Mortgage bonds opened the day lower this morning, falling under the pressure of an exuberant US stock market. It seems that stock investors are eager to see the Dow push above the 20,000 mark for the first time in history. With that level now within striking distance, it seems likely to happen within the next few trading days. A broad look at the technical compositions of the US equity markets shows strength in nearly all sectors that make up the stock market. For example, banks, industrials, small caps, and martials are all performing well. Fundamentally, this has the making of another strong year for the US stock market. However, the primary unknown will be the Trump Factor. It will most certainly be a change from the political climate we have grown accustom to over the past eight years. This will likely cause an increased level of volatility as market conditions react and changes are made.
It is once again Jobs Week, with Wednesday bringing ADP’s estimate of new hires for the month of December, Thursday will receive the usual Unemployment Claims for the week prior, and Friday will be the release of the Bureau of Labor Statistics (BLS) estimate of new hires in the month of December. The January report is often a difficult report to dissect, as it contains temporary hires to support holiday shopping. If the report shows a surprisingly high number of hires, we can expect to see mortgage rates bump higher. However, if we see a softer than anticipated report, mortgage bonds will improve, helping to soften rates in the near term.
Mortgage bonds are now sitting right on the duel layer of support. If the stock market continues to climb higher, bonds could be forced below the critical level. Given the current risks associated with stock market strength, we will suggest a locking bias.