Stocks Rocket Higher

Stocks are coming back strong following President Trump’s announcement that he will delay the recently announced 10% tariff against all remaining goods being imported from China until December 15^th. The back and forth rhetoric surrounding this topic is nearly laughable at this point. The change of tone between the US and China are causing many people to either make or lose massive money, depending upon whether they can predict the next Tweets from the President. Boy, if you had insight to what messages he will be Tweeting, you could make billions. Now that has my conspiracy theorist mind rolling….

Merrill Lynch economists have updated their outlook and are now predicting a 20% chance of a recession in the next 12 months. Further, they now see two more ¼% rate cuts in 2019. This is a big change from their projection last December of 3 rate hikes in 2019. Although I still believe they are underestimating the odds of a recession, their new outlook for continued Fed rate cuts is now in line with what I believe is a more realistic prediction.

Invested yield curves continue to be a strong topic of economic discussion, with the spread between the 2- and 10-Year Notes coming within two basis points of each other. It seems imminent that the two-year yield will eventually surpass those offered on the longer term 10 Year Note, which is a strong predictor of a recession. We will continue to watch this spread and keep you updated.

Mortgage bonds remain trapped within the downward trading channel. However, as predicted in yesterday’s report, bonds have now hit the bottom of the trading channel. This provides an opportunity for bonds to improve in the days to come. There remains great risk in floating. However, bonds could bounce higher in the near-term.  If you choose to float, do so carefully.