After experiencing a “dead cat bounce” rally on Friday, US stocks are fell sharply this morning. Investors seem to be coming to the realization that a V-Shaped recovery is a long-shot, and the challenges surrounding the Covid-19 are far from over. Today’s fall took the S&P beneath its 200 day moving average, which it never should have exceeded in the first place. In no way does the current economic environment support stock prices near pre-Covid levels. In fact, I believe stock prices have more room to fall in the months to come. With stimulus money running dry, reality of rent and payroll will soon hit many employers. It will be a tough road ahead for many.
Although today is a slow day for scheduled economic reports, we have important data coming out as the week progresses. Tomorrow we will get a look at the most recent Retail Sales numbers. Given that foot traffic at most stores and malls is well below historic levels, I can’t imagine that this report will show much to excite the markets. Further, Fed Chairman Jerome Powell will be speaking to both the House and Senate this week, which could add additional volatility to the markets. Given that he seems committed to providing whatever support is needed, we can expect the flow of money to continue.
Mortgage bonds remain near the top of a trading channel. Unless bond prices are able to make a break above the ceiling, we will maintain a locking bias.