Locking Bias

Locking Bias

Yesterday was a rough day for the stock market, with the S&P 500 falling below its 100 day moving average.  Stock prices haven’t made a decisive break below their 100 DMA in well over two years, so this is a significant event.  It has been clear the past couple weeks that the volatility in the markets was providing a sign of uncertainty.  It’s interesting to now listen to the same news pundits who have previously stated that stocks will continue to climb with the support of strong corporate earnings.  Even the most bullish of pundits are now taking a step back and facing the reality that we could be in the early stage of a 10-15% correction.  In fact, the S&P 500 has already lost over 4% in the past 10 trading days.  Watch this closely, as the direction of mortgage rates could be decided by the outcome of the stock market.

Weekly Unemployment Claims for last week were released this morning, with a very low 287,000 new claims reported.  This is a drop of 8,000 from the prior week, and below the 295,000 new claims expected.  The trend is now below the 300,000 level, which is showing a continued improvement in the job market.  As the job market stabilizes, we should see ongoing improvement in the Bureau of Labor Statistic’s Job’s Report that is reported each month.  Tomorrow we will see how job growth was for the month of September.  So far, all signs are pointing towards a number north of 200,000.  The market is expecting 215,000.  If the actual is much higher than this, we may see a “trampoline effect’ happen in the stock market where it recovers at least some of their recent losses.  However, if the report is brought down by a loss of summer jobs, we could see the stock market drop further.

Mortgage bonds are in a precarious position right now.  Bonds are now right up near 14 month highs.  With the stock market again suffering losses so far this morning, bonds could benefit from the flow of money moving out of the stock market.  With bonds up at the top of their trading channel, and with the risk of a strong job report tomorrow morning, we are going to suggest a locking bias.  Watch the markets closely as we close out the week.  If the jobs report is weak, it could set the tone for mortgage rates to move lower.