Market Forecast Week of December 15, 2008

Markets in general have accepted economic weakness and have started to look to the future.  Not even sagging retail sales and the rising ranks of the unemployed could quell market optimism.

The incoming administration may be leading the sudden sentiment shift; its stimulus package is expected to top $1 trillion over the next 24 months and put thousands of unemployed Americans back to work.  The widespread press coverage of this story may be one reason why Consumer Sentiment rose off its all-time low, despite the economic evidence that tougher times may still be ahead.

As markets shift their attention away from fundamentals and towards the government, mortgage rates are benefiting and refinance activity is gaining steam.

This week, the government should be the top story again.  On Tuesday, the Federal Open Market Committee will adjourn from its 2-day meeting and is widely expected to lower the Fed Funds Rate by a half-percent to an all-time low of 0.500 percent.  This move, too, is meant to stimulate the economy.

But it won’t be what the Fed does that matters; it will be what the Fed says.

In the 2:15 P.M. press release, Fed Chairman Ben Bernanke is expected to outline measures by which the Federal Reserve will stabilize the economy.  If markets consider the moves to be “enough”, stock markets should soar and mortgage rates should suffer.  However, there may be specific verbiage for providing mortgage relief, in which case, mortgage rates would fall.

Other noteworthy data scheduled for this week include the Cost of Living Index and Housing Starts, but neither should matter much to mortgage rates.  For now, it’s all eyes on the government.

Economic Calendar for the Week of December 15 – December 19

Date ET Economic Report For Estimate Actual Prior Impact Mon. December 15 08:30 Empire State Index Dec -27.0 -25.4 Moderate Mon. December 15 09:15 Capacity Utilization Nov 75.9% 76.4% Moderate Mon. December 15 09:15 Industrial Production Nov -0.5% 1.3% Moderate Tue. December 16 02:15 FOMC Meeting HIGH Tue. December 16 08:30 Core Consumer Price Index (CPI) Nov 0.1% -0.1% HIGH Tue. December 16 08:30 Consumer Price Index (CPI) Nov -1.3% -1.0% HIGH Tue. December 16 08:30 Housing Starts Nov 730K 791K Moderate Tue. December 16 08:30 Building Permits Nov 700K 708K Moderate Wed. December 17 10:30 Crude Inventories 12/13 NA 392K Moderate Thu. December 18 08:30 Jobless Claims (Initial) 12/13 NA 573K Moderate Thu. December 18 10:00 Index of Leading Econ Ind (LEI) Nov -0.5% -0.8% Low Thu. December 18 10:00 Philadelphia Fed Index Dec -40.0 -39.3 HIGH

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