A blockbuster start to 2020 as all three indices saw impressive growth on the first day of trading. On Jan. 2, the first day of trading in the new year, the Dow jumped 251 points (0.9%) while the S&P 500 also saw 0.6% higher trading with the Nasdaq gaining 1.1%.
The momentum from the end of 2019 kept rolling into 2020 with the promise of a signed phase one trade deal with China. Earlier this week, President Trump announced that a deal would be signed on Jan. 15. President Trump also said there are plans to travel to Beijing in the near future to negotiate a more all-encompassing deal.
And then, Thursday night, the news that a U.S. airstrike killed one of Iran’s top military leaders shook the market. Dow futures dropped sharply, sinking by 300 points in the early morning hours Friday. U.S. Treasury yields also sank on the news with the benchmark 10-year Treasury note trading at 1.824% in the early hours of Friday. The 10-year yield was above 1.9% Thursday. Oil prices also went up on the news.
Remember, the 30-year fixed-rate mortgage typically mirrors the path of the 10-year Treasury note yield. That average rate stays a couple of basis points above the 10-year note yield. So when the yield rises, so do rates and vice versa.
This will definitely have a sobering effect on the impressive gains from the first trading day of the year, especially in global markets. Already fragile, global markets gained a good amount of positive ground after Trump’s tweet about a signed deal. Chinese officials announced the country’s central bank would free up 800 billion yuan. That was a badly-needed jolt for European markets which jumped 1.3% to start the year. Even Germany’s previously negative 15-year bond yield hit positive territory (0.001%), albeit briefly, with the Bund 10-year hitting a seven-month high of -0.157%.
Dryden Pence, the chief investment officer at Pence Wealth Management, said in an interview with CNBC that the market volatility we are seeing right now in reaction to the airstrike news “will be short-lived.”
Housing market ready for another big year in 2020
The first report from Freddie Mac in the new year shows an average mortgage rate of 3.72% for a 30-year fixed rate mortgage. That is essentially where rates have hovered over the last couple of months of 2019 and it is expected that rates will be right around that average for most of 2020. Combined with a strong labor market and solid consumer spending levels, many economists are predicting 2020 will be another great year for housing.
Freddie Mac takes that prediction a little further, forecasting that we will see these rates beyond 2020. From their forecast, “We expect mortgage rates to remain low over the next two years, averaging 3.8% in 2020 and 2021. The housing market will continue to stand firm: home sales will increase from 6.0 million in 2019 to 6.2 million and then to 6.3 million for 2020 and 2021, respectively. House price growth will continue to decelerate through 2021 with annual rates of 3.2%, 2.8% and 2.1% in 2019, 2020 and 2021, respectively.”
For now though, home prices have accelerated their growth. The latest Case-Shiller Home Price Index shows that home prices went up by 3.3% year-over-year. In the group’s release, Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said, “With October’s 3.3% increase in the national composite index, home prices are currently more than 15% above the pre-financial crisis peak reached July 2006.”
Of the 20 cities in the composite index, Phoenix, Arizona, Tampa, Florida and Charlotte, North Carolina saw the highest appreciation percentages year-over-year.