The stock market is down significantly so far this morning, which is helping to add fuel to mortgage bonds. This is primarily driven by the report showing that Retail Sales for the month of November came in below expectations. The increase reported was only 0.2%, which is below the 0.3% anticipated by the market. Given that this is the month prior to Christmas, it makes many concerned that holiday sales will be below what retailers have been hoping for, which would be in-line with the recent declining trend. It will be interesting to watch the reports as they are released. We could see many retail stocks be impacted as a result.
We are now just 3 trading days away from the first Federal Reserve rate hike we have seen since June 2006. As mentioned previously, this will likely continue to add significant volatility to both the stock and bond markets. We have seen a significant drop in stocks the past few trading days. However, the technical picture shows that the losses could halt soon. Stock prices are now resting on their 100 day moving average, which will likely provide a strong level of support. Further, bonds are now hitting a ceiling that could prevent mortgage rates from seeing continued improvement. We anticipate a battle between the bulls and bears at this point, with the bears the likely victor.
Given the difficult battle bonds are now facing, we will maintain our locking bias.