Mortgage bond pricing fell off a cliff the past two days, pushing mortgage interest rates 1/8% in a very short time. President Trump’s first address to the nation last night left many investors feeling bullish about the future of our country and increased the confidence levels in many American citizens. The US stock market clearly shows the optimism, with the Dow breaking above the 21,000 level. This is draining money out of the bond market as more investors leave haven investments for the potential of stronger gains in the stock market. Adding additional pressure to mortgage interest rates, we also received news of much stronger consumer inflation. At this point, hopefully people realize that a Fed rate hike in March will almost certainly be a reality.
The key lesson from the past three and a half months of watching the significant improvement in US stock markets as well as the rise in Consumer Confidence is how psychological the economy is. Since 2008, our Federal Reserve has invested trillions of dollars into the US economy as well as held rates near 0% for an extended period in hopes of increasing inflation, consumer confidence and increasing wages. In addition, our country borrowed multiple trillions of dollars to shore up the lower class and further stimulate the US economy. Despite all this effort, we experienced the slowest economic recovery in 65 years. It’s fascinating to see a significant continuation of the improvements Fed policy and government spending has already added, just through improving the confidence levels of investors, employers and the US worker. This shows the power of the mindset the American people have over our economic results. Although it’s too early to say for sure if the economic promises will pan out; it hasn’t stopped people from investing in hopes of promises becoming reality.
Although there now is a strong level of support beneath current levels, there remains great risk in floating. We will maintain our locking bias.