The government shut down Thursday night at midnight, but reopened just a few hours later as the bill passed the House with the President signing around 7:40am CST Friday morning. Looking at the details of the bill, “…the two-year deal that raises spending levels $300 billion above the caps implemented in both the 2011 Budget Control Act and the Bipartisan Budget Act of 2015. Defense spending will now increase $165B ($80B in 2018, $85B in 2019) and an additional $131B will go to nondefense spending ($63B in 2018, and $68B in 2019).” It also contains spending authority through March 23rd when Congress is expected to have appropriated the newfound money and pass another spending resolution.
Uncertainty is the market’s worst enemy. Once the “memo” was more bark than bite, markets began to focus on higher interest rates, higher inflation, volatility spiking, and stock portfolio’s rebalancing. Adding to the snow ball effect was global stock market selling which began what traders call, “rolling thunder.” First of all, this is not the end of the world. It’s simply a correction within a bull market (stocks). Fundamentals such as earnings, tax reform appreciation, repatriation of overseas dollars, and an overall better economy are great for us and for stocks. Interest rates will do what they need to do to facilitate borrowing, but without inflation, they won’t go up much.
Where are we now? We believe we are in the exhaustion phase of both stock and bond trend moves. We believe the bottom is somewhere between ~2.88% and 3.03% on the 10yr, and expect to see some relief in the short-term as levels continue to be very oversold. Until we see a lower break in yields, defense continues to be your best plan of attack. Lock in those loans and don’t get caught out in the storm. Looking ahead to next week, the economic calendar gets off to a slow start, but picks up midweek with the release of CPI and Retail Sales.
Oscar Busch
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Oscar Busch Mortgage Loan Originator |
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