Locking bias

Election day is finally here!  Yesterday was an exceptional day for the stock market as investors celebrated the projected win of Hillary Clinton.  Today is a continued celebration with stocks once again climbing higher.  Although there is uncertainty tied to either candidate, the markets seem far more secure with a Clinton win.  Therefore, if Hillary wins we can expect to see the stock market continue its gains again tomorrow.  However, if Donald Trump wins we will likely see the stock market pull back.  A climb higher in stocks will create additional headwind for the bond market and will create upward pressure on mortgage interest rates.   

Investor confidence in the stock market has caused mortgage bonds to fall beneath their 200-day moving average.  As we have seen the past couple of weeks, there has been a fierce battle over this critical support line between the bulls and the bears, with the bears now looking poised to win.  If bonds are not able to climb back above the 200 DMA before the end of today’s trading cycle, a potential Hillary win tomorrow could seal the deal that caused bonds to decisively break beneath this level.  That would indicate a long-term reversal in the trend of mortgage rates; meaning we can expect to see rates climb even higher from this point forward.  Tomorrow’s results will certainly help dictate what happens. 

With a projected Hillary win, the risk of floating is very high.  We will maintain our locking bias.