Bonds at Critical Point

Bonds at Critical Point

U.S. stock markets are once again getting slaughtered, losing the significant gains they made in late day trading yesterday. Clearly, there is a lack of trust in the strength of the U.S. economy or geo political concerns that are causing angst within the mindset of investors. This is a huge adjustment from where things were just 12 short months ago when the markets were celebrating the tax credits and ongoing deregulation in the financial markets. From that to now fearing a recession is a significant adjustment. Many who once believed the good times would be around for many years are now second guessing themselves.

 

This morning’s Bureau of Labor Statistics (BLS) report showed that there were fewer new jobs created than the market anticipated. This unanticipated slowdown is adding fear to the markets, which could also partially explain the large drop in stock prices today. The Unemployment Rate remained steady at 3.7%, which many are celebrating. To me, this is a terrible indication of where things will be heading soon. With the Unemployment Rate now near a 50-year low, there is only one way for this to head. And history shows that after this rate hits the low point of the cycle, it jumps up dramatically in the months to follow.  We can count on this happening once again in the future.

 

Mortgage bonds are right up against their 200-day moving average. Odd are that they will not make a decisive break above this critical level yet. Therefore, we will maintain our locking bias.