Yesterday’s market update was spot on, with stocks bouncing off the floor that was identified, leading to added pressure in the bond market. I don’t anticipate stocks making much of a come-back. My guess is that they will continue to bounce between the current floor we identified and the 25-day moving average that has proven to be a stronger ceiling of resistance than it generally has been. The stock rally has more room to continue, so I anticipate upward pressure to mortgage interest rates continuing today.
Over the past several years, the US stock market has been extraordinarily resilient. The strength continued to build even in times of political and economic uncertainty. Lately, however, it sees that stocks are reacting to even the slightest hint of bad news. When the economy shows signs of a cold, the stock market attracts pneumonia. This is a sign of weakness which could be a pre-curser to stocks entering a bear market in the weeks / months to come.
I want to reiterate that I believe the Fed will have a harder time continuing the gradual rate hike process that they are now on track to do. With a December rate hike still anticipated, that could be the breaking point that inverts the yield curve. That would certainly impact the Fed’s outlook on hiking in 2019. We will have to see how this plays out. But I don’t think it will be in the overall best interests of the economy to continue the path until the stock market has stabilized.
We will continue to suggest a locking bias in the near term.