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Market Analysis 2.20.26

Good Friday morning from your Hometown Lender,

Today’s Market Analysis – The big news just out and it is not that GDP came in at half what was expected at 1.5% (the government shutdown was the culprit but none the less, that is the number), that PCE, the Fed’s favorite inflation gauge came in marginally higher than expected, or that Consumer sentiment rose less than expected and was the lowest reading in a year, it is that the Supreme Court has struck down President Trump’s tariffs. The markets are hitting the pause button as they try to digest/dissect what this will mean.

Bonds are hanging tough and not selling, but I think this is the opportunity to lock. The selling will pick up. I cannot think of a way that this news helps bonds and rates. If the government must pay back 300B in collected tariffs (and today’s Supreme Court decision did not cover repayment), where does that money come from? Even if the government doesn’t have to pay it back, losing future tariff revenue leaves a big hole to make up. How do we do that? Issuing more government bonds?

Despite theoretically lower future prices as a result of lower tariffs (and I say theoretically because as we saw during covid, when companies were able to raise prices due to scarcity, they did not roll them back after the pandemic was over), floating more debt to pay back collected tariffs and/or to pay for the country’s negative cash flow, will more than offset any improvement in prices (again, which I don’t expect we will see).

Maybe we get though the weeds and come out neutral, but the Fed is not cutting anytime soon and if the stock markets look at this decision as generating more profits for companies, bonds will lose ground.

More on this as we get further along.

Market Analysis – From a better vantage point:

Market Analysis – Quick Snapshot

  • 10-year Treasury: ~4.08% (hanging around the low-4s).
  • Fed funds rate: 3.50%–3.75% (Fed still in “pause and judge” mode).
  • Inflation (latest CPI — Jan 2026):
    • Headline: +2.4% YoY, +0.2% MoM (SA)
    • Core: +2.5% YoY, +0.3% MoM (SA)
  • Mortgage rates (national ballpark):
    • 30-yr fixed: 6.01% (Freddie Mac weekly)
    • 15-yr fixed: 5.35%
  • Housing (national pulse): Existing sales 3.91M SAAR, inventory 1.22M (3.7 months supply).
  • Big headline risk driver today: Supreme Court struck down broad “Trump tariffs” (IEEPA authority), with refund exposure estimated >$175B in some analyses.

1) Market Analysis – What Hit This Morning (CPI)

No fresh CPI print this morning, but two inflation/trade items mattered for rates today:

  • The most recent CPI (Jan 2026) cooled vs Dec on headline YoY: 2.4% vs 2.7% prior; core YoY 2.5%.
  • Core PCE (Fed’s preferred inflation gauge) ran hot in Dec (per GDP package): core PCE +0.4% MoM, ~3.0% YoY.
  • Supreme Court tariff decision: Markets mostly treated it as “known-ish,” with stocks up modestly and bond yields not doing cartwheels.

Narrative you can use:
“Inflation is lower than last year, but it’s not ‘mission accomplished.’ The big new wrinkle is trade policy: knocking out broad tariffs can be mildly disinflationary for goods, but services inflation still drives the Fed’s mood.”

2) Fed Watch

  • Fed funds remains 3.50%–3.75%.
  • The market story right now: cuts are possible later in 2026, but sticky inflation prints (especially core PCE) can push timing out.

3) Market Analysis – Where Mortgage Rates Actually Are

  • Freddie Mac PMMS: 6.01% average for 30-yr fixed (lowest since Sept 2022, per reporting), 5.35% for 15-yr.
  • Rates are staying range-bound because the 10-year Treasury ~4.08% is range-bound.
  • Translation: lenders can’t “hero discount” mortgages into the 5s consistently unless bonds cooperate for more than a day.

4) Housing Market Check

  • Existing-home sales (Jan): 3.91M SAAR (down 8.4% MoM).
  • Inventory: 1.22M units, about 3.7 months supply.
  • Pending sales (Jan): -0.8% MoM (a decent “next-30-to-60-days” leading indicator).

Read: Demand is still rate-sensitive, inventory is not flooding, and prices are more “resilient” than “ripping.”

5) Political Backdrop & Fed Independence

Supreme Court tariff decision — why markets care

The Court struck down broad tariffs tied to IEEPA authority (the big legal question: can a president impose sweeping tariffs under that statute).

Market channels that matter:

  • Inflation channel (bond-friendly): Fewer/broader tariffs → potentially less goods-price pressure at the margin (helps inflation expectations, helps rates).
  • Uncertainty channel (risk-friendly): Reducing “policy surprise” can support equities/credit—until new tariff mechanisms get attempted.
  • Fiscal/cash channel (watch but don’t panic): If refunds become real, it’s a Treasury cash-management story more than an “immediate mortgage-rate” story—unless it changes expectations for deficits/issuance.

Key nuance: Today’s ruling can lower one inflation risk, but it can also trigger round two (more targeted tariffs under different legal authority). Markets will price the path, not just the headline.

6) Market Analysis – What This All Means for Rates Going Forward (three-scenario grid)

ScenarioWhat happens nextRate implication
1) Disinflation winsCPI stays ~2–2.5% range, goods inflation cools, growth stays “okay-ish.” Tariff removal reduces some inflation premium.10y drifts lower, mortgage rates trend toward high-5s/low-6s seasonally
2) Sideways chop (base case)Inflation progress is uneven (core PCE prints keep Fed cautious), housing demand improves only gradually.Mortgage rates hover in the low-6s, with short “5-handle teases”
3) Inflation flare-up / policy whiplashTariffs return via other routes, energy/commodities pop, or core inflation re-accelerates.10y backs up, mortgage rates re-test mid-6s+

7) Practical Takeaways

  • The spring setup is improving: lower mortgage rates + modestly better supply = more transactions, even if it’s not a boom.
  • Tariff decision is mildly rate-positive—until it isn’t: today’s ruling reduces one inflation tail risk, but the next policy move matters more than the court headline.
  • Use “payment math” to win clients: in a low-6s world, small rate moves still matter a lot to monthly payment psychology.

8) Lock vs Float

Longer timelines (45+ days): float with a plan (clear trigger points) if the borrower can tolerate volatility—because a friendly CPI/PCE run could finally push sustained “5-handle” opportunities.

Purchases closing soon (≤15–30 days): I lean lock—rates are better, but still jumpy around inflation headlines and policy surprises.

Stay safe and make today great!