22 May Locking bias
The stock market is once again showing its shortsightedness, as prices have nearly regained all the losses they experienced last week. At this point, stocks are in striking distance of challenging all time high levels once again. As I mentioned in one of last week’s updates, I don’t believe that stocks have yet to be overly fearful of the issues surrounding Trump and his potential ties to Russia. Had that truly been a concern, stocks would not have set new all-time highs even after the brunt of last week’s controversy hit the wires. The mid-week move lower seemed to be more of a technical move which often follows new record setting days when investors cash in a portion of their holdings to take some chips off the table and enjoy their winnings. It’s not to say that the Trump / Russia issue doesn’t have the ability to cause stocks to fall. It felt more like the media was looking for an excuse to blame the dramatic drop in stock indexes. Since the issue with Trump is no better now than it was last week, clearly stock investors have yet to be truly deterred.
Despite the strength in the stock market, mortgage bonds are holding up well. With today having no significant economic reports scheduled for release, we need to pay special attention to the technical outlook. There is a strong floor of support just beneath current levels. However, that could easily be penetrated if stocks continue to climb higher. With the seemingly impenetrable ceiling of resistance not too far above current levels, there is minimal room for rates to improve.
Given the lack of room for improvement, we will maintain our locking bias.