Markets: The market was subdued this past week, with the Dow up slightly and the S&P virtually flat, but the Dow, NASDAQ and S&P still made new all-time highs. The Russell Small Caps led, with the NASDAQ lagging, for the 2nd week in a row.
Dividend Stocks Update: These high dividend stocks go ex-dividend this coming week: Global Medical REIT Inc (NYSE:GMRE), Armada (NYSE:AHH), Chimera Investment Corporation (NYSE:CIM), MFA (NYSE:MFA), Ares Commercial Real Estate (NYSE:ACRE), AGNC Investment Corp (NASDAQ:AGNC), Ashford Hospitality Trust (NYSE:AHT), Apollo Commercial Real Estate Finance (NYSE:ARI), America First Tax Exempt Investors (NASDAQ:ATAX), Capstead Mortgage Corporation (NYSE:CMO), Great Elm Capital (NASDAQ:GECC), Hersha Hospitality Trust (NYSE:HT), Independence Realty Trust (NYSE:IRT), JMP Group (NYSE:JMP), MGIC Investment Corporation (NYSE:MTG), Annaly Capital Management (NYSE:NLY), Pattern Ene (NASDAQ:PEGI), Starwood Property Trust (NYSE:STWD), Two Harbors Investments (NYSE:TWO), CBL & Associates Properties (NYSE:CBL), Corecivic (NYSE:CXW), Jernigan Capital (NYSE:JCAP).
Volatility: The VIX fell 5.7% this week, and finished at $9.59, its lowest point since mid-July.
Currency: The dollar rose vs. most major currencies this week, except for the euro and the New Zealand dollar.
Market Breadth: 19 of the Dow 30 stocks rose this week, vs. 27 last week. 56% of the S&P 500 rose, vs. 74% last week.
Economic News:
“Sales of previously owned U.S. homes declined to a one-year low in August as affordability continued to hamper demand and Hurricane Harvey caused a slump in Houston-area purchases, a National Association of Realtors report showed Wednesday.”
The median sales price rose 5.6% y/y to $253,500
“While decreased purchase activity in Houston helped push down the sales count nationwide, and may continue to do so in coming months, residential real estate is struggling to improve because of declining affordability, NAR said in the report.
Housing data may be volatile for several months in the wake of Harvey and Irma. As a result, U.S. sales in 2017 will probably be weaker than they were last year, according to the group, which plans to issue a revised forecast next week. A pause in both sales and construction in Texas and Florida as clean-up efforts continue will probably give way to improving demand later this year and into next, according to economists.Even before the storms, home price growth was exceeding wage gains because of lean inventory, crimping affordability for some and leaving buyers with fewer properties to choose from. At the same time, a steady job market and still-low borrowing costs remain sources of support for the housing recovery.
Existing-home sales account for 90% of the market and are calculated when a contract closes. (Source: Bloomberg)
The Federal Reserve announced it will begin reducing its balance sheet, which swelled to $4.5 trillion amid unconventional measures deployed following the financial crisis, in October. Officials believe the hurricanes that have battered parts of the U.S. will have a temporary effect on activity. Most policymakers believe it will be appropriate to hike rates again this year, with only four officials wanting to maintain the current policy rate through year-end, the same number as in June. During a press conference, Chair Janet Yellen deemed the persistent shortfall of inflation from its 2-percent target to be a mystery. (Source: Bloomberg)
The Fed will initially cut up to $10bn each month from the amount it reinvests. It also said it will hold benchmark interest rates steady, and signaled a rate hike by the end of 2017. The move to unwind the portfolio the Fed acquired during its crisis-era bond-buying programs was widely anticipated. (Source Bloomberg).
Week Ahead Highlights: The 3rd quarter draws to a close next week with the market making multiple new highs over the past 3 months, we may see some profit-taking and position squaring as investors lock in unrealized gains made during the 3rd quarter. If that happens, look for some weakness in stocks, bonds, and the euro.
October will be the beginning of a new era, in which the Fed starts winding down its huge balance sheet, slowly drawing liquidity from the market. This will add uncertainty to the market – no one knows for sure how the market will react – even though the Fed’s pace of selling its assets will be glacial at 1st.
Next Week’s US Economic Reports: There will be multiple consumer-based reports due out next week, in addition to several housing reports.
Sectors: The Financials and Energy sectors led again this week, with Real Estate and Utilities trailing.
Futures: Natural Gas futures fell 2.6% this week, while WTI Crude rose 1.54%.
