Why Does The Stock Market Keep Bouncing Back?

20140309-080351.jpgThe stock market has been on quite a run for the past five years or so. Granted, most of this was a rebound from the precipitous drop we experienced during the financial crisis and recession. However, a run this long and this far is hard to ignore. So many times in the past five years we have seen periods of weakness that looked like either corrections or the end of the run, only for stocks to bounce back and hit new highs. Why have stocks been so resilient?
There are a multitude of theories, but the bottom line is that stocks would not be doing well if companies were not doing well. It is that simple. Of course, that begs the next question, why have earnings been so strong when the economy has been in such a slow and painful recovery? One explanation delves into the theory that technology has made companies more efficient. Of course, that also means companies need to hire fewer employees to run their businesses and this is possibly one reason the labor markets have not recovered. Certainly, the growth of online shopping is one of the factors that come into play in this regard.
The real question is, what does the strong stock market say about the economy? Here is where there seems to be a disconnect. Is the stock market saying — don’t worry, the recovery is coming; Or is the stock market saying — we don’t care how slow the economy is, as long as we are producing results? If the markets could talk, we could find out an answer. Meanwhile, we will speculate that both answers are in play. If the markets felt that darker days were ahead of us, strong earnings today would not matter as much.
WEEKLY INTEREST RATE OVERVIEW

The Markets. Rates moved to their lowest levels of the past seven months in the past week. Freddie Mac announced that for the week ending May 22, 30-year fixed rates decreased to 4.14% from 4.20% the week before. The average for 15-year loans fell to 3.25%. Adjustables were mixed but stable in the past week with the average for one-year adjustables remaining at 2.43% and five-year adjustables falling to 2.96%. A year ago 30-year fixed rates were at 3.59%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans continued to decline this week as industrial production slipped by 0.6 percent in April, below the market consensus forecast. Meanwhile, housing starts jumped 13 percent in April to a seasonally adjusted annual rate of 1,072,000 units, well above expectations. Permits rose to a seasonally adjusted annual rate of 1,080,000 in April, also above expectations.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated May 23, 2014
Daily Value Monthly Value
May 22 April
6-month Treasury Security 0.05% 0.05%
1-year Treasury Security 0.09% 0.11%
3-year Treasury Security 0.80% 0.88%
5-year Treasury Security 1.57% 1.70%
10-year Treasury Security 2.56% 2.71%
12-month LIBOR 0.550% (Apr)
12-month MTA 0.123% (Apr)
11th District Cost of Funds 0.701% (Mar)
Prime Rate 3.25%
REAL ESTATE NEWS
The majority of metro areas in the first quarter continued to show price growth, but the gains are smaller than previous quarters, the National Association of Realtors® says in its latest quarterly housing report. Median existing single-family home prices rose in 74 percent of the 170 metro areas measured, based on closings in the first quarter compared with the first quarter of 2013. Twenty-two percent of the areas – or 37 – showed double-digit increases. For comparison, in the fourth quarter of 2013, 26 percent of metros had registered double-digit gains. “The cooling rate of price growth is needed to preserve favorable housing affordability conditions in the future, but we still need more new-home construction to fully alleviate the inventory shortages in much of the country,” says Lawrence Yun, NAR’s chief economist. “Limited inventory is creating unsustainable and unhealthy price growth in some large markets, notably on the West Coast.” Overall, the national median existing single-family home price was $191,600 in the first quarter, up 8.6 percent from $176,400 in the first quarter of 2013, NAR reports. At the end of the first quarter, inventories of for-sale homes did show some growth. There were 1.99 million existing homes available for sale at the end of the first quarter — 3.1 percent higher than year-ago levels. The average supply during the quarter was five months. A supply of six to seven months is considered a healthy balance for the market. Source: NAR

Seventy percent of baby boomers say that the house they live in when they retire will be the best home they’ve ever had, according to a survey conducted by Better Homes and Gardens Real Estate. The survey had 1,000 respondents. What’s more, 57 percent say they plan to move out of their current home in order to search for their dream retirement home. “With approximately 77 million boomers in the U.S., it’s quite significant to see that this population has so much positive anticipation for the home in which they will be retiring — and for the majority, their aspirations involve making a move,” says Sherry Chris, president and CEO of Better Homes and Gardens Real Estate. “Baby boomers are known for being a hardworking, trailblazing generation. As they have done with every other major life event, they are marching head-on into retirement with big plans and no desire to change pace. Our study shows that boomers continue to surprise with nuances of what they care about and what they are prioritizing.” About one in four boomers say they likely will buy a second home to use during their retirement years, such as a vacation or beach house. Source: Better Homes and Gardens Real Estate
The population is shifting to the South. Between 2010 and 2013, 51 percent of the population increase in 52 major metros nationwide was in the South, according to U.S. Census Bureau data. In comparison, the West accounted for 30 percent of the increase, followed by the Northeast at 11 percent and the North Central (Midwest) area at 8 percent. What’s more, the Census Bureau data shows that nearly 785,000 more people moved to major metro areas in the South than moved away. That’s far more than the 170,000 domestic migrants who moved to major metro areas in the West. On the other hand, the Northeast lost 485,000 net domestic migrants while the Midwest lost 280,000. The largest growth in domestic migration was to Texas. Source: NewGeography

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