The stock market is starting out 2016 under pressure, with the DOW Jones Industrial Average currently down 363 points and the S& P 500 down 40. This is driven primarily by global economic concerns, with China being the most significant factor. Overnight, weak manufacturing data caused their stock market to fall by nearly 7%. As a result, trading in the Chinese markets was halted to prevent further losses. Given the impact with China being such a major global growth engine, the decline in the Chinese stock market is spilling into stock markets around the globe, including ours here in the US. Global weakness continues to create a drag on our markets, with 2016 likely being a continuation of the path started in 2015.
This is “Jobs Week”, beginning on Wednesday when ADP will release their estimates on job growth here in the US during the month of December. Thursday we will receive the weekly report on Unemployment Claims. The Mac Daddy of all reports on the labor market will be released on Friday, when the Bureau of Labor Statistics (BLS) provides their insight on December new hires. The market is anticipating a number somewhere in the 185-190k range for the ADP report on Wednesday and 190-200k for the BLS Jobs Report on Friday. Given that seasonal jobs were still being created during this time, it will be interesting to see how close the estimates are. Keep in mind that stronger numbers hurt mortgage interest rates, while a weak report could help improve interest rates.
Mortgage bonds have broken above a significant resistance level and are now trapped beneath their 50 day moving average. A continued slide in the stock market could help push bonds higher. However, stock could stabilize and improve as the day progresses. Since bonds have now been above their 50 DMA since October, this is going to be a tough battle for the bond market. The safe play will be to lock in at these levels to take advantage of recent gains. If you choose to float, do so carefully and be prepared to watch the markets closely.