BLS Report Shows Weaker Than Expected Job Gains

The stock market continued its run higher again this morning, posting new record highs for the fourth and consecutive trading day of 2018. Given the epic strength of the stock market, mortgage bonds have really held up well.  Although rates have increased, the relative impact of rates to the stock market has been muted.

The Bureau of Labor Statistics released their estimate of new job creations for the month of December.  Unlike the blockbuster report from ADP, the BLS report came in well below expectations.  The BLS reported only 148,000 new jobs, which was well below the 190,000-number anticipated by the market.  Further, the job gains were not the right type of jobs that would have a significant impact on economic growth. As for the Unemployment Rate, it held steady at 4.1%.  Despite the weak report, the stock market is having a strong day and mortgage bonds are pushing lower (translating to higher mortgage interest rate pricing).

The future of interest rates appears to be higher, as the Fed will likely need to move more aggressively to curb the strength of the stock and labor markets.  Although inflation remains well below target levels, failure to help control the growth could have major consequences in the near term.  This could lead to a harsh landing at some point in the future.  We will continue to discuss this as the months progress.

Another head and shoulders pattern developed yesterday.  If bonds don’t make their way above this morning’s opening level, we will likely see worse pricing next week. With bonds remaining under pressure, we will maintain our locking bias.