The Labor Market Flexes Its Muscle

The Labor Market Flexes Its Muscle

The strength of the labor market continues to build, with the weekly rate of Unemployment Claims once again coming in at a nearly 50 year low. This means that fewer companies are laying off. As I have mentioned in many previous updates, this is both a good and a bad sign. It’s very good for the near-term labor market outlook but could spell trouble for the longer-term outlook. Since each time the labor market reaches is highest point in an economic cycle it is immediately followed by a recession, this is likely a sign that a recession is just around the corner. However, many of the top economists use the strength of the labor market as a reason we won’t be experiencing a recession; it’s difficult for most to understand that the strong possibility of a recession is real.

 

The stock market closed out yesterday showing a negative technical pattern, which could indicate that the rise in stock prices is ready to take a break. This would be good news for mortgage interest rates, which generally benefit when stock prices head lower. However, stock prices are pointing higher in premarket trading, which could just be a head-fake. We will have to see where stocks head in the days to come. If they continue to climb towards all-time high levels, that would be bad news for mortgage interest rates.

 

Although I remain hopeful that bond prices will maintain above their 50-day moving average, it’s too early to make that prediction. The safe play remains to have a locking bias.