Watch the markets closely

The headline Durable Goods Orders for July was reported at 22.6%.  This was much higher than the anticipated 5.1%.  However, a deeper look into the report shows that the reason for the huge surge was due to a large order for aircrafts.  Without transportation, orders were -0.8%.  June’s New Order’s number was revised from 0.7% up to 2.7%.  Without transportation, it was also revised higher, from 0.8% up to 3.0%.

Yesterday, the S&P 500 set a new record of crossing the 2000 point for the first time in history.  Although the market failed to close above this level, it was still a great accomplishment, and could clear the path for a closing above this level sometime in the very near future.  Markets are fickle.  They oftentimes need to test waters a few times before fully jumping in.  This could be an example of stocks making the first move into a realm that will soon be a new norm.  Although the bond market clearly believes the stock market is over-valued, stock investors are not paying attention to the naysayers who believe stocks will very soon be facing a correction of at least 10%.  We will have to wait and see what happens.  However, we feel the risk of a correction is high, and at this point would be a healthy move for the long-term health of all markets.

Following a flat day in the bond market yesterday, bond prices are starting the day slightly positive.  Although the direction of stocks will heavily influence the direction of mortgage bonds, for the moment we are above support and looking good.  Further, the yield on the 10 Year Treasury Note is down, and challenging a floor of support.  Should yields on the 10 Year break below this point, that will help push bond prices up and lower rates on mortgage loans as well.  In light of this, we are going to begin the day with a cautiously floating bias as we watch and see what happens.  However, sentiment can change quickly.  If you choose to float, don’t step too far from the locking trigger and watch the markets closely.  The volatility in the markets lately has been high.