The strength of the labor market continues to build, with the weekly rate of Unemployment Claims once again coming in at a nearly 50 year low. This means that fewer companies are laying off. As I have mentioned in many previous updates, this is both a good and a bad sign. It’s very good for the near-term labor market outlook but could spell trouble for the longer-term outlook. Since each time the labor market reaches is highest point in an economic cycle it is immediately followed by a recession, this is likely a sign that a recession is just around the corner. However, many of the top economists use the strength of the labor market as a reason we won’t be experiencing a recession; it’s difficult for most to understand that the strong possibility of a recession is real.
The stock market closed out yesterday showing a negative technical pattern, which could indicate that the rise in stock prices is ready to take a break. This would be good news for mortgage interest rates, which generally benefit when stock prices head lower. However, stock prices are pointing higher in premarket trading, which could just be a head-fake. We will have to see where stocks head in the days to come. If they continue to climb towards all-time high levels, that would be bad news for mortgage interest rates.
Although I remain hopeful that bond prices will maintain above their 50-day moving average, it’s too early to make that prediction. The safe play remains to have a locking bias.