Mortgage Rates Have a Big Day

Mortgage rates enjoyed another strong day, falling to the best levels in nearly two weeks.  Once again the Fed has gotten it wrong, so too have the markets and those green eye-shaded economists. The GDP figures were so far off, that it took a while for the report to sink in. 

I started to change my tune a little yesterday as I have been too conservative – as this market has me jittery, and I have a high risk tolerance.  Those who floated all week reaped some nice gains and profits from trading. US stock indexes were generally unchanged, although the action this week looked heavy. Stocks like the idea that the GDP report will keep the Fed from increasing interest rates in September and it is not out of expectations no rate cuts this year.

No matter the spin from the FOMC I saw on Wednesday, the economy is weak. Housing holding on and re-finances are going to pick up again after tailing down 15% the prior week according to MBA. Oil prices according to the Fed kept inflation from increasing but crude since the first of June have fallen almost 20%.

Next week is employment week. Between now and next Friday a lot of key data. Monday July ISM manufacturing index, June construction spending, Gallup consumer spending. Tuesday July auto and truck sales. June personal income and spending. Wednesday July ADP private jobs, ISM July services sector index, weekly crude oil inventories. Thursday weekly claims (no longer a factor), July factory orders. Friday July employment stats, June consumer credit. The only bright spot in today’s Q2 GDP was strong consumer spending, next week there a couple of reports that will confirm or refute the Commerce Depts. data.

The 10yr is at 1.46%. Interest rates are going to decline more, the path may be choppy and its dependent on when the equity markets finally capitulate as we expect. Stocks can move higher as long as companies continue to buy back their stocks and increase dividends but when it all runs its course the selling will be deep and swift. I will not predict a time though, stocks repeatedly over the years have managed to defy reality longer than I expected. What I will say though is I expect the indexes to fall before the end of this year, that’s as far as I will go. Equities are built on sand now. August usually is not a good month for equities and is swept under the mat, blamed on end of summer and back to school -just like Q1 always gets an initial pass because of weather, not this time though.

In summary, next week brings important economic data, including the big jobs report on Friday.  The overall tone of that data should help determine whether rates will continue building on the past 2 days of positive momentum.  The conservative approach would be to lock in the gains with rates at 2-week lows.  The aggressive approach would be to wait until we have clear evidence AGAINST the possibility that a new trend toward lower rates has begun.  As of today, there is no such evidence, but it could come at any time.