Stocks Making a Come-Back

Stocks Making a Come-Back

 

Stocks are moving higher this morning.  After hitting their 200-day moving average on Friday, they have bounced back and are now even above their 100-day moving average.  It could be that the stock market found a bottom in this correction cycle.  If so, they now need to break out of the strong downward channel for this to be confirmed.  That would be a strong sign for stocks and could give them the strength to continue to climb higher.  However, this could also be a head-fake that could lead to stocks again falling lower.  In this wild market, anything is possible.

 

Mortgage bonds have again fallen, as interest rates hit multi-year highs once more.  In addition to the volatility in the stock market contributing to higher mortgage rates, we are also facing a significant supply and demand issue.  In 2018, the Fed is scheduled to buy $168 billion less of mortgage bonds than they did in 2017.  In addition, the U.S. government plans to increase deficit spending by 84% over last year.  The way they finance such deficit is through issuing Treasuries or Bonds as debt.  With fewer buyers in the market and more supply, the natural path is for interest rates to move high enough to bring more buyers into the market.  This will continue to pressure mortgage interest rates higher as time goes on.

 

Until bonds can gain the strength to break out of this steep downward trading channel, we will maintain our locking bias.