What started out as a wonderful day for the stock market has turned into a mess, with stocks back on the downward slide. The continued slide could end up making this the worst week in the stock market since the 2008 financial crisis. At this point, it’s hard to ignore the possibility of this being the opening of a bear market, or at least of more pain to come for stock investors. Regardless, this downturn has created a great deal of fear in the mindset of investors, so a follow up rally is becoming less likely. Even if there is a rally, the level of fear in the markets will make a sustainable rally less likely and certainly less confident.
The news of the morning was mainly good for mortgage bonds, with the final read of 3rd quarter GDP coming in below expectations. Further, Consumer Goods was below what the market anticipated. To top things off, consumer inflation has tamed since last month. Each of these added downward pressure to mortgage interest rates.
Despite the bond-friendly news, mortgage interest rates have seen relatively little improvement in recent days. After breaking above their 200-day moving average, mortgage bond prices find themselves hitting up against another significant ceiling of resistance. This has prevented mortgage rates for continued improvements. If the damage continues in the stock market, I believe it won’t be long before we see bond prices climb higher and drive mortgage interest rates lower.
Although there is no reason to immediately rush in to lock, interest rates won’t improve unless prices break above the ceiling. Therefore, the safe play remains to have a locking bias.