Market Rally Hits A Speed Bump
Markets rallied through Thursday this week. Financial conditions felt loose, whether it was a high-flying IPO, a tight-spread bond trade, or a huge day-trade bet, with plenty of risk-taking across asset classes. The Fed, for its part, held rates steady, choosing patience as it waits for a clearer signal from inflation or jobs data before making its next policy move.
Friday’s jobs report delivered a jolt. The numbers came in sharply below expectations, rattling confidence and pushing investors to rethink the “all-clear” narrative. Adding fuel to the uncertainty, Trump’s latest tariff announcement landed the same day, further muddying the outlook for growth and trade.
We expect to see some better pricing on mortgages across the yield curve following the sharp drop in yields, after the jobs report. That said, the overall economy still appears resilient; consumer confidence is rebounding, corporate balance sheets remain healthy, and despite frustration over the cost of living, consumers continue to spend. With that backdrop, the recent rate dip may prove short-lived if the data turns stronger in the coming weeks.
The odds of a Fed rate cut in September are back on the table after Friday’s dismal jobs numbers. Wednesday’s Fed meeting had market participants thinking a rate cut was unlikely. With inflation still trending above the Fed’s 2% target, will the Fed flinch and lower interest rates out of fear of a slowing economy, or hold steady given that inflation is still elevated? Also, even if the Fed lowers short-term rates, how will the year 10 Treasury react? We will know much more in the coming weeks.
While much of the U.S. economy is service-driven and less sensitive to higher rates, housing and commercial real estate remain directly impacted. The 10-year Treasury continues to be elevated relative to pre-pandemic norms, keeping mortgage and construction financing expensive and weighing on both consumers and investors. Limited housing supply—especially in major markets with little new construction underway—continues to challenge affordability and transaction activity.
