Baird analyst expects stock market to rebound by mid-2009
Robert W. Baird & Co. Inc. chief investment strategist Bruce Bittles said this week that he expects the stock market to rebound and the economy to stabilize by the middle of 2009.
"The equity markets fought off some of the worst economic news in more than a generation last week increasing the prospects that the downside momentum has been broken. The weight of the technical evidence also points to the potential for improving stock market conditions in the first six months of 2009," Bittles said.
He said equity markets are "extremely oversold," with only 5 percent of the New York Stock Exchange issues trading above their 30-week moving average. The last time the stock market was this oversold was in 1981, 1987, 1998 and 2002, and following each of those cases, the market posted significant intermediate-term rallies, Bittles said.
"Although December tax loss may weigh on stocks, the outlook is improving with better stock prices expected during the first half of 2009," he said.
"The National Bureau of Economic Research (NBER) made it official last week by declaring the U.S. economy is in recession that began in December 2007. Given the stock market has been adjusting to a weaker economy for more than 12 months, the NBER news is already built into current prices," Bittles said. "The 533,000 loss of jobs in November was particularly alarming and suggests the Fed will cut rates by at least 50 basis points this month. The jobs data could also push Congress into supporting a bailout for the auto companies. The good news is that yields on long-term Treasuries are plunging, which should cause mortgage rates to fall significantly. The combination of falling home values and a drop in mortgage rates will dramatically improve housing affordability and along with plunging energy prices improve consumer discretionary income. This is the first step in the recovery process that is expected stabilize the economy by mid-2009."
To read his entire report, visit https://baird.bluematrix.com/docs/pdf/73974.pdf.
Mortgage market shows glimmer of hope
U.S. mortgage applications filed two weeks ago rose a seasonally adjusted 112.1 percent from the week before, as borrowers rushed to lock in lower rates, according to the Mortgage Bankers Association’s weekly survey, which was released late last week.
The surge in mortgages came after the Federal Reserve announced last week that it would purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, otherwise known as government-sponsored enterprises (GSEs), along with up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae. The government’s moves caused mortgage rates to drop.
"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," said Orawin Velz, associate vice president of economic forecasting for the MBA. "When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS (mortgage-backed securities), many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound."
According to the MBA survey, rates on 30-year fixed-rate mortgages averaged 5.47 percent last week after standing at 5.99 percent in the previous week.
Fifteen-year fixed-rate mortgages averaged 5.13 percent last week, down from 5.78 percent in the week before, and one-year adjustable rate mortgages fell to an average of 6.61 percent last week from 6.87 percent in the previous week.
Applications to refinance existing loans rose 203.3 percent last week compared with the week before. Mortgage applications to purchase a home rose a seasonally adjusted 38.0 percent.
Still, the mortgage application volume last week was down 21.9 percent compared with the same week in 2007.
But the report was of little consolation to Wausau Homes, which cut 81 jobs from its plant in Rothschild this week.
The company said the reductions will be permanent because the firm does not expect the U.S. economy to improve in the near future.
"This reduction in force is especially painful because the people being let go have contributed significantly to our success and we will miss them tremendously. Wausau Homes has a reputation for having hard working highly skilled people. Any local employer who hires those being let go today will be pleased by their performance," said Tom Schuette, president of Wausau Homes. "Wausau Homes will be providing a severance package that goes beyond our 60-day legal requirement because we feel very strongly that it is important to take care of those who will be leaving."
The company said 163 people will continue to work at the Rothschild facility and 27 people will continue to work at its plant in Waverly, Ohio.
