22 Nov Locking bias
The US stock market continues its post-election rally this morning, with the Dow Jones industrial average crossing 19,000 for its first time in history. The market has praised President Elect Donald Trump’s recent speeches where he outlines his plans to increase economic growth through fewer regulations, a focus on the middle class, and bringing jobs back to America. His message seems to resonate with stock investors as they look to profit from a change is US policy. With the US labor force already near full employment, the only way for his plan to not cause an over-heated job market is to increase the number of US citizens in the labor force. Since the Labor Force Participation rate has been driven down near 40 year lows the past few years, this could be a tough nut to crack. This would mean more retired workers and people living off the government would need to re-enter the job market. If this doesn’t happen, adding more jobs to an already near full employment economy could create massive wage inflation that has a strong potential to damage the stability of our longer-term economy.
Today is another light economic news day, as the markets prepare for the smorgasbord of data scheduled for release tomorrow. The stock market hitting new all-time highs could be a reason for stock investors to adapt a cautious approach and take some profits off the table. If that happens, we could see the stock market rally stall in the near-term which would likely increase the flow of money into the bond market. That would be good news for mortgage interest rates as we head into the extended holiday weekend.
Although bonds are holding ground, there remains an elevated risk of floating. If you do choose to float, do so cautiously and only if you can watch the markets closely.