Stocks Find Footing with Technical Bounce

Mortgage bonds are near unchanged levels this morning, as stocks climb higher. After hitting the bottom of the trading channel, stocks made the technical bounce that we mentioned a couple days ago would happen. Since this move is largely technical in nature, the overall technical outlook will likely continue to drive both the stock and bond markets. With bonds having more room for prices to fall than to move higher, this isn’t necessarily a good thing for the near-term direction of mortgage interest rates.

It has been ten years since the Great Recession began back in 2008. In the decade since some of the largest and most respected financial investment institutions failed, the US economy is now facing an asset bubble once again. Stock prices have been unexplainably resilient to news and economic headwinds that should have caused stocks to slow at this point. However, stock prices continue to climb higher and challenge new record-high levels over and over. Eventually, the irrational exuberant market will once again face a down turn that will cause many investors to again face the prospect of watching their investments fall. When this happens, it should help support mortgage interest rates, which generally improve during times of stock market weakness.

Given the continued weakness in the bond market, we will maintain our locking bias.