Good Friday AM,
No data on the calendar today has stocks continuing to sell off and is giving bonds a floor to work from. We will take it, as we have erased most of this week’s losses so far. Next week is likely to be volatile with the Fed meeting concluding Wednesday. Markets are already prepared for some hawkish remarks. If Mr. Powell were to be even more concerned about inflation, we could see rates tank. I am thinking that in light of the recent spate of weak data, Mr. Powell may be more dovish than expected. If so, that could give bonds at least a temporary lift.
Loved this more articulate piece from Dan Rawitch this AM:
Sweet gap up on MBS prices, matching a sweet gap down in treasury yields. There are rumors beginning to circulate that we may hear from a slightly more dovish Fed than the market had been anticipating. Could be he is growing concerned over the rate of change in the bond market. Could also be that there are some growing concerns about the economy beginning to surface. Lastly, the stock market is now in full on correction mode with the NASDAQ down almost 2,000 points from its high just a few short weeks ago. Seasonally this is historically a very good month for the stock market. In those few times in history when January was a down month, the market has struggled the entire year. The stage is certainly set for a tough market in 2022. Powell cannot feel good about watching trillions of dollars of consumer wealth bleed out of the economy. When 401ks take a big hit, especially for the massive amount of baby boomers, we spend differently. There is no way a declining stock market will NOT cause pain to the economy. Add to this higher rates and higher prices and you have the perfect scenario for GDP to go negative. This all ends well for interest rates. Further, I personally believe that housing will once again dodge the recession bullet. Assuming of course the stock market does not fall too much and that GDP does not fall too far. At the moment, I do not see a problem. I do see a softening GDP and more selling pressure in stocks in late spring.
Please remain safe and healthy, enjoy the weekend and first, make today great.