Stocks climbed to new all-time high levels this morning, as continued optimism over the pending tax plan remains a primary driver of the stock market. As details of the plan are being ironed out, the success of the tax reform bills relies on the assumption that the Labor Force Participation Rate will increase. This means that we need for millions of Americans who are not currently working to step into the labor force and take jobs. If this fails to happen, there will be a massive labor shortage to support the 3%+ growth rate within the US economy that many are expecting if the tax bill is passed. With current Unemployment Rates at levels only briefly seen in 2002, and early 1970’s in the past 50 years, we would face a major labor shortage at the assumed growth rate unless we see a massive influx of Americans wanting to work. Failure for the Labor Force Participation Rate to improve would be catastrophic for the longer-term economy otherwise.
Today is a relatively slow day for scheduled economic reports. However, the markets heat up as the week progresses. Today we did learn that New Home Sales, which measures contracts pending on new homes, hit a 10 year high at an 685,000-unit annualized pace. This was well above expectations of 620,000, and shows that demand for new construction continues to be a shiny spot of the U.S. economy.
Mortgage bonds remain in a tight trading channel, with the 100-day moving average just above current levels. Unless bonds can break above this critical level, a locking bias is suggested.