Stocks surged mid-week in response to some positive news regarding the news that the U.S. and China may be returning to the negotiating table on trade talks. Also, the U.S. economy, while slowing, appears to be in pretty good shape for the moment. The August jobs report was lower than expected but had no real effect on stocks and bonds. The unemployment rate held steady at 3.70%, and while the report suggests the economy is slowing, there were no real surprises within the report.
However, multiple mixed signals regarding recession persist. It is hard to reconcile the various reports as there many cross-currents on the direction of both the economy. Interest rates and bond yields are flashing different signals. Recently published manufacturing data in the U.S. is worrisome and support the need for lower rates to boost growth, but better than expected economic data out of China suggest otherwise. An inverted yield curve in the U.S. (indicating a potential recession) support the argument that U.S. interest rate policy may be too tight, but low inflation and low unemployment suggest that interest rate policy may be near neutral and on target. Strong consumer spending and high levels of small business optimism argue strongly against the recession outcome, while a global slowdown and negative yields in Europe and Japan are an ominous signal of a recession or worse in the coming 24 months.
What has been great for many homeowners or those buyers sitting on the sidelines is that low-interest rates are either lowering monthly expenses or helping new home buyers qualify for a bigger mortgage or a better quality home. We continue to be in the rate-lock camp and continue to advise clients to take advantage of the 10-year Treasury note at ~1.500% which has pushed loan rates way down.