Tag: recession

Apr-5-blog

Market Commentary 4/5/19

damon Damon Germanides
April 5, 2019

The highly watched Monthly Jobs Report put to rest concerns about a slowing economy as the report beat estimates with 196,000 jobs created versus 177,000 expected.

This data should put to rest for now fears on a looming recession and thus help boost stocks and slightly lower bond yields. Unemployment remained at a multi-decade low of 3.80% and hourly earnings rose to 3.20% year over year from February (which is bond-friendly as wage inflation remains tame). The Labor Force Participation Rate (LFPR) remained unchanged at 63.20%.

In other good news,  the yield curve steepened. The potential flattening of the curve was a major concern just a few weeks ago, as that would be a sign of impending recession. However, a positive sloping yield curve is an indicator of a healthy outlook for the economy. Also, China and U.S. trade talks appear to be going well for the moment which has also helped stocks move higher. However, concerns remain as global economic growth has slowed in Europe, China, and Japan as central bankers continue to provide massive stimuli to their respective economies to spur growth. Finally, a Brexit deadline is looming in what is turning out to be a very complicated matter. So far, the markets have not been spooked by a no-deal Brexit, but that could change as the deadline approaches.

Here in the U.S., low rates have spurred home buying and refinances. We recommend taking advantage of the low interest environment because if the U.S. economy continues to surge, the Fed rate hike conversation will be back on the table. With this thought in mind, we remain biased toward locking-in interest rates at these very attractive levels, especially with the strong jobs report confirming no recession and the positive chatter regarding U.S. and China relations coming out of Washington.

Mar-28-blog

Market Commentary 3/29/19

damon Damon Germanides
March 29, 2019

Declining mortgage rates have spurred refinance activity, as well as increased the probability of a strong spring home buying season. With inflation in check and the Fed on pause, interest rates should remain attractive for the foreseeable future. However be on the alert as rates may have bottomed and hit resistance in moving lower after rallying greatly since the beginning of the year.

Fears of global economic activity slowing continue to weigh on bonds. The recent drop in rates has pushed several wealthy nations debt to trade at zero % or below. In the U.S., the 10-year Treasury bond briefly dropped below 2.4% this week and the 3 month to 10-year Treasury yields inverted, a potential ominous signal of a looming recession should the inversion hold. An inverting yield curve has predicted most recessions and the inversion is the result of fears of economic growth globally as well as a lack of inflation.  These fears will keep investors on their toes and may create a more volatile rate environment in the coming months.

Given that we believe most of the concerns we’ve mentioned are priced in, we are biased toward locking in rates at these very attractive levels. Any unexpected good news could move rates up higher quickly.

Mar-21-blog

Market Commentary 3/22/19

damon Damon Germanides
March 22, 2019

The highly anticipated Fed meeting this past Wednesday did not disappoint.  The Fed went “max dovish” in their policy statement by stating no more rate hikes for 2019 and possibly only one rate hike in 2020. Many market watchers actually believe the next Fed move in interest rate policy will be lower, a far cry from just this past December where the Fed believed that two more rate hikes were likely for 2019.  Less understood but equally important was the Fed’s timeline on the end of the balance sheet run-off, which will be ending later in the year.

Bonds responded as expected as both government and mortgage bond yields fell precipitously.  Stocks responded with caution, falling Wednesday, rallying Thursday, and as of the time of this post, falling hard on Friday.

What’s next?  The big question being asked is what does the Fed see that others don’t with such a quick shift in policy.  Low rates will help borrowers buy new homes, cars, refinance debt, and also aid corporations, but the return of low rates due to the fear of either a brewing U.S. recession or quickly slowing European, Japanese, and the Chinese economies is quite worrisome.  Longer-dated German bunds have gone negative for the first time in quite a while, and our own 10-year U.S. Treasury bond is trading at 2.45%, well below the 3.25% seen just a couple of months ago.

For those who qualify, low rates are another bite at the apple, which will help boost the spring buying season, as well as spur refinances, which will result in more savings or more disposable cash flow to buy other items, so in that sense we are grateful to the Fed.

Should the U.S. avoid recession (keep an eye on the flattening yield curve), rates at today’s levels are very attractive, but should the U.S. slip into a recession, expect rates to fall lower.  At the moment, we are in a wait-and-see mode on rate direction and would not be surprised if rates were headed lower.