Stocks managed to break higher and are now at new record high levels. This is terrible news for the bond market, as it is draining money from bonds that is flowing over to the stock market. Generally, when we see a breakout, it is followed with an over-exaggerated move and then a mild correction. If this breakout plays out the same way, we will see stock prices make a sharp move higher over the following days and then a mild correction. This will likely drive mortgage interest rates a step higher and continue to weaken the bond market. At some point, stock investors have got to realize the reality of a slowing economy. It just isn’t rational that stock prices are right now at all-time high levels. Even the Federal Reserve is losing confidence in the health of the US economy going forward. However, stock investors just seem content to take the risk and ride this horse as long as possible.
Although there are very few scheduled economic reports today, this week certainly has potential major announcements. For one, the Federal Reserve will announce their decision on interests rates. It is widely expected that we will see another 1/4% rate cut, which will bring the total cuts in 2019 to 3. Given that one year ago the Fed was expected to have the same number (3) of rate hikes, 2019 has proven to be an interesting year of surprises for the US economy. I think the surprises of 2020 will be more surrounding the stock market and unemployment rate. However, that is pure speciation.
As long as the stock market continues to climb higher, we can expect to see upward pressure on mortgage interest rates. We will maintain a locking bias.