The correction in the mortgage bond market continues once again this morning, with bond prices starting the day slightly lower. This move lower is strongly based on the technical outlook and has little to do with the overall reality of the U.S. economy. With stock prices once again within 2% of setting new all-time high records, is seems investors are ignoring a slowing labor market, trade issues with China, a slowing GDP, slowing consumer spending and on and on…. Although I do see stocks continuing to climb, and likely setting new all-time high records, I see the market softening in the months to come. I don’t think we will see the same level of growth we have had in recent years.
In a big reversal from what Merrill Lynch predicted just a couple of months ago, they recently announced that they now see three rate cuts coming. It was in early 2019 when they predicted 4 rate hikes. This was at a time when the Fed was only predicting three. That is a major change in the views of their economists. It’s nice to see others coming around to the same view we have been sharing since mid-2018. With so many now seeing lower rates, that will help sway investors to make it happen. Although rates may be in a short term move higher, I certainly see lower rates as we head into 2020.
In the short term, I will maintain a locking bias.