Stock Market Softening?

Stocks are softening in early market trading. Stocks are in a clear over-bought state, which a forward indicator of weakness and lower stock prices coming soon. The stock move higher was very much a technical one, which seems to be coming to an end. There was very little real news that would justify the strength we had in the market. If stocks do pull back, we can expect to see bond prices strengthen, which will put downward pressure on mortgage interest rates. Since the bond market never moves in a straight line, we will likely see volatility continue at an elevated pace. As stocks move higher, rates will also follow higher. And of course, the opposite is also true.

The Consumer Price Index (CPI) report for the month of May was released this morning. Once again, this showed that inflation is continuing to slow. On a month-to-month bases, inflation increased by just 0.1%. This is not a healthy pace of inflation and shows an underlying weakness in the U.S. economy. On an annual basis, consumer inflation decreased from 2.1% down to 2%. As inflation slows, we can expect to hear talk of a Federal Reserve interest rate cut intensify. I certainly see rate cuts in the future, which should also help soften mortgage rates through the next year or more.

Mortgage bonds are range-bound. We will likely see relative stability today, as investors look for reasons to buy.