The Weekly Wealth of Knowledge is your download of this week's most important topics related to financial planning, the markets, and our community. August is money month at MONECO, where we will be focusing on your cash flow, savings, and debt management.
In this issue:
- August Client Letter (3 min read)
- 30-year Home Loans Fall to Historic Lows (2 min read)
- Documents Your College Kid Needs (3 min read)
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Click on the video below to hear from one of our Advisors, Jason Hyde!
August Market Update
The battle versus COVID-19 continues. The spread in some of the recent hotspots like California and Florida is slowing, while states in the Northeast and Midwest are now experiencing increases in cases. According to the World Health Organization, 27 vaccines are in human trials, and the chances of an approved vaccine by late this year or early next year are quite high. We continue to side with scientists and humankind’s resolve, as the entire world is working together, and we believe we will beat this latest adversary.
In good news, the S&P 500 Index has moved into positive territory for the year (as of August 5) after being down more than 30% in March, making 2020 one of the largest reversal years ever. Going back to 1950, however, August and September historically have been the two worst months of the year for stocks. In addition, signs of recent weakening in the job market, based on stubbornly high jobless claims, combined with evidence of reduced consumer mobility from several high-frequency data points suggest the stage could be set for stocks to take a well-deserved break.
At the July 29 Federal Open Market Committee meeting, Federal Reserve (Fed) Chair Jerome Powell made it very clear that the Fed has additional tools to support the recovery, and that low interest rates may be here to stay well beyond this year and next. The economy has improved off the March lows, but it isn’t near the record-breaking levels we saw earlier this year. Powell also noted that further relief from Congress was “essential” to help support the economy.
Meanwhile, Congress is inching closer to a new COVID-19 relief bill, but parties remain at odds over several key elements. Although the two sides appear far apart, we expect a deal may likely be struck at the eleventh hour—consistent with typical Washington theater. At this time, we expect Congress to agree to a stimulus package in the neighborhood of $1.5 trillion, bringing the total US fiscal stimulus to more than $4 trillion.
Signs that the economic recovery may be leveling off have not prevented corporate America from delivering earnings well above expectations. Leaders like Apple, Amazon, and Facebook reported extremely strong results in the second quarter, helping these influential stocks move significantly higher. FactSet consensus estimates of future earnings have
ticked higher as well, suggesting corporate America may be confident in the eventual economic rebound.
Baseball Hall of Fame catcher Yogi Berra said, “If you torture numbers enough, they will tell you anything,” which fits well with what we’re seeing right now in 2020. Some data appears good, while some data appears troubling. This journey is not over yet, and there may be more twists and turns before society and the economy can fully recover from COVID-19. But like all journeys, this one has an end date, and we will get there.
30-year Home Loans Fall to Historic Lows
Lately, it can feel like each day brings a new headline about fluctuating market behavior. But amid the ups and downs of 2020, there may be some potential good news on the horizon. On July 16, 2020, the interest rate for a 30-year home loan had fallen to 2.98%. In addition, the average interest rate for a 15-year home loan had declined to 2.48%.1,2,3
Good news for homebuyers
Keep in mind that just two summers ago, the average interest rate on a 15-year fixed-rate mortgage hovered around 4%, while the 30-year was in the vicinity of 4.5%. With the average interest rate on these loans at new historic lows, it may be a smart time for first-time buyers to consider making their move.
In other words, it's uncertain how long these historically low rates will last. Keep in mind this article is for informational purposes only. It's not a replacement for real-life advice. It’s always a good idea to consult with your tax, legal, and accounting professionals before considering any changes to your living situation.
Good news for investors
Believe it or not, hopeful homebuyers are struggling to find the right property: on July 4, 2020, the inventory of existing homes for sale was 31% smaller than it was in 2019. Even with these market conditions, 61% of respondents to a recent survey felt that buying a home in 2020 was a good idea. This interest in purchasing a new home despite the COVID-19
pandemic may be considered a “coincident indicator” by many. In other words, if consumers feel confident enough to go home shopping, that could indicate slowly returning economic confidence as well.3
Good news for everyone
Real estate plays an integral role in the health of the economy. Even when considering the many advantages of homeownership, it can be easy to forget that it is one of the greatest sources of wealth and savings for many Americans.4
Whether or not rates will drop even lower is anyone's guess. Even though it seems unlikely, mortgage issuers are dealing with a level of uncertainty that makes it harder for them to judge risk and assess the long-term value of the loans they originate.
1. OCRegister.com, July 16, 2020
2. Realtor.com, July 13, 2020
3. FreddieMac.com, July 16, 2020
4. TheBalance.com, February 10, 2020
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
What Documents Do You Need for Your College Students?
There are a lot of changes when our kids turn 18, but they are still largely dependent on us. With colleges making a lot of changes to their policies, it’s helpful to have a list of what documents you need if your kid is sick or has an emergency. Click here to read more.