18 Feb Safe play may be to lock
The stock market appears to be stalling, unable to break above the overhead resistance of 1935 on the S&P 500 that we identified in yesterday’s market update. This comes right at the same time the bond market hit a floor of support holding prices from falling lower. This is a good sign for mortgage interest rates, which have moved higher by nearly .25% in the recent trading days. The correction lower could prove to be a healthy move for the bond market, which could now build the strength needed to make another run higher. The outcome will likely fall on the stock market. If stocks continue to fall from here, mortgage interest rates could be the beneficiary.
James Bullard, a current voting member on the Federal Reserve, was speaking last night in St. Louis about the current state of the US economy. He said that it would be unwise to raise interest rates in an environment of declining inflation expectations. Since James is considered to be one of the more “hawkish” voting members of the Fed, this is a really clear sign that they will be in a holding pattern and not raising rates anytime soon.
Initial Jobless Claims for last week were reported this morning to be 262,000. This was stronger than the 269,000 anticipated by the market, and represents a drop of 7,000 from the previous week. Most importantly, it was the “sample” week used in the ADP and BLS Employment estimates. Given that this was the strongest number reported in the past three months, this will influence a more robust month of new hires for the month of February.
Although bond prices are currently stable, it’s too early to say if we will see improvement in the near future. You can float as long as we remain above current support. However, if you aren’t able to watch the markets closely, the safe play will be to have a locking bias.