Missile Attack Shrugged Off by Stock Market

Shortly after more than 100 cruise missiles smashed into Syria, President Bashar al-Assad showed his resilience to the attack by walking confidently through the gates of his palace.  The attack, which was from the combined efforts of the U.S., Brittan and France, destroyed military positions and research facilities linked to chemical weapons.  With Russia, Iran and Hezbollah supporting Syria, the risk of retaliation against the United State is certainly something to consider.  However, U.S. investors feel the chances are slim, at least at the current moment.  Considering that Russia said there will be “consequences” for the attack, investor optimism may be pre-mature.  I expect this to be an ongoing issue that will add to stock and bond volatility as the days and weeks move on.

As we would expect, after hitting the top of the trading range several days ago, mortgage bonds have worked their way to the bottom of the channel.  This will likely be the point at which bonds bounce higher and regain some of their losses.  This tight trading range has been in place for several weeks and has held mortgage interest rates somewhat steady for the time.  If stocks continue to rally higher, we could see bond prices break beneath their floor of support, driving mortgage interest rates higher in the process.  Since breakouts are rare, we anticipate more of the same in the near term.

With bonds trading in such a tight range, there is more risk to the downside than hope of rates significantly improving.  As a result, we will maintain our locking bias.