04 Nov Election Day: Locking Bias
Oil prices tumbled to a three year low this morning as Saudi Arabia led price cuts in the market. This will further help prices at the gas pump which are becoming comfortably low as it is. Low gas prices are a healthy stimulant to our economy, as it leaves more cash in consumer’s pockets for other purchases. Further, low oil prices help boost bond prices and reduce interest rates. After reaching new all-tine highs yesterday, stock prices took a break from their dramatic run higher. The rate of increase in the stock market was at nearly unprecedented levels for almost three weeks, which is not sustainable long term. A pull back in the stock market would actually be healthy for long-term growth. When a pull-back does occur, it will help boost bond prices which have been under heavy pressure as stocks have shot higher.
Today is Election Day. We will see later how the markets interpret the results. A shift in the balance of power between Democrats and Republicans could certainly impact the financial markets. With little financial news scheduled for release today markets will be watching closely. However, bond investors may be hesitant to take risks ahead of Friday’s employment report from the Bureau of Labor Statistics. The likelihood is that job growth will be near or hotter than the 240k expected. With employment growth being a primary driver of bond markets; a hotter than expected report could cause rates to move higher.
With volatility in the markets continuing to be strong, we will maintain our locking bias. It could very well be after Friday’s report before we see the bond market stabilize.