25 Oct Stocks on the Mend
After getting hammered yesterday, stocks are trying to recover their losses in early morning trading. Currently, stocks have recovered approximately ½ of the total losses from yesterday and are still climbing higher. The past three weeks have been rough for stock investors, with all of 2018 gains being lost by end of trading yesterday. However, I still feel as if we will see a significant recovery in the stock market in the days to come. If I am wrong, which I am often 😊, that would be great news for mortgage bonds. When stocks get back to their 200-day moving average, the key to the longer-term outlook will depend upon whether they are able to get above this critical level. If they succeed, look for upward pressure on mortgage interest rates.
President Trump continues his outspoken rhetoric against Fed Chairman Jerome Powell for his determination to continue hiking short term interest rates. Trump believes the higher rates will force the US into a recession. To me, a recession is imminent. Rapidly increasing rates will contribute to making that happen sooner. However, without the rate hikes, the pro-growth policies of the Trump administration will lead to damaging levels of inflation that would be significantly more hurtful to the United States in the long run. Further, with the Federal Reserve dramatically reducing their purchases of US debt, now is a terrible time to have policies that push the deficit levels into the highest levels in US history (fueled by tax cuts). That will push market driven interest rates, such as mortgage rates, higher regardless of what the Fed does.
Stocks continue to climb higher, so we will maintain our locking bias.