Good Thursday AM,
It is an interesting day in the markets. Unemployment claims were far less (better) than predicted. That should have been a win for stocks and taken a bite out of bonds. Markets though are singularly focused on economic data today (or for that matter Covid vaccines). They are more about timing than anything. Most know the incredible run up cannot be sustained and is likely to fall. The question is when. Calculating that timing is mission critical. Tech is starting to have trouble with Apple and Tesla hitting the skids (both recently announced stock splits, which in theory do not impact prices, although they clearly impact sentiment). I can get technical about the long positions vs short positions or buyers vs sellers but suffice to say, that pendulum is moving toward the dark side. Bonds are benefitting with the 10-yr back to .62% (.63% is an important line in the sand and we need to close below it today and tomorrow to confirm the move to lower yields is supported and not trading volatility) and mortgage bonds +26bps. The one cautionary point is tomorrow brings the BLS jobs report. The single biggest economic report of the month and is typically a market mover. It may be a good day to lock ahead of tomorrow’s potential volatility.
We know who our clients are:
Despite tight housing inventory across the country, Millennial purchase activity continued to rise in July, according to the latest Ellie Mae Millennial Tracker. Share of all purchase loans closed to millennials reached 61% for the month, up five percentage points from June. This increase marks the highest purchase share for the generation since March.
And an apology to our children and grandchildren… U.S. debt has reached its highest level compared to the size of the economy since World War II and is projected to exceed it next year, the result of a giant fiscal response to the coronavirus pandemic. The Congressional Budget Office said Wednesday that federal debt held by the public is projected to reach or exceed 100% of U.S. gross domestic product, the broadest measure of U.S. economic output, in the fiscal year that begins on Oct. 1. That would put the U.S. in the company of a handful of nations with debt loads that exceed their economies, including Japan, Italy and Greece. This year the ratio is expected to be 98%, also the highest since World War II. The surge in borrowing so far isn’t creating angst among investors or hampering the U.S.’s ability to borrow more. Investors have gobbled up U.S. Treasury assets, drawn to their relative safety. Moreover, interest rates are expected to remain low, suggesting the government still has plenty of room to borrow. The U.S. passed the 100% debt-to-GDP mark, measured on a quarterly basis, in the April to June quarter, when government spending surged to combat the new coronavirus and tax revenue plunged. But this would be the first time in more than 70 years for it to do so for the federal government’s full fiscal year. The last time the U.S. debt level exceeded economic output was in 1946, when it stood at 106% after years of financing military operations to help end World War II. He only positive thing I can say here is that we know interest rates will remain low so the debt can be serviced!
Please remain safe and healthy, make today great!