Waiting on Job Data

Stocks are climbing higher once again, setting new all-time high records. The strength of the stock market seems to directly correlate with the size of the Federal Reserve’s balance sheet, which has been climbing higher as well. As the Fed injects money into short term T-Bills, this is acting as a tailwind to help keep stock prices higher. However, the current path of Fed investments is set to end in March. Will this cause a pull back in the stock market?  I believe that if the Fed does not extend the current plan, we will see stocks pull back. Many believe that the Fed will have no choice but to extend the current form of “Quantitative Easing” without causing a major disruption in the overnight lending market.  This will be an important story to follow, as it will certainly impact the path of mortgage interest rates in the longer term.

Tomorrow is the Bureau of Labor Statistics’ (BLS) report that will show the estimates for new job creations in the month of December. Given that the ADP estimate was well above the market’s expectations, there is great risk for a strong headline number. Since a strong headline number would not be a welcomed sign to the mortgage bond market, we would see upward pressure on interest rates if job creation numbers are high. The deeper question will be the types of jobs created. However, that is less important to a world that seems to value the number of jobs created over the types of jobs. We need to see more higher paid jobs vs the lower pay offered through retail and customer service positions.

Given the ongoing strength of the stock market, we will maintain a locking bias.