23 Aug Bond Rally Ahead??
Stocks and Mortgage Bonds are both trading near unchanged levels. Yesterday, the Fed minutes showed that the Fed will hike rates next month and will play it by ear for December. They also stated the trade policy is creating an unknown and could be a headwind. Also stated there were several favorable economic factors, including trend GDP growth, a strong labor market, simulative federal tax and spending policies, accommodative financial conditions, and continued high levels of household and business confidence.
Yesterday’s news of Trump’s private attorney, as well as one of his key advisors, both being found guilty of crimes, could lead to an eventual shift in the markets. If Democrats take the House or Senate in November’s mid-term elections, talks of impeachment will escalate. I’m not sure the big stories are public yet either, so I have a feeling this will be big going forward. This could easily be the catalyst to drive stock prices lower, essentially ending the longest bull-run in stock market history. That will cause money to flow out of stocks and into the bond market.
Mortgage Bonds are being tested again with overhead resistance at 101-988. If they break above those highs, there is room for Bonds to rally until reaching the 200-day Moving Average. We will watch closely and float carefully.