27 Aug Still to risky to float, locking bias
Although by only .02 points, the S&P 500 closed above the 2000 point for the first time in history, with the final closing bell at 2000.02. The psychological barrier of crossing 2000 is an important milestone, and reminds us of just how much the stock market has increased since the low point of the recession in March of 2009. Since this time, the S&P 500 has increased 195%, moving from 676 up to 2000. This is also a reminder of how investors in the stock market tend to sell their holdings when values are low (as many converted their stocks into cash back in 2009), and buy when values are high (as we are clearly seeing now). As we all know, the key to making money is to buy low and sell high. Unfortunately, when values hit these over-inflated numbers, greed sets in for many and buyers keep pouring money in when the risk of a correction is high.
The Mortgage Bankers Association released their Mortgage Application Data for the week, and it showed an increase of 3% in purchase applications. This s a strong number, and a welcome sign to a housing market that has struggled to keep up with expectations. On a year over year basis, the market is now only 11% shy of where activity was a year ago. This gap is shrinking, and will likely continue to shrink as time goes on. Although not as strong as it was in early 2013, the decline in housing market activity is lessening. The stabilizing in the number of homes being sold is also being fueled by potential homeowners who faced a short sell or foreclosure three years ago and are now stepping back in to become homeowners once again.
Mortgage bonds stabilized above an important floor of support for two days now, and are attempting to make another run higher. Bonds are near the highs of the past 14 months, and are in a position to challenge their best levels in this time frame. This is a point of high risk in floating, so we are going to take the conservative approach and suggest a locking bias. Since bonds have failed each of the times they have approached this level since June of 2013, there is a strong likelihood it will happen again. However, if bonds do muster the strength to move higher, they will likely need some help in the form of weakness in the stock market. That is one ingredient that could help boost bond prices and push interest rates lower.