ULTRA CHEAP MAY BE OVER: Mortgages are still cheap by historical standards, but the era of ultra cheap may be over. This past week, mortgage rates jumped to their highest rates in seven years. This, of course, will affect home price appreciation and first-time home buyer activity. The average rate moved up to 4.61% from 4.55% the week earlier, according to Freddie Mac. Mortgage refinancing is drying up.
THIS WEEK WE STALLED: After hitting record highs in the early part of this year, the stock markets have been trying to settle at where they ought to be. At the market peak, the trailing S&P 500 Price to Earnings (P/E) ratio was 21.5, and now it is 19.3. For the year, U.S. stocks are up just a bit and have been hovering in the same territory for awhile (and the hovering has been a bit turbulent). This past week, the smart people tell us that it was uncertainty about global trade policies and interest rates that kept investors from jumping in, and the markets stalled. Globally, a lot is going on. A new government in Italy (see below) is making waves. Activity between the U.S. and North Korea creates uncertainty as do trade talks with China.
EARNINGS: With 45 of the largest 50 U.S. companies reporting so far, profits in the first quarter were up over 26% from a year earlier.
GAS IS NO LONGER CHEAP: With more and more people working, more and more people are driving to work and filling their tanks. More people have disposable income and are going more places. The U.S. has 89 million less barrels of oil in reserve than it did last year. Simply put, demand has picked up and supply has decreased. Add uncertainty in Iran and Venezuela, a fairly solid OPEC that is slowing oil production, and the coming summer high-driving months, and you have ingredients for rising gasoline prices. There is still a lot of supply out there. The average price for a gallon of gas hit $2.87 last week, the highest in nearly four years. Prices will likely hover in the $3.00 per gallon range for awhile.
FIGHTING THE EUROPEAN UNION: Italy’s new governing coalition just reached an agreement that promises the following:
- Ramped up spending on programs to aid the poor
- Cutting taxes
- Ending sanctions on Russia
- Rolling back pension reforms that had raised the retirement age
The estimated cost is $149 billion.
European Union leaders are surely not going to like this. With Brexit still being worked out, having a non-conforming government in one of its largest economic members will not sit well. Stay tuned. It could be a long, volatile summer in Europe.
THE GREENBACK IS RISING: The ICE U.S. Dollar Index (which measures the currency versus six others) rose about 1.2% last week reaching its highest level all year. A strong economy and a Federal Reserve Bank that is continuing to raise interest rates has strengthened the dollar. Anxiety in Europe and the pending trade negotiations are also boosting the dollar.