Stocks had a gap-up opening this morning and have powerfully broken through their 200-day moving average. This move is not good news for the near-term direction of mortgage interest rates, which will likely continue to trend higher under the headwind created by the stock market. This move in stocks implies that there was a built-in loss assuming that the government would shut down once again. As statements come out from Republicans aligning with President Trumps desire to declare a national emergency in order to fully fund the boarder wall, investors are assuming this means that Trump will reluctantly accept the offer that is now on the table to prevent another federal government shutdown. Although a shutdown appears likely to be averted, I anticipate the boarder wall to be an ongoing political struggle that will further divide democrats from republicans and fuel additional market volatility.
The Federal Reserve members are trying to show they are all on the same page, with several offering similar opinions about the strength of the U.S. economy going forward. The key concern is whether the markets should anticipate more rate hikes in the near term. The Fed went from estimating three hikes, down to two, and now the question is whether there will be any hikes at all. The Fed sees great strength in the current economy, with most only expecting a slowdown vs dramatic fall. This seems to be a risky belief; one which assumes we will escape an actual recession. I’m not sure how educated people can make this assumption. Economic cycles have been predictable for many years. My belief is that we are on the verge of another recession. But we will have to wait and see.