Resilient Equity Market Advances – Domestic Equities Update

Equities shrugged off the shortest Bear market in history and have advanced to new highs, led by the technology sector, which has remained resilient since the onset of the pandemic. The dollar’s tumble in July benefited large U.S. multinationals, whose products and services became more competitive while their earnings are primarily driven in the overseas market. The rebound in stocks from the lows of March, when the COVID-19 pandemic became official, has exceeded the expectations of both analysts and economists.

A consistent low-rate environment along with a weaker U.S. dollar bodes well for U.S. multinational companies, whose profits benefit from both low rates and a weak dollar. U.S. exports essentially become cheaper overseas, driving higher demand. (Sources: Bloomberg, Reuters, FRED)

30 Year Mortgage Rates Drop to Record Lows – Fixed Income Overview

Continued low rates drove mortgage rates to their lowest levels ever, pushing the average 30- year fixed conforming rate to 2.99% in July as reported by Freddie Mac. Historic low mortgage rates are a buffer for the housing market, where continued high unemployment is expected to hinder loan approvals.

U.S. government bond yields fell across all maturities in July, with the benchmark 10-year Treasury yield reaching 0.55% and the 30-year Treasury yield falling to 1.20%. Economists view the higher yielding long-term bonds as a normal yield curve, indicating some inflationary expectations and future economic growth. (Sources: Freddie Mac, Bloomberg, U.S. Treasury)

Mortgage rates going up? A new “Adverse Market” fee of 0.5%

Fannie Mae and Freddie Mac are planning to charge an additional fee on most mortgage refinance loans that could raise costs for borrowers trying to take advantage of historically low rates in an uncertain economy.

The mortgage giants, which have been under government control since 2008, announced the plan recently, saying the new 0.5% fee is meant to mitigate their risk in light of the Covid-19 pandemic. It would apply to most refinances involving the companies.  The move is viewed as part of an overall effort to separate the mortgage agencies from government ties.  Potential investors will want to know how Fannie and Freddie can offload risk—or offset it with earnings, including fees.  (Sources: WSJ, Bloomberg)

Rates Stabilize In June – Fixed Income Overview

Federal Reserve buying of debt securities continued in the second quarter under the Secondary Market Corporate Credit Facility program, which was established to maintain liquidity in the bond markets. Individual corporate bonds and ETFs have been part of the Fed’s buying program, which was launched in mid-June. Bonds purchased so far include debt issues from both investment grade and non-investment grade rated companies.

Corporate and government bonds continued to post positive returns in the second quarter, as yields stabilized following the dramatic drop in yields during the first quarter of the year. The benchmark 10-year Treasury bond yield closed at 0.66% at the end of June, helping to boost consumer lending and mortgage rates. (Sources: Treasury Dept., Federal Reserve, Bloomberg)

Unemployment Hits Young Workers Hardest – Labor Market Overview

Unemployment has hit younger workers the hardest, with roughly 25% of workers ages 16 to 24 losing their jobs from February to May due to the virus outbreak. Traditional sectors employing mostly younger workers, such as leisure, hospitality, and restaurants, have suffered dramatic drops in business activity since the outbreak.

Current conditions brought about by the pandemic have made it even more challenging for high school and college students, as well as graduates, to find short term and summer job positions.

Younger workers 16-19 years of age are experiencing unemployment rates as high as 30%, more than double the rate this same time last year. Teenagers are seeing nearly triple the amount of unemployed compared to all other age groups nationally, which is 11.1% unemployment as of the most recent data reported by the Department of Labor. (Sources: DOL, BLS)