Market Euphoria Grows

Good morning everyone! I hope you had an awesome weekend.

Stocks are dipping a little bit after a rapid climb last week as we got updated figures for the Citigroup Panic – Euphoria Model. Remember, this model takes a measure of consumer sentiment in the general market. A reading of .41 or above means that the market is at euphoric levels while a reading of -.41 indicates a panic. Last time we saw this report, the market was at about 3x the euphoric indicator and has climbed even higher. Todays reading came in at 1.83 – over 4x the euphoric threshold. It will be interesting to see how much higher this measurement will go at the same time that we are experiencing a second wave of COVID shutdowns and massive levels are political insecurity. However, if 2020 have taught investors anything, it is that John Keynes was right when he said, “Markets can remain irrational longer than you can remain solvent”.

Mortgage backed securities continue last week’s tumble – down 19 bps since market open. This has largely been fueled by inflation concerns over the incoming administration’s spending plan as well as massive gains in the US Treasury market. Treasuries are coming up on a ceiling of resistance that could cause a drop providing relief to the MBS market. We are holding a locking bias unless you are able to closely monitor the market.