Brexit? Smexit. Stocks Hit Record


Best of Both Worlds -- Again?

Just two weeks removed from the Brexit vote, our stock market reached a record high. The S&P rallied to a record on Monday of last week and the Dow followed by hitting its record on Tuesday. Even more importantly, this dramatic bounce back from the lows recorded after the Brexit vote has come with rates not rising much from the lows they hit post-Brexit. In other words, we are back to the “best of both worlds” scenario with record low rates and record high stock prices.

The next question is–how long can this euphoria last? While there are many indicators which could supply us with evidence with regard to the stock market, one of the most important indicators is occurring right now. Companies are now reporting profits for the second quarter. One reason the stock market has stagnated in the past year is the fact that corporate profit growth has slowed down. Thus, the market analysts will be watching these profit releases even more carefully than usual.

With regard to our record low interest rates, it will be interesting to see if the good rate news will continue if the stock market continues the rally. Certainly, these low rates can boost stocks, but if stocks keep rising, this could put upward pressure on rates — a process which has already started. If the economy keeps humming along in spite of the situation overseas, we could also see the Federal Reserve considering another rate increase. All in all, it could be a very interesting summer as consumers rush to take advantage of the most recent sale on the cost of money.

The Weekly Market Update

Rates were stable at historic lows in the past week, but started rising after the survey was conducted. Freddie Mac announced that, for the week ending July 14, 30-year fixed rates rose one tick to 3.42% from 3.41% the week before. The average for 15-year loans decreased slightly to 2.72% and the average for five-year adjustables moved up to 2.76%. A year ago, 30-year fixed rates were at 4.09%, more than one-half of one percent higher than today's levels.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "We describe the last few weeks as A Tale of Two Rates. Immediately following the Brexit vote, U.S. Treasury yields plummeted to all-time lows. This week, markets stabilized and the 10-year Treasury yield rebounded sharply. In contrast, the rate on 30-year loans declined after the Brexit vote, but only by half as much as the 10-year Treasury yield. This week, the 30-year fixed rate barely budged, rising just one basis point to 3.42 percent. This pattern suggests that rates on home loans are likely to remain low throughout the summer."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.