05 Sep North Korea Sparks Fear. Oh, and Detonates a Nuke….
North Korea reportedly successfully completed its first nuclear test since President Trump took office. The latest military provocation from the rogue regime intensified the battle between the USA and North Korea. Given that China is the only real supporting friend to the dangerous leader Kim Jung-un, the US is likely to threaten trade restrictions against China if they continue to transact business with North Korea. Up to this point, the US stock market has turned a blind eye to the threat of US military action against a country who has proven a strong desire to wipe us off the map. However, as some point it seems likely that President Trump will act. If that happens, we anticipate a selloff in the stock market and a flight to quality into the bond market. That would help support the low levels of interest rates we have had, and could be the catalyst to help bonds improve beyond levels not seen since November of last year.
With mortgage bonds now at their highest price since early last November, we are at a critical point in the market. If bonds can make a break above these levels, we could see mortgage interest rates improve to pre-election levels. Given the current point within the economic cycle we are now in, mortgage interest rates could hold lower levels than almost any economic forecaster predicts. It has been way too long since we have experienced a significant decline in the US stock market. In fact, it has reached a point of near insanity that the market has climbed as high as it has. I feel the Fed is going to start to reconsider future increases in the short-term rates as well. It could be an interesting couple of months ahead.
Although there is no reason to immediately rush to lock, realize that rates have not been better than current levels since early last November. It means we will likely see rates deteriorate in the near term. Although the stock market is fearing North Korea today, stock investors have a very short memory. We could easily see stocks rebound tomorrow or later in the week, the safe play is to lock. However, if you can carefully watch the markets, you can float and see what happens.