Stocks Optimistic of a Deal

Republicans and democrats took a step closer in resolving their issues that currently threaten another government shutdown later this week. It seems likely that a shutdown will be averted. However, the negotiated bill still needs to be signed by President Trump. Since it only contains $1.375 billion of the $5.7 Trump originally demanded, at best, I think he will have to show his base a plan and expectation to fund the remaining balance needed to live up to his election promise. This will likely come in the form of talks of declaring a national emergency in order to take the shortage out of a portion of the budget that won’t require congressional approval.

With stocks now just beneath their 200-day moving average, it seems likely that they will challenge this critical level at some point during today’s trading session. This poses the greatest short-term risk to the near-term direction of mortgage interest rates. If this level is breached, we will see rates take a step higher. However, since breakouts are the exception and not the rule, odds continue to favor stocks retreating shortly after hitting this level. However, given the upward momentum over the past number of weeks, stocks may have the strength to break through. We need to be on guard for this to happen.

Given the continued strength in the stock market, we will maintain a locking bias.