19 May Stock Market Rally Stalls
Both mortgage bonds and stocks are relatively flat in early morning trading. Stocks had a wild ride yesterday, with the Dow Jones advancing nearly 1,000 points. This significant move higher was fueled by hopes of a vaccine that has so far has encouraging results. Once a vaccine is truly proven to work and has FDA approval, we can expect to see stocks rally. However, I expect this to be a much longer process that many are anticipating. The testing process alone will take a while. If investors see this, and hopes for a imminent vaccine subside, stocks will lose some of their gains. Given the severity of this dire situation, I would be reluctant to take much risk in the equity markets. However, only time will tell what the best move should have been.
Fed Chairman Jerome Powell will be speaking in front of the Senate today. We expect his prepared speech to reiterate what he has already been saying regarding the Fed’s ability to help stimulate the economy. They have already committed to take whatever steps are necessary to help soften the blow. However, the US Treasury will not be able to directly replace the income many workers are losing, or save many of the companies that are on the verge of bankruptcy. The Fed can, however, continue to print money and inflate their balance sheet by purchasing debt and equity in the open markets. This should keep mortgage rates low for a very long time.
We will maintain a locking bias.