06 Jan Risky to float
After finishing an exceptional day yesterday where bonds climbed all the way to the top of their trading channel, they were unable to break above a significant level of overhead resistance and were quickly forced down to the bottom of the channel. Although this move came despite a weak Bureau of Labor Statistics (BLS) Jobs Report, it was expected. It is an exception, not a rule, when bonds break out of a trading pattern or above a ceiling of resistance. As long as they don’t fall beneath the bottom of the upward channel, this is a healthy move lower. It wouldn’t come as a surprise to see bonds climb their way back towards the top. Whether that happens depends greatly upon the stock market. If stocks take off higher, we could see bonds fall even lower. But with strong support not too far beneath current levels, the potential for heavy damage isn’t great.
The 156,000 new hires in the month of December, as reported by the BLS, was disappointingly beneath the 175,000 anticipated by the markets. Since our economy loses a higher number of workers each month due to entitlements, retirement and people no longer wanting to work, this represents a net loss to our economy. Job growth was a major platform on which incoming President Trump caught his campaign. It will be interesting to see how his plans to create new jobs pans out. Since many of his new jobs will be based on government spending to help grow the economy (while also increasing the US deficit), the ongoing productivity created will be a heavy influence in the outcome. If the jobs are only creating work while the project is underway, they will also go away when the project is complete. Such would likely be the case for building a wall at the US/Mexican border or freeway reconstruction.
The Dow is currently making a run towards the 20,000 mark, which could temporarily hurt the bond market. For those who are risk adverse, locking is the safe play. For those wanting to take the risks associated with floating, watch the markets closely and be prepared to lock should bonds fall beneath support.