Stocks are down sharply this morning, as the market digests the first look at 2nd Quarter GDP which showed a decline of 32.9%. Although this was the worst reading on record, it was better than the -34.7% expected. The silver lining to this is that it gives the Federal Reserve the green light to continue to provide unprecedented levels of support to help bring the US economy back to pre-pandemic levels. This means that short term rates will be near zero for a long time to come. With a lot of ground to make up just to get back to where we were, it will take a lot more investment from the Fed and the US Treasury, which should also keep mortgage interest rates low.
For a second week in a row, the labor market experienced over 1.4 million new claims for unemployment benefits. The uptick in new claims has been influenced by a second round of shutdowns in high COVID states, as well as the exhaustion of PPP loan funds. To make things worse, the number of continued claims increased from 16.79 million up to 17.018 million. When taking into account the Pandemic Assistance Claims, the real rate of unemployment is likely 19%. Fed Chairman Jerome Powell again stated that the Fed is willing to do whatever it takes to get the unemployment rate down. Hopefully we will see some improvement in the weeks to come.
Mortgage bonds have broken above the prior ceiling of resistance, and are now trading at unchartered levels. This mean that mortgage interest rates are at lows never before seen. Although there is no reason to rush to lock, consider the opportunities at hand and the potential risk of a pullback in the bond market.