The National Federation of Independent Business (NFIB) showed that optimism among small business owners continues to climb higher. In fact, it was the second highest level we have since the beginning of the economic expansion. Many reported plans to hire more employees in the near term. They further stated that among their biggest fears is attracting qualified talent. With the Unemployment Rate near record lows, the tight labor market is expected to add upward pressure on inflation as employers are forced to raise wages.
Stock markets are down slightly this morning but remain above their 100-day moving average. Although stocks experienced a 9% correction, the upward trend line is still firmly in place. For stocks to break this upward trend, they would need to fall beneath their 200-day moving average. Since this support level held strong, stocks are still likely to continue to climb higher. Merrill Lynch maintains their belief that the S&P 500 will still end the year at 3,000. With the index currently at 2,650, there remains a decent level of growth in stocks for this to happen.
Mortgage bonds remain in a steep downward trading channel. As they are currently near the bottom of the channel, we could see some short-term gains as prices gravitate towards the top. Such gains would be minimal and would not last for long.
With the downward trading channel firmly in place, we will maintain our locking bias.