Stock prices are climbing higher once again in early market trading, getting closer to approaching the 200-day moving average. This is a dangerous time for mortgage bonds, as a stock market break above this critical level would translate to higher mortgage interest rates in the near term. The key concern is that if the republicans and democrats can successfully negotiate a deal that will avert a second federal government shutdown, stock investors would see that as a positive sign for opportunities for the stock market to advance higher.
This is a relatively slow week for economic news, so markets will trade heavily based upon the technical outlook. At this point, the technical outlook isn’t looking great for the mortgage bond market. However, I see this as a temporary problem for interest rates. With a recession looming, more and more investors are starting to see the writing on the wall. With the Fed not having a lot of room to lower rates, the impact of a recession could be prolonged. In the long run, I see lower rates. In the meantime, take advantage of a no-cost loan if you can. Now is a great time to make the first step lower.
Given the strength of the stock market, we will maintain a locking bias.