THE WEEK ON WALL STREET
Stocks posted solid gains over a short and busy holiday week as investors parsed fresh economic data, comments on potential future trade policy, and a few Q3 reports from technology companies. The S&P 500 Index gained 1.06 percent, while the Nasdaq Composite Index advanced 1.13 percent. The Dow Jones Industrial Average rose 1.39 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, added 2.02 percent.
FACT OF THE WEEK
On December 3, 1992, the first SMS text message in history is sent: Neil Papworth, a 22-year-old engineer, uses a personal computer to send the text message “Merry Christmas” via the Vodafone network to the phone of a colleague.
One year later, Nokia released the first cellphone with an SMS feature, but messages (limited to 160 characters due to bandwidth constraints) could only be sent within the same mobile network—phone networks would finally allow users to SMS across rival companies in 1999. Texting as a means of casual communication blossomed with the introduction of the Tegic (T9) system of predictive texting and pre-paid phone plans, which originally did not charge for texts and appealed to young people. Because of the 160-character constraint, as well as the cumbersome nature of typing with a numeric keypad, an entire “language” of abbreviations and slang emerged through SMS and spread across internet-based messaging.
MARKET MINUTE
Rally Extends
Stocks staged a broad-based rally to start the week as investors reacted to the nominee for Secretary of the Treasury. Small-cap stocks continued their month-to-date surge as the Russell 2000 Index rose to an all-time high. News that consumer confidence rose in November appeared to contribute to gains. Then stocks took a pre-Thanksgiving pause as investors digested economic data. Also, disappointing Q3 updates from two computer hardware manufacturers weighed on the tech sector in pre-Thanksgiving trading.
Semiconductor stocks rallied on Friday, pushing all three averages higher for a second straight week. The Dow cracked 45,000 for the first time, and the S&P 500 hit a new record high—with each index closing out its best month of 2024.
Tariff Talk
Some of the post-election rally has been driven by investor expectations for less regulation and lower corporate taxes proposed by the incoming administration. One area of concern has been the economic impact of proposed tariffs. Some market observers believe that the markets have already priced in the impact of these tariffs. In contrast, others see a new Treasury Secretary as a potential buffer in the tariff talks.
FINANCIAL STRATEGY OF THE WEEK
Fixed or Variable Mortgage, Which Should You Pick?
Buying a home is the single-largest financial commitment most people ever make. And sorting through mortgages involves a lot of critical choices. One of these is choosing between a fixed or variable interest rate mortgage.
True to its name, fixed-rate mortgage interest is “fixed” throughout the life of the loan. In contrast, the interest rate on a variable-interest rate loan can change over time. The mortgage interest rate charged by a variable loan is usually based on an index, which means payments could move up or down, depending on prevailing interest rates.
Fixed-rate mortgages have advantages and disadvantages. For example, rates and payments remain constant despite the interest rate climate. But fixed-rate loans generally have higher initial interest rates than variable-rate mortgages; the financial institution may charge more because if rates go higher, it may lose out.
If prevailing interest rates trend lower, a fixed-rate mortgage holder may choose to refinance, and that may involve closing costs, additional paperwork, and more.
With variable-rate mortgages, the initial interest rates are often lower because the lender is able to transfer some of the risk to the borrower; if prevailing rates go higher, the interest rate on the variable mortgage may adjust upward as well. Variable-rate mortgages may allow borrowers to take advantage of falling interest rates without refinancing.
One of the biggest advantages variable-rate mortgages offer can be one of their biggest disadvantages as well. Rates and payments are subject to change, and they can rise over the life of the loan.
Should you choose a fixed or variable mortgage? Here are four broad considerations:
- First, how long do you plan to stay in the home? If you plan on living in the home a short time before selling it, you may want to consider a variable-rate mortgage. With a shorter time frame, the loan will have less time to move up or down.
- Second, what’s happening with interest rates? If interest rates are below historic averages, it may make sense to consider a fixed rate. On the other hand, if interest rates are above historic averages, it may make sense to consider a variable-rate loan. Then, if interest rates decline, your interest rate may fall as well.
- Third, under what conditions can the lender adjust the rate and payment? How frequently can it be adjusted? Is there a limit on how much it can be adjusted in each period? Is there a lifetime limit on how high the interest rate and payment can be raised?
- And fourth, could you still afford your monthly payment if interest rates were to rise significantly? How would it affect your finances if your payment were to rise to its lifetime limit and stay there for an extended period?
For most, buying a home is a major commitment. Selecting the most appropriate mortgage may make that long-term obligation more manageable.