The Financial Strategist - June 2017
Market Update
(all values as of 09.30.2020)

Stock Indices:

Dow Jones 27,781
S&P 500 3,363
Nasdaq 11,167

Bond Sector Yields:

2 Yr Treasury 0.13%
10 Yr Treasury 0.69%
10 Yr Municipal 0.84%
High Yield 5.77%

YTD Market Returns:

Dow Jones -2.65%
S&P 500 4.09%
Nasdaq 24.46%
MSCI-EAFE -8.92%
MSCI-Europe -10.53%
MSCI-Pacific -6.19%
MSCI-Emg Mkt -2.93%
 
US Agg Bond 6.79%
US Corp Bond 6.64%
US Gov’t Bond 8.04%

Commodity Prices:

Gold 1,892
Silver 23.37
Oil (WTI) 39.88

Currencies:

Dollar / Euro 1.17
Dollar / Pound 1.28
Yen / Dollar 105.60
Dollar / Canadian 0.74

U.S Oil Reserves At Record Highs – Oil Market Review

A recent proposal by the Trump Administration to sell a portion of the U.S. Strategic Oil Reserves has brought the subject to the forefront.

The higher level of oil reserves and supply over the past few months has led to a re-cent pullback in oil prices both domestically and internationally. The U.S. has be-come a dominant player in the global oil markets, becoming the 3rd largest producer of oil worldwide. The U.S. Energy Information Administration (EIA) estimates that U.S. production will reach 10 million barrels per day, surpassing Saudi production. The increase in U.S. production is primarily attributable to American technology and skills created by U.S. drillers using hydraulic fracturing, also know as fracking.

Part of the downward pressure on oil prices has also been a lessening demand for oil by American consumers. Demand for imported oil has also fallen, as the U.S. reaches the highest production levels in over 45 years. Foreign oil imports now ac-count for less than 21% of all U.S. consumption.

Source: EIA

Mortgage Refi Cash-outs On The Rise – Mortgage Market Review

Nearly half of mortgage borrowers in the first quarter of 2017 opted for a cash-out option when refinancing. The amount of cash-outs is at the highest since the 4th quarter of 2008, when the financial crisis was in motion.

Cash-outs were tremendously popular during the housing boom when almost 90% of all refinancing included a cash out option. Cash-outs as a percentage of total refi’s dropped considerably to 12% in 2012 following new rules and regulations.

Also fueling recent cash-outs is the rise in housing values that allows homeowners to extract a portion of their equity as cash. Before new regulations, cash-outs were available on higher percentages of home values, whereas rules today limit cash-outs to much lower loan to value loans.

Sources: Federal Reserve, Federal Housing Finance Agency

Auto Sales May Have Peaked – Industry Overview

Low interest rates and aggressive leasing programs have made some fairly expensive cars affordable. Rather than struggling to get approved for a new home loan or refinance, Americans have instead financed cars, where getting a loan approval has been easier. The abundance of attractive loans has helped elevate auto sales throughout the country over the past few years. Recent auto sales have been slowing across the country as dealer incentives have become less effective.

The end of 2016 saw auto loans outstanding reach $1.1 trillion, propelled by continued low interest rates. Federal Reserve data revealed that the average rate on a typical 4 year auto loan was 4.45% in the 4th quarter of 2016. The same auto loan in February 1982 was 17.05%.

As expensive as some automobiles have become for consumers, an auto loan is the only method of actually affording the pricey cars of today. Over the years, several automobile companies have established their own financing thus allowing buyers to buy and borrow directly from them.

A growing concern among analysts are the number of auto loans that have been securitized over the past few years. The ultra low rate environment has created incredible affordability for consumers as well as attractive high yielding securities for risk seeking investors. An increase in rates may lead to an increase in auto loan defaults as payments become less affordable.

Source: Federal Reserve