Market News – Week of October 2nd, 2017

QUIETLY MOVING HIGHER:

The S&P 500 finished September much like it has for the entire third quarter of the year, quietly moving higher. All in all, the index rose about 4% from July 1 to the end of September, but the average daily move was 0.3%. This is the lowest quarterly volatility for the S&P 500 since 1968. Energy companies have recently risen in value because of the rising price of oil (up about 12% since June). Nearly all sectors of the economy have been growing, and economic expansion is occurring all over the world. Corporations will begin reporting their third quarter results, and other broad third quarter data will start to roll in soon, so we will see what October brings. For the week, the S&P 500* increased 0.68% (up 12.53% for the year). The MSCI All Country X US* decreased 0.25% (up 19.31% for the year). The Barclays Global Aggregate Bond Index* decreased by 0.82% (up 6.09% for the year). The HFRX Global Hedge Fund Index* decreased 0.04% (up 4.31% for the year).

MORTGAGE DELINQUENCY STATS KEEP (SLOWLY) IMPROVING:

A huge fallout from the Great Recession, of course, was the massive amount of people who could not afford to pay their mortgages. The values of their homes plummeted while the monthly payments (on their adjustable rate mortgages) went up, and their income either decreased, disappeared or remained static. According to Fannie Mae, the rate of people with mortgage loans that are three payments late or worse decreased to 0.99% in August, down from 1.00% in July, and 1.24% a year ago. This is the lowest this rate has been since December 2007. This rate peaked at 5.59% in February 2010.

IMPACT OF HURRICANES ON EMPLOYMENT:

During the week that ended September 23 there were 272,000 new unemployment claims filed, an increase in 12,000 from the prior week. The four week moving average moved up to 277,750, the highest level since February 2016. This is definitely affected by Irma and Harvey.

PUERTO RICO WAS ALREADY IN BAD SHAPE:

Puerto Rico (also known as Borinquen) was in terrible shape economically before Hurricane Maria devastated it. It’s economy has been in a continuous recession for more than a decade (only in 2012 was GDP flat instead of negative). By the end of this year, Puerto Rico’s economy was projected to be the size it was in 2000. The overall U.S. economy has grown by 35% since 2000. Puerto Rico’s population has declined more than 10% since 2004, to 3.4 million. Typical household income in Puerto Rico is less than half of what it is in Mississipi, the poorest U.S. state. The cost of living is not low, however, and about 40% live below the U.S. poverty line. The August unemployment rate was 10%. With about $74 billion in bond debt and about $49 billion in unfunded pension obligations, Puerto Rico filed for bankruptcy in May of this year. There is absolutely no question that the order of the day is to provide relief for Puerto Rico. But once the urgent situation has passed, Puerto Rico needs to rehabilitate and develop effectively. This more difficult and sustained work will need to occur after Puerto Rico falls off of the front page of our news sources. It is a big challenge for Puerto Rico and those who want to help.

References:

MORTGAGE DELINQUENCY STATS KEEP (SLOWLY) IMPROVING: http://www.calculatedriskblog.com/2017/09/fannie-mae-mortgage-serious-delinquency.html
IMPACT OF HURRICANES ON EMPLOYMENT: http://www.calculatedriskblog.com/2017/09/weekly-initial-unemployment-claims_28.html
PUERTO RICO WAS ALREADY IN BAD SHAPE: https://qz.com/1091341/puerto-ricos-eye-popping-economic-situation-in-charts/
QUIETLY MOVING HIGHER: https://www.wsj.com/articles/investors-take-stock-as-third-quarter-ends-1506654854