Mortgage Mike’s Daily Rate Commentary

Stocks are pointed lower in early market trading. However, they are still within the upward trading channel that has driven the market higher for more than two weeks. This move is likely just a technical move lower that will reverse quickly and ultimately drive stock prices higher in the near term. However, if for some reason the move lower pushes prices beneath the current floor, all bets are off. I don’t think that will happen, as I see the stock market rally still having some strength behind it.


Yesterday’s Fed Meeting Minute release wasn’t much of a surprise, considering that Fed Chairman Jerome Powell has already started that the Fed is prepared to soften policies should the economy continue to show signs of weakening. With inflation remaining weak, the Fed stated they will exercise “patience” at future Fed meetings. Contrary to what most economists believe, I continue to feel that the Fed will be reducing interest rates before the end of 2019. You just can’t have a market continue where both housing prices and interest rates continue to climb. Both have already exceeded what would have people at a reasonable debt ratio to own a home. I don’t see the market being able to sustain this upward trend much longer.


Given the continued pressure on the bond market, we will maintain a locking bias.

Although news of the morning was generally friendly to mortgage bonds, prices are still falling lower in the bond market.  After hitting the 50% Fibonacci level, the improving trend we experienced came to an end. This reversal is primarily a technical one, which is an overall healthy move in the market. The improvements to mortgage interest rates were too fast to sustain, which is one reason we are now experiencing a move higher. If the 38% Fibonacci levels fail to stop the drop-in bond prices, we will likely see continued damage in the near-term direction of mortgage interest rates.


Stock investors are celebrating a supposed agreement that many believe will soon take place in the trade war between the United States and China. If the rumors or an agreement that both sides can live with is true, this will relieve a great deal of pressure in the minds of investors.


With early signs of a global slowdown in economic growth arising, many are starting to worry that the investments made during the “good times” will come back to haunt them. We all know that appreciation in the real estate market is the secret medicine that cures all housing concerns. During the good times, lenders loosen their guidelines to allow for riskier loans. It isn’t until appreciation slows that investors become worried. Once a slowdown hits, we can expect to see the less restrictive mortgage guidelines tighten. Although we are a year or two away from this occurring, it is something those of us in the real estate industry need to have on our minds.


Given the end of a technical rally in the bond market, we will maintain our locking bias.

A look at today’s charts show that stocks, mortgage bonds and the 10 Year Treasury Note yield all hit their 50% Fibonacci Retracement levels and bounced from there. Markets can correct and have losses or gains up to 50% of prior losses / gains and still be considered a healthy correction. This is great news for stock investors who are hopeful this was nothing more than a healthy correction and that prices are now set to climb higher from here. On the other side, this could mean that the improvements we have seen in mortgage interest rates are nothing more than a healthy correction, and we can expect to see mortgage interest rates climb higher after bottoming out at the 50% Fibonacci level.


This morning’s Bureau of Labor Statistics (BLS) report showed that there were far more jobs created in the month of December than the market anticipated. While the market expected to see a number close to 190,000, the actual results came in at 312,000. In addition, the Labor Force Participation Rate increased from 62.9% to 73.1%, which forced the Unemployment Rate to move from 3.7% up to 3.9%. My assumption is that many retired employees stepped back into the labor force to accept seasonal employment over the holiday season. That could account for some of the gains in new hires as well as the sudden increase in the labor force.


Mortgage bonds are losing their gains made yesterday. We will suggest a locking bias while we wait to see if the 50% Fibonacci Retracement level will stop the rally mortgage interest rates have enjoyed for the past couple of months.

The madness in the markets continues once again this morning, with stocks down sharply in early morning trading. The major argument that investors have used to justify the on-going bull market is that the fundaments of the U.S. economy have remained strong. However, we are now seeing signs that this statement may no longer be true. Look at what happened with Apple, missing expectations by $5 billion. The stated reason for the miss was heavily attributed to a slowdown in China. With China being the second largest world economy, that’s a clear sign of trouble ahead. Although most major economists still predict reasonable strength in the U.S. economy, I remain on the small island of people who have grave concerns for the near future.


This morning’s ADP report showed that a whopping, 271,000 new jobs were created in the month of December. Given what has been happening in the markets, I’m going to guess this number was inflated to accommodate holiday staffing needs. I would expect to see a thinning of seasonal employees in the first quarter of 2019. Further, the panic in the stock market will also have an impact on the psychology of consumers. When stocks are climbing higher, consumers spend more freely. However, when the stock market falls, the opposite is true. Especially retired consumers who rely on their investments to support their lifestyles. This represents a reasonable percentage of all consumers. When baby boomers hurt, the economy will feel the impact.


There is no need to immediately rush to lock. However, in a market with such high volatility, I caution to be careful if you are floating your interest rate. Sentiment can reverse quickly. Further, if the federal government shutdown comes to an end today, we could see stocks respond positively. This will hurt the bond market and add upward pressure to interest rates.

Stocks started the day significantly lower but have since recouped much of what was lost. We anticipate today to be light, as many traders are still taking time off to celebrate the New Year. However, tomorrow will bring important news, with ADP set to release their number of job creations for the month of December. The market is currently expecting 175,000, which seems to be a high projection to me. However, we will see.


Friday will be the big day, with the Bureau of Labor Statistics (BLS) providing their report on the labor market. With volatility in the U.S. stock market at high levels, it will be interesting to see if this has impacted the psychology of business owners. With many considering this to be the beginning of a bear market, it seems logical to assume that many businesses will decide to hunker down and get by with their current level of staff.


Mortgage bonds remain on an upward trajectory, which is putting downward pressure on mortgage interest rates. I don’t anticipate any significant improvements today. We could see Friday’s BLS report push bonds above the current ceiling. However, in the meantime, if you are closing soon, now is a great time to lock.

After the single best day in the US stock market since 2009 yesterday, stocks are losing some of their gains in early morning trading. Yesterday brought hope to many anxious stock investors, only to have their hopes crushed this morning. A look back on pre-bear market histories will show a similar picture to what we are seeing happen right now. Tremendous volatility is one of the key forward indicators of a significant downturn in the market.  Although I’ve been saying this for over a year, I believe a downturn is coming. I expect to see days of strong moves in both directions, with an overall trend heading lower in the long term. This is a day trader’s dream market environment.


Mortgage bonds seem poised to make a run at the current ceiling of resistance that is preventing rates from making further improvements. If that ceiling is broken, we will see a nice reduction in mortgage loan pricing. Although we hate to see stock investors lose money, this is an ideal situation for mortgage interest rates.


There is no immediate need to rush to lock. However, watch the stock market closely. If it makes a comeback, mortgage rates could suffer.

Mortgage bonds are flat in early market trading, while stocks are once again performing erratically. The Dow was up over 200 points, only to fall into negative territory. Although making another run higher as I write this, it is clear that stock investors lack the stomach to make a commitment to continue pouring money into the stock market. However, this downward path has been so strong that it is now time for a relief rally, which I think we will get to some degree. Also, with bond prices not being able to break above the current ceiling of resistance as the stock market tanked; this shows the power of this critical level. I see bond prices likely moving lower to test the bottom of the trading channel. That will put short term upward pressure on mortgage interest rates if that in fact happens. So now is a time to be cautious.


President Trump continues to search for a person to blame for stocks turning negative. It seems that he has measured his performance by the path of the stock market, until this happened. When stocks were strong, he attributed that to his policies and the confidence the market has in his leadership. However, now that stocks have lost all their gains of 2018, he has a finger pointed at Fed Chairman Jerome Powell. Trump has been highly vocal about the Fed’s path of continued rate hikes, which I agree has been overly aggressive. The Fed seems to be ignoring key indicators of a pending recession, which they have also verbally stated that they don’t feel is a risk at this point. Regardless, history shows what we can expect after several key indicators show the bull market has exceeded its time.


Given the expected pressure on mortgage bonds, we will maintain a locking bias.

What started out as a wonderful day for the stock market has turned into a mess, with stocks back on the downward slide. The continued slide could end up making this the worst week in the stock market since the 2008 financial crisis. At this point, it’s hard to ignore the possibility of this being the opening of a bear market, or at least of more pain to come for stock investors. Regardless, this downturn has created a great deal of fear in the mindset of investors, so a follow up rally is becoming less likely. Even if there is a rally, the level of fear in the markets will make a sustainable rally less likely and certainly less confident.


The news of the morning was mainly good for mortgage bonds, with the final read of 3rd quarter GDP coming in below expectations. Further, Consumer Goods was below what the market anticipated. To top things off, consumer inflation has tamed since last month. Each of these added downward pressure to mortgage interest rates.


Despite the bond-friendly news, mortgage interest rates have seen relatively little improvement in recent days. After breaking above their 200-day moving average, mortgage bond prices find themselves hitting up against another significant ceiling of resistance. This has prevented mortgage rates for continued improvements. If the damage continues in the stock market, I believe it won’t be long before we see bond prices climb higher and drive mortgage interest rates lower.


Although there is no reason to immediately rush in to lock, interest rates won’t improve unless prices break above the ceiling. Therefore, the safe play remains to have a locking bias.

Yesterday’s Federal Reserve announcement provided the ¼% rate increase we planned on.  Although this was anticipated, the market was looking for clues as to what 2019 has in store.  Much to the stock markets’ dismay, they did get word that the Fed is planning on reducing the planned number of rate hikes from three down to two. The stock market was hoping the Fed would not hike rates at this meeting, and further hoped the Fed would state that they are only going to continue hiking if the economic data supported continued hikes. Rather, they said they are planning on hiking, without stating the hikes will be data dependent. This caused the stock market to take on additional losses, which has helped support lower mortgage interest rates.


With the US stock market getting hammered in recent weeks, many are wondering when the pain is going to stop. The hope now rests on the 50% Fibonacci Retracement, which is almost exactly where stocks are right now. In a general market, it isn’t uncommon to see up to a 50% loss before heading back up. Stock investors are currently hoping this will be the case for stock prices. Odds are that stocks will at least pause at this level and then make a move from there. We would generally expect stock prices to bounce higher at this point, so we need to be on guard for how that will impact mortgage interest rates in the near term.


Given the unknown direction of stocks, we will maintain our locking bias.

All eyes are on the Federal Reserve today, as markets wait to hear if they will be raising interest rates. With the announcement set for noon today MST, we will soon see. I continue to believe that the Fed will follow through on a ¼% rate hike, as they have clearly hinted of this coming in recent talks. I also believe that Fed Chairman Jerome Powell will lower the expectations of continued rate hikes in 2019, stating that decisions to hike will be based upon economic data as it is released. Personally, I’d like to see Jerome hold off on hiking this time. I believe the markets need time to balance out and that hiking today will just increase the odds of the Fed needing to lower rates in the future as we head into a recession.


After hitting the same floor of support, we have talked so much about in recent market updates, stocks once again bounced off this floor and are climbing higher in early morning trading. This is a significant floor that truly represents the bottom of a very long-term trading trend. If this floor is decisively broken, we could see a trend reversal, which could point to an early bear market indicator. A break below would also help provide a nice tail wind for mortgage bonds, helping to drive mortgage interest rates even lower. Today’s Fed announcement could influence which way markets head. So be on guard as we wait and see what happens.


Mortgage bonds are currently sitting just above their 200-day moving average. Although there is no rush to lock, we can expect to see an increased level of volatility following the Fed announcement. With a strong ceiling once again facing the bond market, I will maintain a locking bias.