Locking bias

Democrats and the Obama Administration were handed a crippling blow yesterday, as the Republican Party took control of both houses of Congress.  With the largest majority since World War II, Republicans are certain to make things more difficult for President Obama and his agenda for his final two years in office.  With Democrats soon to be heavily relying upon the power of the filibuster to tame the rejuvenated Republican Party, it is likely that we will see a big push in the final two months of the Democratic led Senate to pass many important bills.  Now that the election has passed, they are able to put more controversial policies on the table for a final vote.  It will likely be a very interesting couple of months….

The first of three readings on the job market for the week was released this morning. ADP reported that 230,000 new jobs were created in the month of October. This was exactly what the market was anticipating, so there was no shock reaction to the news. Tomorrow we have last week’s New Unemployment Claims, followed by Friday’s Bureau of Labor Statistic’s estimate of job creations for the month of October. The BLS report is widely viewed as the most critical report on the job market, and also includes a reading on the unemployment rate. It is expected that 240,000 new jobs were created, and that the unemployment rate maintained steady at 5.9%. Any significant change from these levels is likely to move the markets.

The stock market opened the day in celebration mode this morning, with the S&P 500 matching all time high levels.  The upward momentum in the stock market helped push mortgage bonds beneath critical support levels that have held rates down for weeks.  Although interest rates have pushed .125% higher in the past few trading days, they are still near 16 month lows.  Pull backs in the bond market are actually healthy for long term sustainable improvement in bond prices.  They often need time to rest before attempting to push higher.  For now, we will maintain our locking bias.  A move higher in bond pricing (lower interest rates), is not imminent, and is not likely anytime soon in the face of an irrationally exuberant stock market.