In a change of course, stocks are falling hard once again in early morning trading. From a technical perspective, the charts have formed what is referred to as a “head and shoulders” pattern, which is not a good sign for the near-term direction of the stock market. Unless stocks find a way to break this pattern quickly, we would expect to see more follow-through on the downward move. This should help provide support to the bond market, which seemed to have known this move lower in stocks was coming.
Yesterday, the Federal Reserve left interest rates unchanged as expected. In the statement that followed, Chairman Powell confirmed the Fed’s commitment to continue to purchase T-Bills, at least through the end of April. If you look at a comparison chart that shows the stock market and tie that to the Fed’s purchase of US Treasuries and T-Bills, you will see that the more the Fed invests the stronger the stock market becomes. If the Fed were to stop purchases at the end of April, I believe we would see a significant slowdown in the stock market as well as the overall US economy. Therefore, is a key story to follow going forward.
Mortgage bonds remain strong. With a solid floor of support beneath current levels, there is not a strong reason to rush to lock. However, if you choose to float, do so while watching the markets closely. Sentiment can always change.