06 Feb Market Volatility Continues
U.S. stock markets are swinging wildly this morning, as investors appear unsure as to which direction the market will go. At one point, the Dow experienced a 900-point swing within 25 minutes. This follows yesterday’s 1,100+ point loss, which was the single largest point drop in the history of the stock market. Although it wasn’t the largest percentage loss overall, it brought back memories of 2009 when the stock market was in a free fall as Lehman Brothers bit the dust. Having lost 10% of its value, this move was considered the long-awaited market correction many have anticipated. If we don’t see stocks regain their losses, P/E ratios are a bit more reasonable at this point. The price of stocks was just not indicative of what earnings should justify.
Mortgage bonds found temporary relief yesterday, as investors sold stock holdings and moved cash over the safe haven of the bond market. However, the gains were short lived, as this morning has not been friendly to mortgage rates. Given that the stock market drop was largely out of fear of rising inflation, we can expect the trend of higher mortgage interest rates to continue in the short term. Hopefully, bonds will find support at the low levels they achieved a couple of days ago. We will have to wait and see.
We will maintain our locking bias.