Morning Report: Good jobs report

Vital Statistics:

S&P futures3499-5.6
Oil (WTI)38.07-0.71
10 year government bond yield 0.81%
30 year fixed rate mortgage 2.87%

Stocks are flattish this morning as it looks more and more like Biden will win. Bonds and MBS are down.

The Fed maintained rates yesterday and made little changes to the FOMC statement. Rates will remain low, and the Fed will continue to purchase Treasuries and MBS at a minimum of current levels to maintain stability and to support the economy. With divided government looking more and more certain, the chance of fiscal stimulus is probably off the table. This will push more of the burden of stimulus onto the Fed’s plate, which means lower rates for longer. Good news for the mortgage banking industry.

The economy added 638,000 jobs in October, according to BLS. The unemployment rate fell to 6.9% and the labor force participation rate increased to 61.7%. 21.2% of the US workforce is telecommuting due to COVID. Average hourly earnings rose 0.8% MOM and 4.5% YOY. The overall numbers were well above Street expectations.

The increase in wages is a good sign for the economy, and compensation is certainly rising in the mortgage banking space. The bond market has yet to start fearing inflation data, so the recovery should continue to gain momentum. Remember the Fed will let the labor economy run hot, so increasing wage growth shouldn’t trigger any response from the Fed.

PennyMac reported blowout earnings last night of $7.03 per share. Volumes were up 44% QOQ to a total of $54 billion. This is an increase of 55% from a year ago. The company has earned over $15 a share through the first 9 months of the year, and the full-year estimates are way too low. It is not out of the question for PFSI to earn $20 this year, which is wild with a stock trading at $58 per share. For those keeping score at home, it works out to be a P/E of 2.9. The next question will be what will they do with all that cash? The quarterly dividend is 15 cents and the company earned 7 bucks a share. A special dividend and massive buyback should be on the table.

I will be on a panel today at the MCT Exchange 2020. Rob Chrisman will be running the panel, where we will discuss the election and what it means for the mortgage banking sector. The panel starts at 11:00 am PST / 2:00 PM EST.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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