posted on September 13, 2016 14:23
U.S. markets continued to post positive returns in August. The S&P 500 moved up just 0.1%, but U.S. large value stocks gained 0.7% and U.S. small stocks rose 1.8%. International large value stocks had a strong return of 1.6% while international small stocks struggled this month, losing 0.5%. Emerging markets were the top performing asset class, posting a 2.5% gain. Bond returns were down this month as the 10‐year Treasury yield rose slightly. Alternatives experienced modest declines for the month.
- The second estimate of second quarter real GDP growth came in at 1.1%, above the initial estimate of 0.8%. This increase continued to mirror positive contributions from personal consumption expenditures and exports.
- The year‐over‐year inflation rate fell to 0.9%.
- The private sector added 151,000 jobs in August, short of the expected 180,000. The unemployment rate remained unchanged at 4.9%.
- The consumer confidence index increased to 101.1, the highest level this year. This reflects favorable consumer sentiment with both current business and labor market conditions.
- The S&P 500 Index returned 0.1%. U.S. small stocks gained 1.8%, outperforming large value stocks which gained 0.7%.
- Financials were the top performing sector with a 3.8% return.
- International large stocks were up 1.6% but international small stocks dropped 0.5%. The Netherlands boasted the highest return at 3.0%.
- Emerging markets continued to advance with a gain of 2.5%. China had the highest gain of 7.4%.
- The 10‐year U.S. Treasury yield gained 0.12%, increasing to 1.58%.
- Bond returns were slightly negative across the board with intermediate‐term bonds falling 0.3% and international bonds down 0.2%. TIPS posted a loss of 0.4%.
- Global REITs were down 3.2% and managed futures saw a loss of 2.5%.
- Commodities lost 1.8% due to decreases in non‐energy commodities.
The Housing Market Comeback
Global REITs may have dropped 3.2% in August, but they are still up 13.7% so far this year. In light of the strong performance of REITs, some investors are wondering how this compares to the broader U.S. housing market. The U.S. housing market is only partially represented by REITs (less than 10%), so it’s necessary to look at other indicators in order to get a clearer picture of how it is faring today. Let’s set speculation aside and focus on recent performance.
Existing home sales fell in July after four consecutive months of strong gains. However, prices continued to rise with the median home value now at $244,000, up 5.3% from a year ago. There is some concern with the shortage of single family homes being resold. Many single family home owners are choosing to stay in their homes and remodel instead of selling. A low housing supply could drive the prices of homes higher as demand for existing homes rises.
Meanwhile, new home sales were at a nine‐year high as of July. The median price dropped 0.5% from last year at $294,600. Groundbreaking on single family homes, as opposed to multi‐family units, also rose to a five‐month high in July. Indications are that growth will stay consistent as new home sales benefit from the shortage of existing homes being resold.
Another item to keep in mind when comparing the current housing market to those in the past is that the housing “boom” of the mid‐2000s was a deviation built on sub‐prime mortgage securities. Lenders, borrowers and credit rating agencies appear to be behaving more cautiously today which can only fortify this housing market. With U.S. homeownership rates around 63% of households, a low not seen since Q3 of 1965, historically low interest rates and a recovering economy, the stage could be set for continued strength. Of course, degrees of recovery will differ depending on location across the country. That being said, it may be premature to declare the housing market fully recovered, but it does appear to be on the mend.
Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for SupplyManagement, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch, wsj.com