Optimism continued to drive investors last week. By Thursday, the Dow had stayed hot posting gains 10 days in a row, while  the S&P 500 moved to within three points of an all-time record close. Things simmered down on Friday when Michigan Consumer Sentiment came in well below the prior month. A possible explanation for that was more sobering data: higher than expected overall CPI consumer inflation, although Core CPI inflation, excluding food and energy, was only mildly up.

Nonetheless, much of this week’s economic data came in better than estimates. Consumers continue to contribute to the economic recovery, with February Retail Sales UP 1.1%, versus a 0.5% estimate, and UP 4.6% over a year ago. Initial Weekly Jobless Claims were down to 332,000, and NY Empire Manufacturing gave a stronger than expected 9.2 growth reading for that region. Nationally, manufacturing continues to improve, with a nice gain in Industrial Production for February, and factories operating at near 80% capacity.

The week ended with the Dow up 0.8%, to 14514; the S&P 500 up 0.6%, to 1561; and the Nasdaq up 0.1%, to 3249.

Bonds rallied even as stocks advanced and economic data improved. The FNMA 3.5% bond we watch ended the week up .78, at $105.09. Average fixed mortgage rates were up slightly last week in Freddie Mac’s Primary Mortgage Market Survey, but they remain well below levels of a year ago. The Mortgage Bankers Association reported applications for purchase loans down slightly for the week, but still up a healthy 9% versus a year ago.

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