Yesterday was a crazy day in the markets, with both stocks and bonds swinging wildly. Stocks got hammered early in the trading day, only to regain almost all of their losses by the close of the markets. This initially sent mortgage bonds soring. However, bonds gave back most all of their gains as the stock market came roaring back. Once again, the volatility in the market is ultimately not a good sign for the stock market. Wide swings in stock prices are often a sign of a bear market or a stock correction. With the S&P 500 falling more than 8% in the past month, they are already nearing the point of a 10-15% correction that we have anticipated. With room to still fall further, stocks are still in a precarious position. The downward channel is still strongly in force. Until stocks are able to break out of the channel, it is assumed they will continue to fall. However, there will still be days where stocks make gains along the way. A correction is almost never a straight line.
The job market continues to impress, with new Unemployment Claims reported at their lowest level in years. For the week ending 10/11/14, claims were only 264,000, which is 23,000 below last week’s level. This was well below the 290,000 expected, and a sharp decline from where claims have been averaging. This is encouraging news for the job market, which is now the shiny star in our economic recovery.
The housing market, on the other hand, continues to disappoint, with the Housing Market Index for October reported at only 54. This is well below the 59 expected, and also below the 59 reading from last month. As the economy has improved, housing has lagged. Since housing typically leads an economic recovery, it leaves many wondering why there is a continued drag on housing market. However, it is clear that many people were harmed in the housing market downturn and are still unable to qualify to become homeowners once again. As time goes on, this segment of the market will become eligible which should help boost home purchases.
Bonds hit a resistance yesterday that proved to be very difficult to break through. The 10 Year Treasury will struggle breaking beneath the 2.0% yield. It will likely take some time before they are able to challenge these levels once again. With extraordinary volatility in the market, we are going to maintain our locking bias. The Fed is out speaking trying to prevent further damage in the stock market. So far, their words have at least softened the blow. We will take a safe approach until we can see where the direction will lead us.