16 Nov The Path to the Next Recession
Stocks are still lacking the strength to break above their 25-day moving average, which is currently helping improve mortgage bonds. Even if stocks eventually break above this level, they will have the 200 DMA to contend with almost immediately afterwards. The more time stocks spend beneath this critical level, the weaker stocks will become and the more volatility we can expect to see. With many now coming to the realization that we are within a year or two of being in a recession, we can expect to see less enthusiasm over the current economy and more of a cautious approach to help set up for the economy we are heading into.
One of the most fascinating realities of the current economy is that the Fed is committed to continuing their path of gradual rate hikes despite the fear of a recession. With the U.S. economy now having 37 quarters of economic expansion, which is nearing the longest run in history, even the Fed knows that their approach is expediting the path to a recession. However, they want to be in a position of being able to use rate drops to help spur the markets when the time comes. This means they need to adjust rates higher in order to have enough fire power to positively impact the markets. So as the yield curve begins to invert, just know that lower rates will eventually follow. Therefore, consider a no-cost mortgage so you can take advantage of future opportunities when they arise.
If stocks remain beneath their 200 DMA, you can cautiously float. If they reverse, consider securing a rate.