Cautious float

The Bureau of Labor Statistics came out this morning with their estimate of job growth in the US, as well as their reading on the Unemployment Rate.  They reported that 214,000 new jobs were creates in the month of October.  This was close to the market’s revised expectations of 235,000.  Adding to the good news were upward revisions to the prior two months’ reports.  Combined, there was an additional 31,000 new jobs added to August and September’s figures.  The unemployment rate report was also strong, coming in at 5.8%.  It was expected to remain steady at 5.9%, so this beat expectations.  The unemployment rate is now at its lowest level since July of 2008, and still trending lower.  This report confirms that although at a slightly slower pace, the US job market continues to steadily improve.  The one area of weakness in our jobs reports has been the rate of wage increase.  Wages have only risen by an average year over year pace of 2%.  This is well below where it should be in a strong economy, and will help to keep inflation low.  That is good news for mortgage rates, as inflation is the arch enemy of the bond market.

The stock market again hit all-time highs yesterday.  The strong upward movement in the stock market is starting to show signs of fatigue.  Given the nearly unprecedented rate of increase in the past four weeks, stocks are certainly due for a pull back.  Although somewhat flat today, when the stock market does take a breather that will help support the bond market and help hold mortgage interest rates low.  So far today, mortgage bonds have stabilized and made a move back above their 25 Day Moving Average.  This is a good sign for interest rates, as now they are above all moving averages.  Hopefully, with this report behind us, mortgage rates can at least hold steady and break from the upward channel they have ridden for nearly a month.

With the shock factor of the BLS Employment Report behind us, we can begin the day cautiously floating.  However, days when we have significant reports released can bring additional volatility to the markets.  Therefore, directions can change quickly.  Stocks have vacillated from up to down to back up again.  This volatility is also being experienced in the bond market as well.  Therefore, be prepared to lock should bonds begin to lose ground and turn negative once again.