trying to pluck an apple from a tree or pull a bowl from the highest kitchen shelf – and haven’t been able reach it – then you’ve experienced a version of the frustration prospective homeowners are feeling.

In the United States, homeownership is an important means of accumulating wealth. Last week, Emily Peck of Axios wrote, “With home prices going up — and mortgage rates at a stunning 22-year-high — the situation is looking increasingly bleak for Americans looking to buy a house…Prognosticators had believed that rising mortgage rates would force home prices lower — and they did fall by 13% from their 2022 peak. But prices are still 26% higher than they were in the first quarter of 2020”.

Americans who were eager to buy homes in the 1980s may have felt similarly bleak. While home prices were significantly lower 40 years ago – the median price was about $69,000 in 1981 versus $420,000 in the first half of 2023 – mortgage rates were considerably higher.

The highest ever 30-year fixed mortgage rate was 18.53% in October 1981. Last week, the average 30-year fixed mortgage rate was 7.09%, which is below the 52-year average of 7.74%, according to data from the Federal Home Loan Mortgage Corporation (aka Freddie Mac). Regardless, in tandem with higher home prices, it’s high enough to put owning a home out of reach for many Americans, right now.

In times like these, it’s important to remember that the economy is cyclical. We are in a period of expansion. Eventually, we will experience a recession. During recessions, rates tend to drop as the Fed tries to stimulate the economic growth. Home values can move lower, too, reported AJ Dellinger of Bankrate.com.

“Decreased demand and fewer buyers mean that fewer people are competing for the same inventory of homes. When that competition dries up, sellers lose the upper hand they enjoy in a roaring seller’s market like we’ve seen in recent years.”

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