19 Mar All Eyes on the Fed
Stocks continue to climb higher and are now not too far away from reaching all time high levels. The climb higher in stocks has been strong and could get a huge burst of strength if the Federal Reserve decides to increase their purchases of mortgage backed securities and/or 10 Year Treasury Notes. If the Fed does make this move, it would be good for both the stock and bond markets, as it would likely drive interest rates lower to push private money out of lower paying investments into the riskier assets of the stock market. This was the premise behind Quantitative Easing, which this would essentially be mimicking.
The Federal Reserve will begin their two-day meeting today, with the policy and rate announcement set for tomorrow at noon MST. Since there is no chance of a rate hike, the markets will be closely looking for any changes to the Fed’s balance sheet. As mentioned above, if the Fed decides to maintain more investments on its balance sheet, that would have a positive result for both the stock and bond markets. Although I believe this will eventually happen, it may be too soon for the Fed to make such a move now. With the stock market remaining strong, they may decide to hold off and maintain the current path. We will have to wait and see what happens.
Given the strength of the ceiling over mortgage bonds, we will maintain a locking bias.