Markets Continue to Struggle

Mortgage bonds are flat in early market trading, while stocks are once again performing erratically. The Dow was up over 200 points, only to fall into negative territory. Although making another run higher as I write this, it is clear that stock investors lack the stomach to make a commitment to continue pouring money into the stock market. However, this downward path has been so strong that it is now time for a relief rally, which I think we will get to some degree. Also, with bond prices not being able to break above the current ceiling of resistance as the stock market tanked; this shows the power of this critical level. I see bond prices likely moving lower to test the bottom of the trading channel. That will put short term upward pressure on mortgage interest rates if that in fact happens. So now is a time to be cautious.

President Trump continues to search for a person to blame for stocks turning negative. It seems that he has measured his performance by the path of the stock market, until this happened. When stocks were strong, he attributed that to his policies and the confidence the market has in his leadership. However, now that stocks have lost all their gains of 2018, he has a finger pointed at Fed Chairman Jerome Powell. Trump has been highly vocal about the Fed’s path of continued rate hikes, which I agree has been overly aggressive. The Fed seems to be ignoring key indicators of a pending recession, which they have also verbally stated that they don’t feel is a risk at this point. Regardless, history shows what we can expect after several key indicators show the bull market has exceeded its time.

Given the expected pressure on mortgage bonds, we will maintain a locking bias.