Stock Market Rebounds Amid Rising Inflation – Market Update

It’s Presidents Day, but every president we know couldn’t take this holiday off, so we aren’t either. Let’s take a look at what happened last week.

Among the questions looking for answers were these: Would the stock market continue its slide? Would inflation numbers continue to make the case for faster Federal Reserve short-term rate hikes?

Headline News

Quicken Loans Home Price Perception Index (HPPI)

For the first time in eight months, the gap between homeowner estimates of value and actual appraised values increased in January with homeowners’ estimates coming in 0.60% higher than appraisals compared to 0.50% in December. However, at the same time last year, homeowners were 1.47% high in their estimates.

Breaking down the data regionally, Western homeowners were closest to appraisal values, overestimating by just 0.41%. It was followed by the Midwest and Northeast at 0.67% and 0.70%, respectively. The Northeast was close behind with estimates 0.72% higher than appraisal values.

At a city level, Dallas has the hottest housing market with homeowner estimates coming in 2.83% below appraised value. Cleveland is at the other end of this spectrum, with homeowners overvaluing homes by 1.95%. The Atlanta market is closest to balance with homeowner values just 0.09% higher than actual appraisals.

Quicken Loans Home Value Index (HVI)

Home values were up 0.46% in January. This is an increase of 7.03% since the same time last year.

The picture wasn’t all rosy. Values fell in the South, down 0.54% but up 5.08% on the year. Northeastern home values were up 0.27% in January and 5.22% year to year. The Midwest saw values rising 0.37% for the month and 6.93% annually. The West was a runaway winner on both a monthly and yearly basis, with values going up 2.23% and 10.46%, respectively.

MBA Mortgage Applications

Rising rates certainly had an effect on applications last week as purchase applications were down 6.0% and refinancing applications fell 2.0%. Overall applications fell 4.1% as the average rate on a 30-year-fixed conforming mortgage was up eight basis points to 4.57%.

Consumer Price Index (CPI)

Inflation was up 0.5% on the consumer side last month compared to expectations for a 0.3% increase in January. Prices have gone up 2.1% on the year. In core categories, prices were up 0.3% and 1.8% on the year.

Prices for transportation were up 1.8% including prices for parking, leasing vehicles, insurance, etc. New vehicle prices were down 0.1%, but the price for used cars rose 0.4%.

Medical care costs rose 0.4%. Prescription drug costs were down 0.2%, but hospital prices were up 1.3%, and health insurance premiums rose 0.6%.

Another major category was gas prices, which rose 5.7%, helping a 3.0% uptick in energy costs. Meanwhile, food prices were up 0.2%. The cost of housing was up only 0.2%, although the prices homeowners could expect to pay if they rented out a space with similar square footage was up 0.3%.

Finally, apparel prices were up 1.7% as the price of women’s apparel was up 3.4%.

Retail Sales

Retail sales were down 0.3% in January. Making matters worse, December numbers were revised down 0.4% to leave it at a level unchanged with November, which was also revised down slightly.

Motor vehicle sales were down 1.3% in January. In fact, sales were flat when cars and trucks were taken out. When gas was further removed, sales were down again, falling 0.2%. The spike that occurred after the hurricanes with people replacing vehicles is over. Sales of building materials were also weak, falling 2.4%. This is blamed on bad weather in January.

Sales at non-store retailers, including e-commerce sites like Amazon, were flat compared to December. Furniture sales fell 0.4%.

In the good news portion of the report, clothing sales were up 1.2% in January. Restaurant sales were unchanged, but they’ve been strong recently.

Jobless Claims

Initial jobless claims were up 7,000 to 230,000 last week. The four-week average was up 3,500 to come in at 228,500. This is still 15,000 lower than where they were last month at the same time.

On the continuing claims side, these were up 15,000 last week to 1.942 million. However, the four-week average fell 6,000 to 1.941 million.

Producer Price Index (PPI)

Producer prices rose 0.4% in January, in line with consensus expectations. They’re up 2.7% on the year. Analysts aren’t so sure that this means the Federal Reserve should increase short-term rates at a faster pace, despite an uptick in consumer inflation. Rates fell after the release of this data, but it’s something to keep an eye on.

When food and energy prices are taken out, it matched the 0.4% gain, rising 2.2% yearly. The same was true when trade services were further taken out, with this metric up 2.5% on the year.

Energy prices saw some gains in January, up 3.4%, which is a reversal of recent trends in the area.

Industrial Production

Industrial production fell 0.1% last month as manufacturing was flat. In addition, capacity utilization in factories was down 0.2% to 77.5% after a 0.2% downward revision in December.

Utility production was up 0.6% as people were turning the heat down in the cold weather. This is up 10.8% on the year. Meanwhile, mining production was down 1.0% in January after being revised down to a 0.4% drop in December.

Housing Market Index

Confidence in the housing market remains strong with the survey of home builders coming in unchanged and in line with expectations at 72. Traffic of first-time home buyers visiting homes remained steady at 54. Current and future sales expectations are at 79 and 78, respectively. As a reminder, readings over 50 indicate growth.

In terms of individual regions, the West is out front, with the South and Midwest on its heels. The Northeast is further behind but is making increasing gains.

Housing Starts

Housing starts were up quite a bit last month to a seasonally adjusted annual rate of 1.326 million compared to 1.209 million in December. There was a rise in single-family unit starts but a bigger increase in starts of multi-family units.

On the permits end, these rose 96,000 to 1.396 million with multifamily units rising quite a bit and offsetting a small downturn in permits for single-family housing. Single-family units are still near the highest they’ve been at any point during the expansion.

One negative is a 1.9% decline and completions to a 1.166 million annualized rate won’t help with inventory issues.

Consumer Sentiment

In preliminary readings for February, consumer sentiment was up 4.2 points to 99.9. There’s concern over the stock market, but this is being outweighed by optimism for the new tax code. These numbers also represent the highest score in 14 years.

The current conditions component is coming in at 115.1. Analysts hope this means an increase in consumer spending in February. Meanwhile, expectations are at 90.2, as Americans are feeling good about their future incomes.

Inflation isn’t keeping up with these rising levels of optimism. Both the one-year and five-year inflation outlook are unchanged at 2.7% and 2.5%, respectively.

Mortgage Rates

Higher inflation numbers and the recent downturns in the stock market have both contributed to mortgage rates rising quite a bit after being near historic lows for quite some time. If you see a rate you like, lock it.

Rates for a 30-year-fixed mortgage have gone up six basis points in the last week with the average being 4.38% for 0.6 points in fees. At this time last year, the average was 4.15%.

When looking at shorter terms, the average rate for a 15-year fixed with 0.5 points was 3.84%, up seven basis points on the week. A year ago, the average was 3.35%.

The average rate on a 5-year treasury-indexed hybrid adjustable rate mortgage (ARM) with 0.4 points was 3.63%, up six basis points on the week and rising from 3.18% last year.

Stock Market

After taking a loss the last couple weeks, U.S. stocks were mostly higher Friday, ignoring political headlines to bounce back after recent broad losses.

The Dow Jones industrial average was up 4.25% on the week after finishing 19.01 points higher at 25,219.38. The S&P 500 finished at 2,732.22, up 1.02 points on the day and 2.87% higher on the week. Finally, despite closing down 16.97 points on the day at 7,239.47, the index was up 5.31% on the week.

The Week Ahead

Monday, February 19

The stock market and many other offices and schools are closed for Presidents Day. If you have the day off, we hope you’re enjoying it.

Wednesday, February 21

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends.

Thursday, February 22

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.

As opposed to last week, there’s not that much going on this week. When that happens, you can always expect the stock market to be taking most of the headlines. We’ll be tracking that closely.

If mortgage rates and economic data aren’t your thing, it’s totally understandable. We’ve got plenty of home, money and lifestyle articles just waiting for your perusal if you subscribe to the Zing Blog below. February is Black History Month. Most of us know the stories of Rosa Parks and Martin Luther King Jr., but here are 10 contributions by African Americans that you may not have known about. Have a good week!

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