Mortgage Bonds establishing a sideways trading pattern

The S&P 500 is currently at new record highs, again…  I still wonder where all this strength in the stock market comes from.  It is as if the economy is booming and there are no geo-political fears to be had.  Although I think stocks have a good chance to continue their run higher, there seems to be a bit of “Irrational Exuberance” in the stock market.  As I have said before, the bond market seems to be a more realistic portrait of the economy.  It continues to see weakness in the US and a world economy, which is why interest rates are still relatively low.

Tomorrow starts the trifecta of Jobs Reports, starting with ADP releasing their estimate of new job creations for the month of March.  Market expectations are set at 193,000 new jobs created.  This report will give us clues as to what we can expect when the Bureau of Labor Statistics release their Jobs Report on Friday.  The market is currently looking for 206,000 new job creations on the BLS report.  Now to compare this to where we should be in a strong and healthy economy, we should have a minimum of 250,000 new jobs up to well in excess of 300,000 new jobs created each and every month.  Now, that is when the stock market should celebrate….

Janet Yellen gave us some clarification as to at what point in the unemployment rate the Fed will consider hiking rates.  If you remember, it was established by Ben Bernanke that when the market hits an unemployment rate of 6.5%, this may trigger the Fed to hike short term interest rates.  Since we are now near these levels, and our economy is nowhere near where it was hoped it would be, Janet established a new target between 5.2% – 5.6%.  This is well below current levels, so the Fed Funds rate will likely stay near 0% for some time.

Mortgage bonds are establishing a sideways trading pattern, with the 200 day moving average now acting as overhead resistance.  Given the weakness in the market, and the trifecta of employment reports yet to be released, we will suggest a locking bias.