17 Oct Until bonds stabilize, we will stick to a locking bias
The stock market is roaring back, with the S&P 500 now sitting just beneath its 200 day moving average. The regained strength in stocks has taken its toll on the bond market, pushing mortgage rates .125% higher in the past couple of days. Also, the 10 Year Treasury Note yield has once again moved above the 2.2% level, and will now have to contend with this support level once again. However, the stock market is technically still within its downward channel, so stocks are not yet out of the water. If they can continue to climb higher and are able to break above the channel, then it may be that they found their bottom on Wednesday. With QE3 slated to end at the end of this month, this rise in the stock market may be just a head fake in an overall downward cycle. We will have to see how the market continues to react to the end of an unprecedented Fed intervention. However, there is now talk from Fed members that there is discussion about continuing QE3. In fact, it was just after that news was released that the stock market regained its footing.
Consumer Sentiment continues to be strong, with October’s reading coming in at 86.4. This was the highest number reported since July of 2007, and better than the 84.4 expected. It will be interesting to see how next month’s reporting. That will take into account the recent days of major stock market volatility. That could very well make consumers feel less confident about their personal economics, as they have watched their stock investments lose nearly 10% of their value within a matter of days. For many, the historic rise in the stock market has allowed many to retire, as their personal net worth moved higher as the markets advanced. When the markets lose value, the baby boomer generation becomes less secure in their futures.
Mortgage bonds have fallen sharply since their highs of Wednesday. We have had a locking bias since Wednesday and will continue with that until bonds stabilize. The excessive volatility has made it difficult for many to know whether to lock or float. However, as we say around here, “It is better to be locked and wish you were floating than to be floating and wish you were locked.”