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But, I thought rates were supposed
to move higher?

Despite the key interest rate increase the Federal Reserve voted on just a week ago, the financial markets turned the other cheek this week. The three major stock indices posted the worst one-day losses this year. The Dow fell over 200 points for the first time since October. Bond yields declined each day with the 10-year note reaching its lowest closing yield in a month. This is not my father’s market and it is once again disproving textbook theories on how the financial markets should operate. Both the bond and stock markets reversed course, as too many unknowns were reintroduced and investors took cover. The rise towards a two percent inflation target became questionable, while the price of oil remains below $50 a barrel. The struggle over passing the health care bill turned into a sign of whether the markets will continue on the Trump Train or become the Trump Slump. Investors are afraid if the health care bill does not pass, there could be trouble ahead for tax and regulatory reforms promised by the Trump administration. The Treasury curve reached the narrowest spread, 115 basis points, since before the election in November, signifying doubt about future economic growth.

Other Key Indicators this Week:

Housing – The warmest February in nine years boosted new home sales to a seven-month high, but failed to have the same impact on existing home sales. New home sales rose 6.1 percent, while existing home sales declined 3.7 percent. The average price of a new home fell 4.9 percent, which may have pushed sales higher than normal. The price of a previously owned home rose 7.7 percent, as demand continues to outpace supply in this category. The inventory of available homes for sale fell 6.4 percent from a year ago, marking the 21st year-over-year decline. First time homebuyers accounted for 32 percent of the activity, down from 33 percent the month prior and far below the average rate of 40 percent.

Durable Goods Orders – Orders for goods meant to last three years or longer increased 1.7 percent in February. The volatile transportation component was weakened by a 0.8 percent decline in motor vehicle and parts orders. Auto dealers continue to face large inventories as car sales remained stagnant at the beginning of the year. However, this was the sixth month that orders, minus transportation, rose – a good sign of that demand for goods is increasing outside of the auto industry. The proxy for business orders unexpectedly fell 0.1 percent after gaining for four months. Shipments rose one percent, making up for new order weakness.

Strategically for Credit Unions:

The expectation for a quick rise in investment rates was quelled this week. Tax refunds are pouring in faster than loan demand is growing at this time. While it may seem tempting to hold on to cash until rates move higher, the wait could prove costly. The best course of action is to take advantage of better than normal investment rates, as you see them, and stay invested. A properly designed investment ladder will allow you to have cash available, if and when rates move higher.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

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