Vaccine hopes boost Wall Street as home purchases wane
The coronavirus continues to rule the ups and downs of Wall Street. Monday's news of a vaccine with 90% efficacy spurred the Dow Jones to soar more than 800 points, hitting a record intraday high at one point. The S&P 500 finished up 1% on Monday with the Nasdaq falling 1.5% with Netflix, Zoom and Peloton leading the slide. Part of the reason for the dip in the "stay-at-home" stocks like Netflix and Zoom is because the vaccine news gave investors some confidence to buy up more cyclical stocks that rely on economic recovery.
Tech companies made a big comeback on Wednesday, with Apple and Amazon helping lead the Nasdaq to a 2% jump. The S&P 500 hit its highest level since early September. But as the day progressed, reports of a potential "second wave" of COVID-19 cases tempered a very hot Wall Street. More than 144,000 new infections were recorded in the United States on Wednesday, the highest single-day total yet. Globally, the United Kingdom has already entered a second lockdown.
The Dow's volatile week started when it nearly broke the 30,000-point mark on Monday. By Thursday afternoon it had shed 900 points with futures changing pace once against moving higher in early trading Friday morning. The 10-year Treasury note yield, which was trading at 0.758% on Nov. 6, hit a high of 0.977% on Nov. 11 before starting to slip back down Thursday. The 10-year note was trading at 0.886% early Friday morning.
At least one financial firm is looking bullishly at the long-term ramifications of the vaccine news. Goldman Sachs on Wednesday refined its prediction for the S&P 500, forecasting it to hit 4,300 points by the end of 2021. That would be a 21% gain from its current level.
Data released on Thursday brought a mixed bag of sentiment for investors. The Labor Department reported 704,000 initial unemployment claims, which was well below what economists were expecting. However, as of Oct. 24 more than 21 million Americans are still claiming some sort of unemployment assistance from the federal government. The chart below from CNBC shows that the sharp decline from April's high has continued to move lower, but at an achingly slow pace. The consumer price index (CPI) released by the Bureau of Labor Statistics was unchanged in October, indicating continued low inflation. The study showed that increases in the cost of food and electricity were offset by decreased prices for gas, clothing, home goods and medical care among others. It's interesting to note that grocery prices have risen by 4% annually as people cook at home instead of eating out. The core CPI was also unchanged for October.
Federal Reserve Chair Jerome Powell is all too aware of the issue with the extremely slow economic recovery. The Federal Open Market Committee has kept overnight lending rates in a range of 0%-0.25% for the last few months in an effort to spur some sort of inflation and spending. On Thursday this week, Powell reiterated his main concern for certain populations who will be affected long-term by the pandemic.
“It’s women who are not by choice out of the labor market,” Powell said. “It’s kids who are not getting the education they should be getting. It’s small businesses with generations of intellectual capital that is being destroyed, and it’s just workers who have been out of work for a long period of time and losing their connection to the labor force and losing the life that they had." Powell continued, saying, "We’re not going back to the same economy. We’re recovering, but to a different economy and it will be one that is more leveraged to technology, and I worry that it’s going to make it even more difficult than it was for many workers.”
In his view, Powell sees that switch to technology to be more automation and potentially telework en masse. Basically, the slow evolution we've seen with regard to types of jobs available has been sped up by the absolute need for technology over human contact.
PURCHASE MARKET SLOWS SLIGHTLY
Mortgage applications for purchases decreased by 5% week-over-week on an unadjusted basis, according to the latest weekly survey by the Mortgage Bankers Association. However, the unadjusted number is still 16% higher than this time last year. Refinance activity jumped by 1% and remains a whopping 67% higher than a year ago. Overall, this is the sixth time in seven weeks that we've seen a decrease in the purchase market.
Joel Kan, the MBA's associate vice president of economic and industry forecasting, said, "Inadequate housing supply is putting upward pressure on home prices and is impacting affordability – especially for first-time buyers and lower-income buyers. The trend in larger average loan application sizes and growth in loan amounts points to the continued rise in home prices, as well as the strength in the upper end of the market.”
Mortgage rates remain below 3% with the latest 30-year fixed-rate mortgage average from Freddie Mac coming in at 2.84%. The rates went up because of the positive news about the COVID-19 vaccine, says Freddie Mac's chief economist Sam Khater. “Despite this rise, mortgage rates remain about a percentage point below a year ago and the low rate environment is supportive of both purchase and refinance demand. Heading into late fall, the housing market continues to grow and buttress the economy.”
While housing is booming during the pandemic, it is fascinating to look at how COVID-19 has affected buyer habits. This week the National Association of Realtors released its annual Profile of Home Buyers and Sellers. The data showed a significant shift in the driving forces behind homebuying in 2020.
A few of the notable statistics include: "Buyers who purchased after March were more likely to relocate to the suburbs and were more likely to pay more for that home – regardless of its location – paying an average of $339,400 compared to $270,000 for those who purchased before April." "Five percent of buyers who purchased after March did so without physically seeing the home in-person" "Those who went to closing after March were less likely to be denied by a lender – 2% compared to 5% for pre-April buyers." "The average buyer age of 55 was an all-time high. The average first-time buyer was 33 years old." 97% of buyers searched for their home online.