After setting new record high levels on Friday, U.S. stocks have fallen sharply in the past two trading days. They experienced a large gap-down opening this morning, which is rare to see in the current state of the market. Although this should be helping the bond market, mortgage bond prices are also down sharply as the technical move lower continues. Bonds are now close to a strong level of support which will hopefully at least slow the pace of this rate hike we have been experiencing the past few weeks. We must go back many years to find a time when rates were higher than they are now approaching, so hopefully bonds will get a break soon.
Bonds did not close the gap yesterday, which is shocking considering the state of the stock market. I feel that a bond market correction is overdue. Generally, a market correction will gain back approximately ½ of the losses they have experienced the past few weeks. Although we would expect the market to worsen after hitting this level, it would at least provide some temporary reprieve.
Consumer Confidence is now stronger than it has been in 17 years. The last time it was close to this level was back before 2008 just prior to the financial meltdown. Not that this means we are on that brink once again; however, it is an interesting fact to point out.
With bonds continuing to fall, we will maintain our locking bias.