The Daily Prophet: Greed Has a Better Track Record Than Fear

The plunge in stocks that greeted February was the type of event that should have scared the bejeebers out of investors. And for a nanosecond it did, as the S&P 500 Index fell into a correction for the first time in two years. But if there's anything this bull market has proven after surviving five Federal Reserve interest-rate increases, Brexit, the U.S. elections, North Korean missile tests and various other threats, is that it's resilient.

The S&P 500 index continued its rebound on Thursday, climbing for the fifth straight day. It has risen 5.82 percent in the period, its biggest five-day gain since December 2011. The latest weekly poll of clients by the American Association of Individual Investors shows that 48.52 percent of investors are bullish, above the average of 36.74 percent since the start of the bull market in 2009. At 27.11 percent, the spread between the bulls and the bears has only been wider four times going back to early 2015. Investors seem convinced that even though borrowing costs are on the rise, they are not yet at levels that would hinder equities, especially with the economy gathering pace.

Equities won’t be affected by higher long-term interest rates as long as 10-year Treasury yields stay below 4 percent, according to Gina Martin Adams and Peter Chung, equity strategists at Bloomberg Intelligence. The yields were at 2.90 percent Thursday. “I think with the economy looking so good around the world, that we’ll have an up year,” Steve Schwarzman, the head of Blackstone Group, the world’s largest private equity firm, said Thursday in a Bloomberg Television interview.

EXPENSIVE MORTGAGES
The bond market is dominated by esoteric terms such as yield to worst, duration and spreads that even many market professionals have a hard time understanding. But beyond the jargon, what the bond market is really about is the cost of money. And right now, money is getting expensive, especially for homebuyers. The big increase in yields on benchmark 10-year Treasury notes has translated into higher mortgage rates. Freddie Mac said Thursday that the average rate for 30-year home loans climbed this week to 4.38 percent, the highest since April 2014. The monthly payment on a $300,000, 30-year loan has jumped to $1,499 from $1,394 in September, when the average rate was 3.78 percent, according to Bloomberg News' Prashant Gopal. Developers are unfazed, with a monthly survey from the National Association of Home Builders/Wells Fargo showing confidence among homebuilders held steady this month at near the highest level since 1999. Homebuilders like to say that consumer confidence is a bigger factor in the home-buying process than interest rates. It looks like that theory is about to be tested in a big way.