Economy
Mortgage rates continued to rise this week, with the 30-year hitting 6.85%, a level last seen over the summer. Hopes were that when the Fed began cutting rates in September, those lower rates would translate to cheaper mortgages. Since the Fed's first rate cut, mortgage rates have risen by nearly 1%. Mortgage rates are generally tied closer to longer term bonds, such as the 10-year treasury, than the Fed's overnight rate.
We've seen a spike in 10-year rates in the last few months as investors adjusted their expectations for the economy in the future. For one, inflation has proven to be stubborn, remaining above the Fed's target of 2%. This could lead to fewer rate cuts next year, which Fed chair Jerome Powell spoke about at his last press conference. There's also concern that the incoming administration's threats of tariffs could lead to higher levels of inflation (which Powell also mentioned recently). The market is pricing in more than a 50% probability of just 1 more rate cut in 2025. The odds of more than 2 rate cuts currently sit at around 15%.
Markets
The S&P 500 rose by 0.7% this week with the market only open three and a half days. The index reclaimed the 6,000 level briefly before falling Friday. The rise in the 10-year treasury discussed above can have an impact on stock prices as well. As the yield on 10-year treasuries rises, it becomes more attractive to investors, and the yield can compete with stocks at a certain point. Locking in a yield of nearly 5% starts to sound appealing when you see the Dow decline 500 points in a day as we saw during Friday's session. However, corporate earnings are expected to continue to rise throughout next year, would could be a catalyst for higher prices. With just two trading days left in 2024, the S&P is up more than 25% on the year and less than 2% away from the all-time high.
What We're Reading
- A Time to Be Thankful - JC Parets
- More Predictions and My Year in Review - Howard Lindzon
Have a great weekend.
Dogwood Wealth Management