How Much Better Can Things Get?

Mortgage interest rates have been slowly ticking higher as the stock market rally continues to be a strong headwind against the bond market. When you consider that stock prices have climbed from being at two-year lows in January to once again looking to challenge new all-time high levels just three months later, this puts the strength of the stock market into perspective. When you add to that my belief that there is a recession just around the corner, you can see why I believe the stock market is irrationally high right now. However, history makes perfect sense of this phenomenon. Look back on what happened in 2006. Both the housing and stock markets where on a tear higher. If only people could have seen what was around the corner, many would have made different decisions.

Tomorrow is a big day for the stock and bond markets, with the Bureau of Labor Statistics set to announce their estimate of new job creations in the month of March. If today’s weekly Unemployment Claims number is truly reflective of the current state of the labor market, we can expect to see a very strong number in tomorrow’s report. The weekly total of Claims last week was 202,000, which is the lowest weekly number we have seen since 1969! Clearly, the labor market remains strong. However, the strength of the labor market is one of my greatest reasons to support a pending recession. In every economic cycle, once the labor market hit its strongest point, it was immediately followed by a strong jump higher in the Unemployment Rate. With the employment market as strong as it is now, we would be foolish to assume this will last. It never has. History repeats itself over and over. This will be no different.

With tomorrow’s report expected to be strong, there is great risk in floating. We will maintain a locking bias.