Mortgage Rates Increase During Yellen's Speech

Huge moves in the stock indexes yesterday - the DJIA, NASDAQ, S&P and the Russell 2000 indexes all made new all-time highs as the rally continues almost unabated. Investors piling into stocks in the US and globally after Trump’s election and his pledges for lower taxes, fiscal spending, and cutting red tape laid on financial markets by Barney Frank and Chris Dodd (Dodd/Frank). Side bar - has anyone heard a word from Chis Dodd after the legislation? Barney hasn’t shied away from the knee jerk reaction to the financial crisis.

Early this morning the NFIB released its small business optimism index for January which came in better than anticipated, which is another positive for economic outlook. This is the highest level since December 2004 and surprisingly holding on to the outsized gains registered in the prior two months. After the index surged in December, the largest increase in the survey's history, and a sharp increase in November, most analysts were expecting a moderate pullback.  This was not the case.

January PPI came in also better than anticipated as reported inflation is hot.  Oil prices are having an impact on PPI. The initial reaction to the higher wholesale prices was muted with not much change in stock futures or the bond market.

Today’s main event is/was Janet Yellen at the Senate Banking Committee. Yellen faces more uncertainty than what the equity market is believing now - no real conviction about the economy and still not satisfied with inflation levels.

The Fed has missed most every assessment going back to 2012 when the Fed was “sure” interest rates would begin to increase in 2014 but no cigar.  Rates stayed low, the economy stumbled along keeping the Fed from moving rates up until December 2015 and then December 2016. Yellen and the Fed in a tight spot - after saying there would be three increases this year and using the word gradual to emphasize the speed. Not likely we will see three unless the FOMC moves in March and that is not likely because as I noted yesterday, the Fed will not move until the market believes it will. Still there are a few that worry Yellen will drop a bomb today - and I believe she did which was not anticipated. 

I have yet to get any further details on what has been actually stated, but there were some hawkish comments that have spooked the markets.  She has yet to complete her speech, but right now at 11:00AM, the market is not looking too good – and we have already seen one price change this morning for the worse.