28 Mar Stock Volatility Continues
Huge swings continue in the stock market, and yesterday was no exception. After opening the day strong, stocks fell sharply as the trading day wore on. They fell all the way down to near their 200 day moving average. As has been the trend as of late, this critical level once again held. Stocks are again showing volatility this morning, and continue to show signs of vulnerability. If there is economic news that scares the market and drives stock values beneath their 200 DMA, we would then expect to see a more rapid fall in stock prices. That would essentially break a very long term trend of stocks climbing higher. However, since breakouts are the exception and not the rule, we can assume stocks will gain steam and bounce off this level. That could add a headwind to further improvements to mortgage interest rates in the near term.
The final 4th quarter GDP numbers were released this morning, coming in much higher than expected. The release showed a final growth rate of 2.9%, which was well above the most recent estimates of 2.5%. Given that we had strong holiday shopping figures within that report, that number seems reasonable. Further, tax rates were announced during that time, which likely spurred many to make purchases as a show of confidence in the amount they will save each month. Whether or not this strong trend continues remains to be seen. I can tell you that I hear of many small business owners who are cautiously optimistic, but not yet willing to make significant purchases. (Speaking for a friend of course.)
Mortgage bonds are right now above their 25 day moving average. If they are able to maintain this position, that will be a very strong sign. If you have access to watch the charts closely, you may choose to float to see what happens. However, the safe play remains to lock.