16 Sep Locking bias
Any hopes of waking up this morning to improved mortgage interest rate pricing were dashed following the release of the Consumer Price Index (CPI) report, outlining inflation on the consumer level in the month of August. Although not overwhelmingly high, the Headline rate showed an increase of .2% for the month and 1.1% on a year over year basis. The more important Core rate, which strips out food and energy prices, showed a monthly increase of 0.3%, with a Core rate of 2.3%. Although CPI isn’t the primary gauge the Federal Reserve considers when measuring consumer inflation, a Core reading of 2.3% is well above the stated target rate set by the Fed of 2%. Therefore, this news will cause many bond investors to look for alternative investments that don’t carry the unknown risks associated with the markets’ fear of an imminent Fed rate hike.
After months of relative stability and overall climbing higher, the US stock markets have experienced a highly elevated level of volatility the past six trading days. Generally speaking, increased volatility within the stock market isn’t a positive sign for the longer term valuation in the market. The past few years have been a golden run for stock investors. At some point, the party will come to an end. A Fed Funds rate hike could be the transitional point for this to occur. Once the punch bowl is removed from the market, it will be a new world for the financial markets.
With bonds still not showing the strength to make a run above overhead resistance, we will maintain our locking bias.