The volatility of last week gave way to a fresh winning streak on Wall Street. Corporate earnings paired with positive economic data helped push stocks forward with the Dow closing up another 250 points on Thursday. That was the index’s fourth-straight day of gains.
Weekly gains going into Friday, the Dow had increased 3% with the S&P 500 and Nasdaq both hitting record-high closings on Thursday. There was more positive news about stability on Wednesday as the CBOE Volatility Index (VIX) posted its largest three-day decline ever, falling from 30+ down to 22.9.
The 10-year Treasury note yield hit a high Friday morning, reaching 1.15%. That is the highest the 10-year note yield has been since March 2020.
Most of the positive movement was spurred by the stronger than expected unemployment data. The Labor Department’s Jobs report, released Friday, painted a picture of a still struggling economy that is slowly working itself out of a hole, but still moving in a positive direction.
Nonfarm payrolls increased by 49,000 in January and the unemployment rate dropped to 6.3%, according to the latest jobs report. The report also notes that 14.8 million Americans reported that “they had been unable to work because their employer closed or lost business due to the pandemic—that is they did not work at all or worked fewer hours at some point in the last four weeks due to the pandemic.” That number is 1.1 million lower than December’s count.
Private payrolls performed better than expected in January. ADP’s monthly jobs report showed a gain of 174,000 jobs, well above the expected 70,000. The most volatile sector during the COVID-19 pandemic, the service-providing sector, led the way with 156,000 jobs. Education and health-services industries were responsible for 56,000 with leisure and hospitality adding 35,000.
Weekly jobless claims were also better than expected. The Bureau of Labor Statistics showed initial claims came in at 779,000 for the week ending Jan. 30. That’s the lowest number of initial claims since the end of November. Continuing claims fell sharply but are still at 17.8 million total.
SENATE PASSES BUDGET RESOLUTION
Vice President Kamala Harris cast her first tie-breaking vote as the Senate passed a budget resolution early Friday morning. The resolution will help set the stage for Democrats to pass another stimulus package without support from the GOP. A similar budget measure passed by the House earlier this week will have to be voted on again considering the Senate passed an amended version.
Once the House passes the Senate version of the budget, legislators can start writing up the next financial aid package. It’s expected to include provisions for stimulus checks, unemployment benefits and vaccine funds along with other measures. The current timeline for passing and enacting another COVID-19 stimulus package is late February or early March.
CBO PREDICTS RAPID ECONOMIC RECOVERY
The Congressional Budget Office predicts the U.S. economy will grow at the fastest pace since 2009. The CBO’s recent release out this week forecasts a “rapid” economic recovery even if the federal government doesn’t provide any more financial stimulus.
The report states, “CBO currently projects a stronger economy than it did in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected.” The new projection for economic growth is 4.6% in 2021. In 2020 we saw a 3.5% contraction, the biggest annual decline since 1946.
Unemployment, however, is not expected to recover as fast as the economy. The CBO expects unemployment to hover around 5.7% throughout this year and expects we won’t hit pre-pandemic employment levels until 2024.
REFINANCES PICK UP STEAM
The refinance boom isn’t over quite yet. A slight drop in mortgage rates last week was enough to spur refinance holdouts to lock in a better interest rate for their home. The Mortgage Bankers Association weekly data shows demand up 59% annually for refinances with the group’s refinance index hitting its highest level since March 2020.
The latest data from Freddie Mac shows the 30-year fixed-rate mortgage average at 2.73%. Typically, people looking to buy a home would jump at that kind of rate. But the lack of supply, compounded by people refinancing their homes instead of selling, has led to increasingly overheated home prices that are starting to outweigh the benefits of a low interest rate. The MBA’s data shows purchase demand is 16% higher than this time in 2020 but week-over-week it remained relatively flat.
One specific region seeing a marked increase in purchasers is New York City. Manhattan saw a 100% year-over-year increase in homebuyers in January, according to a recent report from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The report showed purchase contract for co-op apartments were more than double this time in 2020 and more than half of the contracts were for homes prices below $1 million. Last year’s exodus from the city due to COVID-19 created a dearth of potential homebuyers, forcing prices to go down. Now the advent of multiple vaccines, in conjunction with lower interest rates, have likely lured potential homebuyers back to snag previously much more expensive real estate.