It is a big economic calendar with almost every report on housing released in a single week. This is the result of the shutdown delay. Now we can get more clarity on this important sector. Pundits will be asking:
Are lower mortgage rates helping home sales?
Last Week Recap
In last week’s installment of WTWA I suggested that we watch the Fed for hints of a new course. That was an accurate prediction, since there is now a clear signal of a pause on interest rate hikes. More than that, the Fed seems to have recognized a problem with their model of low unemployment implying incipient inflation. Fed expert Tim Duy explains the significance of this change.
It is hard to understate the importance of this shift. The Fed’s models haven’t worked this way in the past. In previous iterations of the forecasts, the expectation of unemployment remaining below its natural rate would trigger inflationary pressures. To stave off those pressures, the Fed perceived the need to raise rates above neutral to slow the economy enough to nudge unemployment upwards. Now the Fed believes it can let unemployment hold persistently below the natural rate without triggering inflation and without Fed policy becoming restrictive.
This was the big news of the week, and it was bullish for stocks. I’ll comment on the negative reaction in my Final Thought.
The Story in One Chart
I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who packs a lot of information into one chart.
Stocks dropped 0.7% on the week with a range of 1.7%. It seemed bigger because the decline all happened on Friday. You can see volatility comparisons in our Quant Corner.