Stocks Continue to Fall

Stocks are taking a bath once again in early morning trading. In my opinion, this downturn is just giving up some of the gains the stock market has enjoyed in recent months that were truly hard to justify. Anytime there is such an irrational gain, a correction will be over exaggerated when it does hit. When you consider that the stock market was setting new record highs as hundreds were dying from the Coronavirus, this should have been more of a concern many weeks prior.

Consumer inflation remains tame, reflected by this morning’s Personal Consumption Expenditures (PCE) rate. The monthly advance was just 0.1%. However, it did push the annualized rate from 1.6% up to 1.7%. When stripping out food and energy prices, the Core rate again increase by 0.1%, pushing the annualized gains from 1.5% up to 1.6%. As long as this rate remains low, the Fed will have a clear path to continue to support the markets.

Many are now speculating if the Fed will step in and do more. The US economy would be suffering terribly if the Fed were not actively purchasing short term T-Bills. They are already injecting tens of billions of dollars into the markets now. With the Fed’s balance sheet already growing rapidly, the Fed’s ability to continue to keep a recession at bay is weakening. Against commonly held wisdom, I continue to see a recession on the horizon.

With stocks continuing to fall, mortgage rates have softened. It’s hard to say just how much lower rates will go. We are already at all-time low yields on the 10-Year Treasury Note. Floating is risky and potential improvements are minimal.