Stocks Rebound

In nearly perfect technical fashion, the stock market bounced back and recovered all their losses from earlier in the day yesterday. This happened later in the afternoon, after stock prices hit the same low levels the markets achieved on Monday when stocks experienced their worst day of 2019. The floors of support and over-head ceilings have proven to be a very accurate indicator for predicting movements in both the stock and bond markets. Stocks are expected to open the day higher once again this morning, which means they are likely to challenge the ceiling of the 100-day moving average at some point today. If stocks can make a break above this critical level, it could force interest rates to take a step higher. As we’ve talked about before, mortgage rates will have periods when rates are moving higher, even though in the longer run they will continue to fall. This is just one of those moments.

It seems that Chinese policy makers are attempting to stabilize their currency, which should help calm global fears of a currency war. To explain how this works, if China wants to counter the tariffs initiated by the Trump Administration, it can weaken its currency to make its products more affordable for US consumers. This counters the impact of the additional tariffs. This move was not taken kindly by President Trump, who quickly criticized China for the move, labeling them “currency manipulators.” Although US consumers would be able to purchase Chinese goods at a lower price, the move China made hurts US businesses that export products to China.

Mortgage bonds have a strong floor of support just beneath current levels. The general rule would say to float at this point. However, if stock prices continue to climb, it could add enough pressure to push bond prices beneath the floor. I continue to suggest floating long term and being very cautious in the short term.