An extreme bout of volatility is flowing through both the stock and bond markets once again this morning. Although stocks shot wildly higher out of the gate, they have since given back much of their gains. Mortgage bonds, on the other hand, have been bouncing from one extreme to the other. Overall, rates continue to move higher in the short term. Although there is now way to say for sure what will happen, it seems probable to me that we will eventually see mortgage interest rates come back down. Maybe not as low as they were, but still below where they are today. There is no reason for mortgage bond investors to demand a higher rate today than they did back before the Coronavirus became widespread concern. Considering how quickly rates have increased in the past few days, this is truly a wild and irrational market.
At open, the stock market has lost 28% of its value from its peak in February. This officially brings the longest running bull market to an end, which is far from what most experts believed would happen in 2020. Since 03/09/2009, the stock market has been overall running higher, without taking a 20% or more loss. This unprecedented level of growth ran stocks into irrationally exuberant levels. When this happens, it creates an increased level of vulnerability, where a market correction becomes exaggerated. My thought is that stocks have more to lose. However, the losses won’t accumulate in a straight line. We will see days like today where the market flourishes and moves higher. However, I think we are a ways off from seeing the bottom.
We will maintain a short term locking bias, with hopes of lower rates in the near term.