GDP Number Strong

The 2nd quarter GDP estimate came in at 4.2%, beating estimates of 4.0%. Since GDP is one of the most important indicators of economic strength, it is also one of the most important influencers of mortgage interest rates. However, the higher number was likely influenced by tariffs that are set to come into play in the near future. In anticipation, US companies likely pushed out more exports than planned before the tariffs hit to avoid the extra costs. If this is the case, we can expect GDP to slow as tariffs go into effect. Overall, economists are planning 2018 GDP to average out at 3% or so, which considers an anticipated slow down to just 2% in the 3rd quarter.

U.S. stock markets are once again setting new all-time high records, with the S&P 500 exceeding the 2900 level. This impressive rally takes the market near the 3000 level that many top financial economists have pegged as the ceiling for 2018. So far, markets seem to lack concern about higher interest rates and tariffs. It could be a set-up for a more dramatic correction when the stock market experiences a downturn. At this point, it’s not a matter of if, it’s a matter of when.

Bond prices remain beneath their 100-day moving average. Unless bonds can make a decisive break above this level, we will maintain a locking bias.