21 Nov Risk to float is high..
US stocks opened up the markets at record highs once again this morning. With the number of record highs reached this year, this statement is starting to sound like a broken record. The DOW Jones Industrial Average is not far beneath the 18000 level. When you consider that it crossed the 17000 mark just this last July, the growth rate has been phenomenal in the past few months. To put the growth rate from the low of our recent economic crash into perspective, in March of 2009 the DOW was at 6627. That is about 37% of the current index. In spite of the strength of the stock market, mortgage bonds have held their ground well the past five weeks, with interest rates still near the lows of 2014.
In an act similar to the US with Quantitative Easing, European Central Banks also announced they will buy up to $1 trillion Euros of Asset Backed Securities. This has sent our stock market soaring on the news, as the US market received a lot of the money that soon after flowed out of the European markets and into the US markets. Bonds also benefited, as it make US rates of return more attractive relative to their foreign counterparts. This sent the dollar higher, which also helps bring down commodity prices such as oil. That will further help us at the gas pump where gas prices have already dropped significantly. In addition, China announced that they are cutting their interest rates to help stimulate growth. This also is pushing money into the US markets. Overall, both these moves are positive for our economy and will also serve to help support our investment markets.
Mortgage bonds have maintained above support levels. However, they are still at the top of a trading range which makes the risk of floating high. The stock market strength could begin to pressure mortgage rates as people look to move their money into higher yielding assets. If you choose to float, watch the markets closely. Although bonds are higher at the moment, sentiment can reverse quickly.