08 Feb Stocks and Bonds Continue to Struggle
The bond market continues to fall, with mortgage interest rates setting new multi-year highs this morning. The “dead cat bounce” we talked about in yesterday’s market update could be in play in the stock market. Yesterday’s climb higher came to a halt as volatility increased and the stock market once again closed lower. It tried to regain its footing in pre-market trading, but fell hard shortly after the opening bell. Stocks are falling under pressure of the fear of inflation, which is also the reason mortgage interest rates are climbing higher. With wage advancing, we can expect to see things get worse before they get better.
Yesterday’s bond auction was met with weak demand. The reality of higher interest rates is still not sufficient to attract new bond investors, which further panicked the markets. This sets the stage for rates to be forced even higher to seek the funds needed to maintain sufficient borrowed money to keep the government funded. With the U.S. government now borrowing at record high levels, the supply of bonds continue to flood the market. There must be an equilibrium found where investors are willing to step in and buy. Look for a 3.04% yield on the 10-Year Treasury Note. We believe this will be achieved in the near term. If that yield fails to hold and rates move above that level, things could get much worse.
We have been in a steep downward trend since the end of December. With no end to this in sight, we will maintain our locking bias.