Stocks are falling hard in pre-market trading, as what I believe was a technical rally the past week has seemingly come to an end. Just a few days ago, many were celebrating the remarkable recovery stocks made, stating it was a result of swift action from lawmakers and the Federal Reserve for stepping in to save the US economy. At the end of the day, the stimulus will be far from sufficient to save American workers and business owners from what is happening, and many are coming to that realization. The money will be spent quickly, leaving many to wonder how they will make it another month. I expect that it will take stimulus of about $10 trillion to keep workers and businesses afloat, five times more than the $2 trillion bill that was passed. Look for additional stimulus proposals to come. Otherwise, I believe we will see a deep recession that will forever change the world as we know it.
This Friday we will receive an estimate of new job creations or losses from the Bureau of Labor Statistics (BLS) for the month of February. Although today’s ADP report showed that there were only 27,000 jobs lost, I expect the BLS report to show a more realistic number that shows there were more job losses than ADP reported. With some expecting the Unemployment Rate to climb as high as 15% over the coming months, I see that number as also overestimating the strength of the US economy. I personally know of many job cuts that have yet to be announced from prominent companies here in the Salt Lake Valley. I can only guess that every metropolitan city will be facing the same.
Mortgage bonds remain near all time high prices. If the mortgage industry can stabilize, we may see mortgage interest rates drop in the near term. In the meantime, floating remains risky. Guidelines are tightening each and every day. Servicing portfolios continue to lose value as consumers refinance early. Mortgage lender costs are increasing, and consumers who break rate locks continue to hurt the industry. These forces are adding upward pressure to interest rates.