Fed Heading Into “Restrictive” Stance

The stock market recovered all its losses in late day trading yesterday, closing right beneath its 100-day moving average. This level has proven to be a strong ceiling, with stocks being unable to break above it once more. Stocks are pointed lower in early market trading so far today, which means stocks will likely trend down to once again test the 200-day moving average. Eventually, this barrier will be decisively broken, and stocks will fall sharply below this formidable moving average that has been in place for several years. When that happens, we will see downward pressure on mortgage interest rates. Although I still don’t believe the time in now, it is coming. Consider locking in a no cost mortgage rate vs paying to achieve a lower interest rate. It may prove to be the best strategy.

Yesterday’s Federal Reserve Meeting Minutes showed that the Fed is determined to move into a “restrictive” environment to help slow the pace of economic growth. For many years, we became accustomed to an “accommodative” stance, where the Fed policy was geared to help stimulate growth. It has since moved into a neutral stance, where it still had accommodations, but was also heading down the path of raising interest rates. It seems that the plan for the near future is to be in a “restrictive” stance, which means we can expect to see the pace of rate hikes continue. This is not good news for the US stock market or bond market. However, it will eventually be a strong detriment to stocks.

Give the continued volatility, we will maintain a locking bias.