Stock Market Remains on Crack

Mortgage bonds are once again experiencing a weak opening. However, stocks are climbing higher as predicted in yesterday’s market update. The stock market has been an interesting case study in technical trading. When you think about the current realities in the market, should stock prices really be just beneath all-time high levels, or are investors trading based on technical pictures? Since the end of 2018, corporate earnings have fallen, the Fed did a 180, turning from extreme economic optimism to being so concerned about the future that we will likely see a 50-basis point rate cut later this month, and the housing market has unexpectedly slowed. Shouldn’t these be pressuring stock prices lower? They would, however the stock market is on crack and seemingly unstoppable. How long can this last? I don’t think it will be much longer.

Leading indicators yesterday showed a decline of .03%, which is the worst reading in 3.5 years. Again, this points to a slowing US economy, which certainly doesn’t support stock prices being at all-time highs. However, it does help support low mortgage interest rates, which I expect to continue to fall as time goes on and as the US economy falls even deeper towards a recession.

Mortgage bonds remain weak so far this morning. However, it seems that bond price losses will be limited. There is certainly more room for rates to improve than for rates to rise. In the near term, floating on loans that need to close quickly comes at a higher risk than floating on rates for loans closing in the longer term.